summer project final2

Symbiosis Institute Of telecom Management, PUNE

A project report

On

MVNO: An Indian perspective

For

Confederation of Indian Industry

Under the guidance of

Col. Vikram Tiwathia

(CIO) CII

TOWARDS PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF

POST GRADUATE DIPLOMA IN TELECOM MANAGEMENT

Submitted By

Nitin Gautam

Symbiosis Institute of Telecom Management Pune 411016

2007-09


Table of content: 1. Executive summary

2. Company Profile 3. Telecom market in India: an overview

3.0. Introduction 3.1. Historical perspective 3.2. Current scenario of telecom in India 3.3. Broadband in India 3.4. Regulatory and policy issues 3.5. Technological challenges 3.6. Spectrum policy in India 3.7. Factors for sustaining development and growth

4. Infrastructure sharing in India

4.0. Introduction 4.1. What is infrastructure sharing 4.2. Why is infrastructure sharing important 4.3. Infrastructure sharing models 4.4. Infrastructure sharing technologies

5. Key Issues related to infrastructure sharing

5.0. Commercial consideration 5.1. Competition and the Extent of Infrastructure Sharing 5.2. Reasons and history of network sharing and outsourcing

6. Concepts

6.0. Infrastructure sharing between operators 6.1. MVNO, MVNE and resale 6.2. Outsourcing 6.3. Exit strategies and outlook

7. MVNO: An Indian perspective: 7.0. Introduction 7.1. MVNO: Definition 7.2. Different MVNO models

8. Emergence of MVNO in market and other opportunities

9. Mobile penetration and market readiness for MVNO

9.0. Level of Mobile Penetration 9.1. Level of Industry Consolidation


10. Regulatory considerations impacting MVNOs

11. Other regulatory issues MVNOs facing in India

11.0. Issue of Licence 11.1. Eligibility Conditions 11.2. Spectrum sharing 11.3. Entry fees

11.4. Service Obligations of MVNO

12. UAS LICENSE CONDITION 12.0. Scope of service 12.1. Roll out obligations 12.2. Mergers and Acquisitions 12.3. Substantial Equity 12.4. Foreign Direct Investment (FDI) 12.5. Bank Guarantees 12.6. Products and services offered by MVNO

13. Products and services offered by MVNO 14. Test plans for technical solution

14.0. General Aspects of Testing Execution 14.1. SIM- cards, mobiles and other test equipment 14.2. Test Configuration (Hard- and Software) 14.3. Future testing aspects

15. Use of SS7 -technical competence and security requirements

15.0. Technical requirements 15.1. Skill Requirement 15.2. Personnel clearance 15.3. Security requirements

15.3.1. Physical security 15.3.2. Confidentiality declaration 15.3.3. Document security 15.3.4. IT security

16. MVNO global initiative 16.0. Mission and Rationale: 16.1. Technical description 16.2. MVNO in EU

16.2.1. Introduction 16.2.2. Regulation 16.2.3. MVNO business strategy guidelines 16.2.4. Business strategy scenarios 16.2.5. MVNO strategies and their features


17. International experience of MVNO in different countries 17.0. Hong Kong 17.1. Japan 17.2. Netherlands 17.3. Malaysia 17.4. France 17.5. Singapore 17.6. Pakistan

18. Case Study: Virgin Mobile in India

19. Case Study: MVNO in Finland 20. Price agreement affecting the MVNO

20.0. The MVNO and MNO relationship 20.1. The Network Operator’s Choice of Market Channel 20.2. Third Party Price Structure

21. Future of MVNO

21.0. Future MVNOs 21.1. Future drivers for growth

22. Key challenges and issues concerning MVNO 23. Recommendations 24. Conclusion

22.0. Obstacles 22.1. Key questions for the operators 25. References


1. Executive Summary: Objective:

i. To study the concept of Infrastructure sharing and implementation of MVNO worldwide.

ii. To study the growth the MVNO model by Indian perspective. Abstract: - The telecom market in India is the second largest in the world meeting with the global standards with only China ahead of India. Presently the Indian telecom sector is slated to an estimated contribution of about more than 1% to India’s GDP and about the 25 % in total service sector contribution. Switching away from copper lines to optical fibre installation and wireless mobile networks have come to forefront and are still domination the Indian telecom market. The already shining Industry is seeing the appearance of MVNO (Mobile Virtual Network Operator). MVNO becomes a reality only with a concept of Infrastructure sharing. India with it’s diverse geographies and huge demographic and a very lucrative telecom market with huge potential is forcing the mobile network operators to come to India and operate and for that the route of MVNO is most suitable because it offers lower infrastructure build up costs, spectrum acquisition costs, less time to roll out plans and no regulatory issues to tackle. As of now the deployment of MVNO in India is under the considerations of TRAI and Dot and regulations regarding the implementation of MVNO have been given to the mobile operators. Background: - India started its economic liberalisation program in 1991. In 1994 the first step to opening the Indian telecom market to private players was taken by announcing the first national telecom policy. The first license for wired and wireless segments to private players was sold in 1995. From than the Indian telecom market have crossed many milestones and suffered many stumbles that taught various valuable lessons. The effective telecom tariffs that are applicable in India are the lowest in world and have come down from whopping Rs. 14 per minute to as low as Rs. 0.50 per minute in last 10 years. This is the major reason for the astonishing increase in the number of telephone connections (wired and mobile) in all these years to about 250 million subscribers today. The ministry of telecom have set a target of reaching to 500 million subscribers till the end of 2010 and achievement of this target will take the tele density to about 45% from 22% today.


