Is India ready for MVNOs?

This is the second post on the series: The advent of MVNOs and discusses the MVNO environs in India!

A few months back, Sunil Bharti Mittal (CMD, Bharti - Airtel) went on record saying that the MVNO model will not find many takers in India (read report). The idea was that with the kinds of tarriffs prevalent in India, MVNOs will not be able to sustain business and be profitable. The fact that Virgin Mobile's foray into MVNO platform has not been as hugely successful bears this statement for the timebeing. But in a long term basis, can MVNOs be ruled out of the country?

A study of 16 countries where MVNOs have been operating for a few years now, conducted by Diamond, a global management consulting firm has some interesting pointers in terms of emergence of the MVNO business models in India.
1. The threshold mobile penetration levels (for the emergence of MVNOs) in these markets are around 40%! --> Markets typically disply a level of mobile penetration above 40% at the time of launh of the first MVNO.
2. Higher levels of industry wide consolidations favour the launch of MVNOs.
3. Less competitive markets (high levels of dissatisfaction amongst consumers) favour MVNOs (because they cater to new customers and innovative solutions).

India with its fastest growing telecom subsribers status is typically a mash of various degrees of penetration. On one end, the A category circles have 70 - 80% penetration ratios and on the other end, C category circles are at 15 - 20% penetration status. Thus India is to be seen a collection of 23 separate markets instead of a single homogenous market when assessing the opportunity for MVNOs. The Cat A and B circles are over ripe for MVNOs and there are states, where the MVNO business would not be as effective given low penetration levels. Also the tarriffs are getting rapidly commoditized and if its were not for the consolidation, these tarriff would be close to unprofitable! Number portability could rapidly increase churn in the eco-system, unsettling the top rug high ARPU consumer bases with the existing operators.

Within these set of circumstances, there may exist an opportunity to serve users better or serve a high profit niche segment. With the penetration levels at 32% nationally and tarriffs touching lows, the MVNO route may be a key differentiator and an access to higher premiums. One needs to be define MVNO at this time. A re-selling, re-branded plain vanilla will not be attractive to users. In the case of Virgin, it has done some excellent work in associating itself with a category of customers. However, its proposition is based on cost which by itself is not the best way to differentiate especially if you are re-selling airtime.

Thus it is important, that the MVNA and MVNE route is taken to differentiate oneself in this market! Healthcare sector is one lucrative idea for MVNA/E, so is department of posts and telegraph, railways, banking etc. There is a need and necessity for including this diversity into the existing eco system. This would constitute differentiated service to consumers for which they would be ready to pay premiums. A focussed attempt centred around the metros and high penetration areas can also keep costs under control and if the collaboration within the players in the eco system is good, can lead to high profit businesses.

Should we reconsider the model once more, Mr Mittal?

The third part of The advent of MVNOs will deal with the legal challenges of establishing this business in India.