Though India has crossed the figure of 250 million subscribers including both wired and wireless phones in 2008 but the teledensity of India is still low with only 22 out of 100 having phone connection of any type. This number is also highly skewed toward the relative wealth of cities in India. The rural teledensity in India is still 6% while the urban teledensity has crossed the 505 mark and it is 56% today. But with the expanding middle class and rising of the income level the demand of for telephone services is growing beyond carrier’s ability to keep up. With respect to the rural connectivity the government’s objective is to reach 80 million or 1 phone connection per 2 household rural telephone connections by 2010 India faces huge challenges to keep all its population well connected because of the large percentage of its population still living in rural areas. But that is the market segment which is still untapped and has huge growth potential in terms of revenue and subscriber base. That is the reason every company want to enter in to the Indian telecom market to capitalise on the growth opportunities and that is the place where the concept of MVNO comes into picture. According to the latest news from the TRAI the entry of MVNO in India has been approved and plans of being roll out to get the first mover advantage. The implementation of MVNO goes along with the concept of infrastructure sharing and this study project report deals with infrastructure sharing and MVNO in detail. This report also covers the regulations imposed on MVNOs all over the world and MVNO model of various countries have been studied for reference of it’s successful implementation in India. Methodology: - The project report was conducted through one main channel. Secondary sources:- Most of the data used in this project report has been attained by reviewing most of the market research available on MVNO, including

• Numerous articles in magazines and papers • TRAI • World MVNO Forum • White papers on MVNO implementation • And various other resources mentioned in the project report


2. Company profile

About CII

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in India's development process. Founded over 112 years ago, it is India's premier business association, with a direct membership of over 7000 organizations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 362 national and regional sectoral associations.

A facilitator, CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialized services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programs. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few.

CII's theme of 'Building People, Building India' puts the spotlight on Human Resource Development: making people more efficient, entrepreneurial and innovative, to make India and Indian industry even more competitive, across all sectors of the economy and all sections of society, at all levels – Global, National, Regional, State and Zonal.

With 60 offices in India, 8 overseas in Australia, Austria, China, France, Japan, Singapore, UK, USA and institutional partnerships with 271 counterpart organizations in 100 countries, CII serves as a reference point for Indian industry and the international business community.


Vision of CII

“To be a catalyst towards building India as a developed nation by 2020”.

Perspectives: CII strongly believes that partnership and cooperation between industry, government and civil society is the key to economic and social development of India. In this idea of a knowledge driven world, where technology continuously re-defines even the most basic tenets of life, business paradigms are changing at an astonishing pace. At CII, all our efforts are directed towards harnessing and leveraging the power of technology to change communication, business and business procedures, connect knowledge to procedures and hence, impact profits and the lives of common citizens for the better. Essential prerequisites for this to happen are wider, more holistic perspectives and greater participation in policy formulation by all concerned groups. Our policy advisory and consultative services cover intra and inter-industry discussions, industry-community parleys and industry-government meetings, all aimed at giving the whole policy making process a better business focus and more representative hue. We have over the years created several credible, generic and focused fora for meaningful dialogue covering various aspects such as finance and taxation, foreign direct investment, banking, insurance, WTO and international trade, disinvestment, small and medium enterprises, defence, elections and industrial relations. CII's Annual National Conference has established itself as the major interface between all sections of government, academia, society and industry. It is here that policy and opinion makers come together on a common platform to discuss and brainstorm on issues relevant to sustained development and its equitable distribution. The event provides a unique opportunity to take stock of initiatives taken over the past year, unveil new plans and set the charter for the years ahead. India Economic Summit organized annually since 1984, in partnership with World Economic Forum is South Asia's most prominent annual gathering of decision makers, industry and thought leaders, senior representatives of leading global corporations and international investors. Deliberations at the Summit centre around India's ongoing reforms process, the opportunities and concerns. Informal discussions and opinions shared here serve as a global barometer for the same.


Infrastructure is the yarn that weaves the fabric of an economy. Investments in telecommunications, surface transport, roads, highways, ports and airports have emerged as key imperatives in India's efforts to derive maximum benefits from economic reforms. CII's Infrastructure Council seeks to establish public-private partnerships for sound strategizing and faster operation efficiency of plans, the idea being to dovetail corporate managerial skills and expertise with government financial resources and reach. Investor friendly legal and regulatory policy frameworks, risk mitigation, resource mobilization and centre-state harmonization are critical issues that CII continuously addresses during its interactions with governments and institutions. CII Council for MNCs has been set up in recognition of the crucial role being played by multinational corporations in global integration and overall development of the Indian economy. The council looks after the interests of over 498 organizations and holds regular discussions with key government officials. It has made a strong case for a single window clearance system for all investment projects as a step towards making India a more attractive destination for foreign direct investment. Small and medium enterprises are key drivers of the Indian economy. They generate substantial employment and have earned global recognition for cost effectiveness and technology adaptation. CII works towards keeping small industry at the forefront of change with updates on latest technologies, market opportunities and finance. Our MoU with the Small Industries Development Bank of India (SIDBI) helps promote ancillary linkages. CII has also evolved a unique, tailor-made cluster approach to help SMEs implement ISO 9000 quality systems. WTO Advisory Services are provided by experts at the International Trade Policy Division who track all relevant developments at international fora. Participation at all WTO Ministerial held thus far and ongoing exchanges with counterparts in Europe, Japan and the USA add value to their opinions and shared perspectives. In addition to providing key inputs to government representatives at multilateral negotiations, the division also assesses WTO asymmetry and compliance at individual companies and undertakes detailed studies of WTO impact on specific sectors and companies. CII's Public Policy Committee strives to build consensus on contentious economic, political and social issues. Firm in its belief that an economy built on consensus is an economy headed for success, the committee engages in dialogue with Members of Parliament, political parties and NGOs on issues as diverse as electoral reforms, impact of globalization, good governance, patents regime, WTO and communication convergence.


The National Committee on Defence works very closely with the Ministry of Defence towards achieving self-reliance in this sector. It seeks to establish a strong partnership with the defense services to enlarge the role of Indian industry in defence production and supplies. A major achievement of CII's sustained efforts has been the opening up of defence production to the private sector in certain categories. We have also organised CEO Missions overseas and domestic vendor development programmes to explore business opportunities. Strategies: - CII's strategies for holistic integration of industry with the needs of society are built around the four prongs of policy advocacy, global integration, commitment to society and competitiveness of industry. The common factor in all its activities is partnership across a cross-section of organizations, including government, non-governmental organizations and international bodies. Working with and learning from diverse institutions, CII has strengthened the services it provides to its members as well as society at large. Initiatives: Economies around the world are aligning themselves to the requirements of rapid globalization. In a global village, where market accessibility is no longer a hurdle, the tough part is capturing market shares and retaining them. Only those, who have adopted global quality standards leveraging their intellectual capital have managed this feat. Guided by this fact, CII has embarked on smarter initiatives that enhance competitiveness of Indian industry by underlining the need for rapid up gradation on parameters like quality, corporate governance, knowledge management, energy efficiency and environment management. All this is not only to increase productivity and profitability but also to enhance the quality of life of the community. Different divisions and councils of CII develop and undertake new services for the business community and beyond.

Specialized Services Division aims to provide solutions to organizations not just for their competitiveness needs, but also to help them become more self reliant by helping them develop flexible strategies that cater to changing needs. Corporate Services Group assists companies maximize corporate and shareholder value through a range of activities covering. Consulting, Research Projects, Knowledge Based Events and Research Papers.

Energy Management Division provides its expertise to domestic as well as overseas organizations. The range of services offered includes:


comprehensive energy audits, in-house and centre-wise intensive training programs, specific energy consumption norms, 'Energy Conservation (Encon)' missions and international conferences / exhibitions on trends in energy efficiency.

Environment Management Division facilitates the utilization of national and international expertise through seminars, workshops and training programs. It undertakes a wide range of programs & awareness activities covering legal and technical aspects including design and implementation of Environment Management systems as per ISO 14001, OHSAS 18001 and SA 8000. Pollution Prevention and Waste Minimization Initiatives, Green Supply Chain Management, Environmental Performance Evaluation, Strategic Environmental Assessment, Sustainable Development and Environmental Planning, Hazardous Waste Management, Site Feasibility Assessment etc. are some of the other services offered. Green Services Division operates through the Green Business Centre (CII-GBC), offering niche Green Services to Indian industry. The objective of the CII-GBC is to promote Green Concepts leading to sustainable development, efficiency and equitable growth. Services offered: Green Process Certification, Green Building Certification (advisory services on construction of green buildings and award of Green Building certificate), Technology Centers, and Training Programs on Green related topics and business incubation – facilitating entrepreneurs in developing and marketing new and innovative Green products for commercialization.

Role CIIs primary goal is to develop Indian industry and to ensure that government and society as a whole, understand both the needs of industry and its contribution to the nation's well being. For this, we work

• To identify and strengthen industry's role in the economic development of the country

• To act as a catalyst in bringing about the growth and development of Indian Industry

• To reinforce industry's commitment to society • To provide up-to-date information and data to industry and government • To create awareness and support industry's efforts on quality,

environment, energy management, and consumer protection • To identify and address the special needs of the small sector to make

it more competitive • To promote cooperation with counterpart organisations • To work towards the globalisation of Indian industry and integration

into the world economy


This is done by adopting a proactive and partnership approach with the government on various national and international issues concerning the Indian economy. It closely interacts on policy issues at both the central and state levels. Extensive dialogue and interaction with members and all sections of the community to build consensus are held. Missions of CII In the last few years, CII has also stepped up its engagement on a wide range of issues that it identifies as being of national concern and priority. 4 Missions have been launched: on Manufacturing Innovation, Knowledge and Skills Development, Sustainable Growth and Inclusive Growth.

1. Manufacturing Innovation The Mission on Manufacturing Innovation was begun to inculcate Innovation as a way of life in Indian business. Global competitiveness is being promoted through global partnerships for learning sessions with leading international practitioners in innovation.

2. Knowledge and Skills development The Mission on Knowledge and Skills looks to "Promote a Sustainable Framework that would assist Industry across sectors in developing Knowledge and Skills abilities in its Workforce to International standards."

3. Sustainable Growth The Mission on Sustainable Growth proposes to promote and champion sustainable growth in Indian Industry, without compromising on high and accelerated Growth."

4. Inclusive Growth The Mission on Inclusive Growth facilitates Inclusive Growth for Sustainable and Equitable Growth. The Bihar Project focuses on the Samastipur district, one of the 100 most backward districts. Yet another unique project is the Art-North-East Project, an initiative by CII and NEDFi to provide market linkages for handlooms and handicraft products from North East. The project has had direct and indirect benefits for 7100 families. The Rural Business Hubs project is taking off with the institution of many partnerships. 4 RBH Pilots projects initiated range from fruits in Nainital, Jathropa Cultivation for Bio diesel in Haryana to carpet weaving and 'Blue Pottery' from Rajashthan.


Information and Communication Technology (ICT) Information and Communication Technology (ICT) is a major driver of the economy and its development in turn stimulates economic growth across all sectors of the economy. India is striving to leverage the benefits of ICT for widespread and sustained economic development. And, among other things, multi-national companies are desirous of reaching the huge Indian ICT market and investing and partnering with Indian companies for worldwide opportunities The ICT Division of CII aims to make the Indian ICT industry world class by –

• Continuously providing a platform to understand worldwide developments / best practices in ICT and adopt them.

• Taking up issues and concerns of the Indian ICT industry with relevant National and State level ministries.

• Coming up with studies, reports and surveys to help understand the potential of Indian ICT market and the issues faced by it.


3. Telecom Sector in India: An Overview

3.0. Introduction The republic of India is the second most populous country of the world after China with its population estimated to be around 1.1 billion. The form of government in India is parliamentary democracy. Owing to its huge and young population (average age 27 years) the industrial development in India is one of the fastest in world today. After the economic reforms in 1991 the Indian economy has grown by leaps and bounds and is one of the fastest growing economies of the world. The average rate of growth of Indian economy in last 5 years has been hovering around 8.5% to 9% thus making it one of the most lucrative market of the world. The telecom market in India is growing at a very fast pace after the telecom reforms took place in 1996. The annual growth of mobile cellular services recorded in India during the last few years has been nearly 100 percent, but all this expansion of services and networks has so far been mainly in urban areas whereas the vast rural areas, where 70 percent of the population lives, have very low coverage. Similarly the penetration of Internet and broadband services even in urban areas is below the targets set by the Government and the industry. Convergence is on the horizon and modern trend is towards greater mobility with increasing data rates Starting from the late 2000 India has emerged as the centre of excellence for the BPO and IT enabled services and is termed as the world’s back office. The Indian telecom market is the second largest telecom market in the world after China. The total number of mobile phone subscribers in India has already crossed 250 million. The growth rate of addition of subscribers is about 45% which is termed as phenomenal by various industry experts. The average number of subscribers that are added to mobile network in India every month is about 7.5 million. The rate of growth in the wireless segment in India is about 85% and wired segment is about 16%.The national teledensity as on august 2007 was 22% which was less than 2% in 1996. The rural teledensity stands at 7% while the urban teledensity in India is 57%. Thus the rural untapped market in India is open for the mobile operators. Apart from that communication access is provide by 5.4 million PCOs and 0.5 million VPTs. The internet penetration in India is little below par and stands at about 9 million subscribers with 2.5 million having access to internet through broadband. Out of the 5,000 cities, more than 1,000 cities in India have been connected by broadband so far.


The hierarchy of telecom ministry in India is

The department of telecommunication (DoT) is in charge of policy formulation and licensing issues while telecom Regulatory authority of India is the regulatory body for all issues related to Indian telecom. The whole country is divided into 28 circles including 4 metro circles. Depending On the number of subscribers, ARPU and rate of growth, these circles have been categorised as A, B or C circles. There are 6 major and 8 minor telecom players in the country. 3.1. Historical Perspective of Indian telecom Sector: - The Indian telecom market witnessed the monopoly till mid 1980’s that gave way to rising competition. In the year 1994 the first national telecom policy was introduced and the gates were open for the private players to operate in India. Telecom Regulatory Authority of India was set up in the year 1997. The new national telecom policy was introduced in the year 1999. In the year 2000 TDSAT (Telecom Dispute Settlement and Appellate Tribunal) was established to resolve and settle any dispute between the mobile operators. 3.2. Current scenario of telecom in India Total 8.74 million telephone connections have been added during January 2008 as compared to 8.11 million connections added in December 2007. The total number of telephone connections reaches 281.62 million at the end of January 2008 as compared to 272.88 million in December 2007. The overall tele-density is 24.63% at the end of January 2008 as against 23.89% in December 2007.


In the wireless segment, 8.77 million subscribers are added in the month of January 2008 as against 8.17 million subscribers added in the month of December 2007.This is a highest ever addition in a month till date. The total wireless subscribers (GSM, CDMA & WLL (F)) base stood at 242.40 million at the end of January 2008. In the wireline segment, the subscriber base has slightly decreased to 39.22 million in the month of January 2008 as against 39.25 million subscribers in December 2007. (Subscribers are in million)

Source: TRAI (Press Release No. 20/2008)

Growth Of urban and rural teledensity in India: -

Source: Department of telecommunication


Indian mobile industry growth:-

. Source: Frost & Sullivan India 2007

2000 2001 2002 2003 2004 2005 2006 2007 GSM Annual Growth Rate

94%

78%

110%

70%

87%

57%

80%

61%

CDMA Annual Growth Rate

--

--

--

700%

70%

75%

131%

81%

Source: Frost & Sullivan India 2007


3.3. Broadband (≥ 256 Kbps download) Growth: Total Broadband subscribers base has reached 3.24 million by the end of January 2008 as compared to 3.13 million by the end of December 2007.

The broadband subscriber's growth is tabulated below:

Source: TRAI (Press Release No. 20/2008)

Thus the above data can be summarized as

• Total Telecom Subscriber base ~ 281 million. • Total Wireless Subscriber Base ~ 242 million. • Subscribers Addition inches towards 9 million per month. • Wireless Subscribers addition touches new peak of 8.77 million per

month. • ARPU < 350 Rs/Month. • Broadband continues to grow in the country. • Tele-density reaches 24.63%.

3.4. Regulatory and Policy Issues

The concept of an independent regulator is comparatively new in developing countries, as privatization and competition itself are recent changes from government controlled services. Separate regulators have been created in almost all the countries of this region during the last seven years only. In India, the Telecom Regulatory Authority of India (TRAI) is functional since January 1997, with a view to provide an effective regulatory framework and adequate safeguards to ensure fair competition and protection to consumer interests. Making the regulator independent is a slow progress in India as in most countries. Presently the main role of TRAI is that of an adjudicator and arbitrator, whereas the Department of Telecommunications (DOT) looks after policy making, licensing and coordination. Recent worldwide explosion of mobile communication systems can lead to a most effective key technology for solution of telecommunication issues in bridging digital divide in the developing world. The demand for cellular communication services in India can be divided in two segments. In metros


and big commercial centers, the demand is for latest 3G cellular mobile services having all the features like video, streaming, high-speed data etc. In due course, the existing CDMA 2000-1x networks are expected to get upgraded with EV-DO service. Soon global positioning technology will also be part of mobile services. However for masses in cities as well as for people in rural and sub-urban areas, the demand will remain mainly for voice along with data services to get information the users need.

3.5. Technology challenges Recent worldwide explosion of mobile communication systems can lead to a most effective key technology for solution of telecommunication issues in bridging digital divide in the developing world. The demand for cellular communication services in India can be divided in two segments. In metros and big commercial centers, the demand is for latest 3G cellular mobile services having all the features like video, streaming, high-speed data etc. In due course, the existing CDMA 2000-1x networks are expected to get upgraded with EV-DO service. Soon global positioning technology will also be part of mobile services. However for masses in cities as well as for people in rural and sub-urban areas, the demand will remain mainly for voice along with data services to get information the users need. The wireless industry is focusing its attention to developing countries as the matured markets of developed countries are reaching saturation. A number of cellular equipment manufacturing companies are developing GSM/CDMA based Wireless local loop products with low-end handsets and low cost cellular infrastructure that are cheaper to deploy as pre-integrated and pre-configured base stations mountable on towers. The incumbent fixed line operators and new entrant private operators have all diversified into cellular mobile services in urban areas. But the deployment of infrastructure for fixed services in rural areas is very difficult and costly; hence the use of wireless services will be easy and more cost effective in the rural market. W-CDMA and CDMA2000-1x family is emerging as IMT-2000 standards for 3G. For 3G high-speed access to business critical applications, laptop and PDAs need to be upgraded to 3G. These services will find enough market amongst 300 million people living in metros and big cities in India. But the success of 3G in India will depend on the pricing of spectrum, launch of cost effective services and availability of 3G handsets. For rural folks and poor people in urban areas, tabletop PCs are more suitable in community information centers, as majority of rural households cannot afford a personal connection. At present neither technology yet offers ubiquitous access to the net and hence is not a true mass-market service. When we talk of beyond 3G, we


should actually develop heterogeneous wireless network architecture using 3G and WLAN technologies. The connectivity should be transparent to mobile handsets, laptop PCs, PDAs as well as to table top PCs. In village community info centres, it should be possible to connect PCs with its full size monitors and printers to 3G wireless socket connection.

3.6. Spectrum policy in India Mobile communication is one of the most important developments in the recent times. The current technological developments promise high speed data services based on Internet Protocol (IP) as well as greater capacity and efficiency. The 3G platform provides converged voice, data, Internet and multimedia services supported by high data rate. The single global standard for third generation wireless technology and network, based on ITU initiative is International Mobile Telecommunications – 2000 (IMT-2000). In India CDMA-2000 1X EVDO and Wideband Code Division Multiple Access (WCDMA) are accepted as Universal Mobile Telecommunication System (UTMS) for 3G services. According to the National Frequency Allocation Plan of India, the requirement of IMT – 2000 (3G) applications in the frequency bands 1885 -2025 paired with 2110 – 2200 MHz is to be coordinated with the existing users initially for 1920 – 1980 MHz paired with 2110 -2170 MHz (FDD mode) and 2010 -2170 MHz (TDD mode) depending on the market needs and availability, as far as possible. So far the spectrum is being allotted to mobile operators as per the subscriber base criterion. In the existing licensing framework in India, the licensee is required to pay one time entry fee for the license which also includes fee for usage of spectrum. The licensee also pays annual spectrum charges and annual license fee, which are on revenue share basis as a percentage of AGR. The Government of India is going to call for bids soon for 3G networks and expects an amount of US $ 1.8 billion from the auction. In addition, operators will be required to pay Annual Spectrum Charges at one percent of Aggregate Gross Revenue. The Government of India has finalized financial compensation package (US $ one billion approximately) for Armed Forces to vacate the spectrum required for wireless services and to migrate to alternate frequencies.


3.7. Factors for sustaining development and responsible growth

In the next five years, more people in India who do not have any phone will be getting mobile phones. The mobile communication has contributed more than any other technology to bridge the digital divide. The prominence of mobile handsets in the daily lives of people of all age groups and all cross sections of society has created some aspects that are worrying the sociologists and drawing the attention of users, government and regulators. Health issues due to almost round the clock exposure to electromagnetic radiation and impact on environment with the rollout of 3G networks can affect the growth of mobile industry. Introduction of handsets with cameras has tempted some people to indulge in illegal or highly unethical activities even by school children. Millions of mobile handsets become outdated or beyond economical repair in almost all the countries of the world. There is still no clear methodology for the reuse of the material or recycling of such handsets. It is the corporate social responsibility to ensure that such schemes are developed and implemented for environmental friendly disposal / reuse.


4. Infrastructure sharing in India 4.0. INTRODUCTION

The telecommunications infrastructure sector is traditionally characterized by huge fixed, sunk and irreversible investment, often making telecommunications infrastructure investment a high risk undertaking. This situation is often made more unpredictable by the rapid introduction of successive generations of new technology. Operators are occasionally faced with a situation where even before recouping their investments in existing infrastructure they embark on further investment in a new generation networks of networks. This phenomenon is common in the mobile sector, particularly in the context of 3G services, where the high cost of licensing and equipment have left operators vulnerable at the early stage of network deployment.

In response to this phenomenon, policy-makers, regulators and operators are increasingly placing more emphasis on alternatives to the traditional high-cost infrastructure model by considering measures such as infrastructure sharing, domestic roaming and MVNO agreements. These measures can help reduce the financial burden on operators, accelerate the introduction of new services and facilitate the deployment of new networks while lowering barriers to market entry.

4.1. WHAT IS INFRASTRUCTURE SHARING?

The term Infrastructure Sharing generally refers to the sharing of airtime and/or network facilities between one or more operators. The objective of Infrastructure Sharing is to maximize the use of existing network facilities which can include network capacity and capabilities, existing base station sites, backbone, radio links, and other resources to reduce infrastructure duplication and costs.

Infrastructure sharing can take a number of forms. In its simplest form it can involve the sharing of space on masts and associated buildings or sites. Alternatively, sharing can be more extensive such as in 3G infrastructure sharing arrangements that involve two or more operators coming together to share various parts of their network infrastructure for purposes of service provisioning. Another variant can also take the form of national roaming where two or more operators reach an understanding that their respective subscribers can use each others’ networks when outside the geographical coverage of their home


network. Expanding the concept, Infrastructure Sharing can also extend to the co-location of network elements and the sharing of frequency spectrum for wireless-based telecom services.

4.2. WHY IS INFRASTRUCTURE SHARING IMPORTANT?

Infrastructure sharing is viewed largely as a measure to reduce costs. For example, experts at infrastructure manufacturers such as Ericsson and Siemens estimate that up to 40% of initial roll-out costs can be saved by sharing infrastructure in the case of 3G networks.

Together with savings on costs, Infrastructure Sharing can be used both in the start-up phase to build coverage quickly and in the longer term to build more cost-effective coverage in rural areas. Interest in infrastructure sharing can be expected to be at its peak in the start-up phase, when operators want to provide quick coverage in a large area while traffic demands are low and the costs for network deployment are relatively high. Infrastructure Sharing agreements, however, provide the highest savings in cases of low traffic demand where more efficiency is achieved by pooling resources. However, when network usage picks up, savings will decrease as each operator needs individual capacity. Taking the sector as a whole, Infrastructure Sharing can also promote greater service-based competition and reduce infrastructure duplication through the more efficient use of existing network facilities. It is important to note, however, that Infrastructure Sharing also has its limitations. Operators will necessarily cede some of their independence and their control over the network in exchange for cost savings. Networks will also become more complex and the ability of operators to compete on coverage will be curtailed.

4.3. INFRASTRUCTURE SHARING MODELS

As Infrastructure Sharing is particularly established in the mobile sector, the discussion of the different sharing models will use mobile networks as the context.

Mobile networks can be shared to different degrees. All parts of a mobile network can be shared between two or more network operators. This ranges from “passive” elements such as sites, towers, buildings and transmission links, through to radio transmission management, up to a common network infrastructure.


The most common and basic level of sharing occurs when two or more mobile operators share sites, with each putting up their own radio masts and installing their own equipment (site sharing). Usually, the space on masts and antennae are also shared. Partners that share sites may share all site related infrastructure which includes ownership rights or right to-use of the site, building or shelter, tower or mast, the power supply and battery backup, cabling and antennas and transmission equipment.

Site sharing is suitable for densely populated areas with limited availability and expensive sites, such as underground subway tunnels, as well as for rural areas with their associated high costs for transmission and power. Regulators often promote site sharing in order to allow new operators to build their networks more easily by re-using existing sites.

It is interesting to note that mast and antennae sharing have the backing of some environmental groups as it reduces the impact they have on views, particularly in rural areas.

Beyond the site sharing level, the base station equipment, which manages the transmission of signals over the mobile network, can also be shared. In such a scenario, each operator deploys its individual licensed frequency and deploys its individual cells, including individual control and network management, while sharing facilities such as the Radio Base Station (RBS), Radio Network Controller (RNC) and transmission.

In the case of 3G networks, for example, this level of sharing could include the sharing of the Node B and the Radio Network Controller (RNC)


The next level in Infrastructure Sharing involves the sharing of a common core network (network sharing). In this scenario, a common network – both circuit switched and packet oriented domain – is shared by at least two operators. In such a case, the operators typically share the RBS, RNC, mobile Services switching Centre/Visiting Location Register (MSC/VLR) and Serving GPRS Support Node (SGSN). Each operator, however, has its own individual home network that contains the independent subscriber databases, services, subscriber billing and connection with external networks (see Figure 2). The Common Shared Network is actually one network with additional capacity for the sharing operators’ traffic demands. This Infrastructure Sharing arrangement can result in considerable savings for the network, but adds complexity to the planning and core network deployment because two or more operators have to be handled. Sharing of common network

On top of this, there is also one further level to Infrastructure Sharing involving the sharing of all customer databases and billing information. This, however, normally


takes place only in a close relationship, such as in a partnership with a mobile virtual network operator Network Ownership Beyond the choice between the different models for Infrastructure Sharing, operators also have a variety of ownership models to choose from when distributing shared resources resulting from Infrastructure Sharing arrangements. These typically take the form of one of the following options:-

o Master/slave(s): one operator owns the shared resources and leases its use to the other party or parties involved;

o Joint ownership: all parties have equal access to the shared resources, e.g. through the formation of a joint venture company, and

o Third party ownership: the build-out and ownership of shared resources is done through an independent network

4.1. INFRASTRUCTURE SHARING TECHNOLOGIES

Many new technologies that make sharing easier are emerging. Quintel, a joint-venture between QinetiQ and Rotch, the UK property group, has been set up specifically to capitalise on its mast-sharing technology. This enables five or six operators to share radio masts. Quintel's technology was originally developed by the UK-based defence Evaluation and Research Agency (from which QinetiQ was spun out) for use in military situations where lots of antennae are crowded together, much as they are on battleships. The technology also enables the antennae to be tilted in the direction that best fills out each operator's network footprint. Antennae for different operators, which are in effect mounted on a single tower or positioned in a belfry window, can be tilted in different directions from each other. New technology for sharing the electronics normally housed in a base station at the bottom of a mobile antenna is also emerging in the form of base-station (BTS) hotels. BTS hotels enable the electronics from a number of base stations to be grouped together as far as 10-15 miles away from the antennae they serve. This cuts down on the cost of maintaining the electronics and on services such as power and air-conditioning - and it also means engineers do not have to travel to so many remote sites. A BTS hotel could include five 3G base stations, four 2G base stations and a Tetra (Terrestrial Trunked Radio) base station. The base stations could be linked to 10 antennae and have shared access to the fixed network.


5. KEY ISSUES RELATED TO INFRASTRUCTURE SHARING There are a number of important issues related to Infrastructure Sharing. These relate both to commercial as well as regulatory aspects of Infrastructure Sharing.

5.0. Commercial Considerations Infrastructure Sharing should be a win-win situation for participating operators and it should also give them a competitive advantage over other operators in the market. As such, prospective sharing partners should look at their specific market situation, their rollout strategies and the benefits they seek to gain when considering an Infrastructure Sharing arrangement.

In general, a cost benefit analysis would have to be undertaken before entering into an infrastructure sharing arrangement, particularly when determining the extent of co-operation between the operators and the sharing model to implement (i.e. deciding what facilities or services should be shared). Depending on the sharing model selected, different levels of savings can arise, usually at the expense of freedom of control over network resources. The freedom to plan and control network evolution, in particular, should be a key consideration when entering into an Infrastructure Sharing arrangement. Despite the positive effect Infrastructure Sharing would have on initial capital expenditure, infrastructure sharing would reduce the operators' ability to evolve their networks at a later stage. In addition, considerations that must be taken into account by operators considering Infrastructure Sharing should also include the determination of a suitable ownership structure over shared facilities.

Given the fact that Infrastructure Sharing is typically entered into with a competitor, the protection of commercially sensitive data from the operators sharing the network will also have to be assured. More importantly, an exit strategy should be defined in case the market situation changes, or if traffic increases, making it more beneficial to deploy an independent network. A clear exit agreement allows operators a smooth migration to individual networks. 5.1 Competition and the Extent of Infrastructure Sharing As noted above, Infrastructure Sharing arrangements have the potential to increase the level of competition in the marketplace by lowering infrastructure


related barriers to market entry and by encouraging service-based competition. Nevertheless, a significant concern has been raised regarding the potential for Infrastructure Sharing to also lower the level of competition in the marketplace, depending on the extent of Infrastructure Sharing arrangements. Infrastructure Sharing arrangements may affect the competitive independence of operators in the market as a result of the network integration bred by such co-operation. Different countries have adopted different approaches in order to safeguard the level of competitive independence between co-operating operators. Measures include mandating a distinct and differentiated cost base between operators; the development of different business plans, marketing and distribution strategies; and the independent development or acquisition of content and services. Requiring the independent control over the respective frequency resources of each operator is also an important competitive safeguard.

In the EU, for example, operators are allowed to share infrastructure as long as they maintain full operational control of their network. Sharing the radio access network is permitted, but sharing frequencies and the core network is not. In particular, the databases used to administer subscriber and interconnection information are required to be kept separate (see Box 2). Exemptions, however, are generally granted in special cases which advance the objectives of government policy and the economic benefits to the consumers of the services. It is important to note that any infrastructure sharing agreement could also be subject to review by the EC Commission under Article 81 of the EC Treaty and/or the EC Merger Regulation 5.2. Reasons for and history of network sharing and outsourcing: ‘Network sharing’ has been one of the most frequently used buzzwords in the mobile Industry during the last two years .Often used as a synonym for any strategy aiming at cost reduction of network expenditures related to the rollout and operation of 3G networks, it has been advocated sharply following the first 3G auctions, evaluated by many different players in the developing 3G market and is now reviewed critically as we are getting closer to implementation. The discussion was not only fuelled by the huge 3G license costs in many countries, especially for the auctions in 2000,but also by the economic downturn as well as increasing doubts about the timely availability of 3G networks and handsets and the demand for them. All these reasons forced operators to increase their focus on the costs associated with the rollout and introduction of 3G. The idea of offloading parts of the network infrastructure from the stretched balance sheets suddenly appeared as a key or in many cases evens the only way to handle the 3G ‘burden’ when the technology markets started their downturn in 2000. The resulting ideas were not all that


new - most of the concepts which were now discussed under the label ‘network sharing’ have been around for quite some time during the 2G rollout in the 1990ies. The concept of infrastructure sharing between competing mobile operators, being the main concept discussed in this context (at least in the beginning), has been used at site level during the second half of the 2G rollout, fuelled both by the limited availability of new sites as well as increasing environmentalist pressure on operators and regulators. The concept of MVNOs (mobile virtual network operators) and service providers co-operating along the same mobile value chain has also been in use in the 2G world in different forms and countries. Finally, the concept of infrastructure outsourcing, especially on tower level, has been one of the key enablers of rolling out 2G networks in North America and built a successful industry there which soon started to export the trend to the other major markets. Sharing and outsourcing concepts enable mobile operators to focus on their core steps along the value chain

Source: Arthur D. Little

An important driver of the ‘network sharing’ discussion can also be seen in the ’roadmap’ for 3G, as it was initially set. After years of gradual activity (one network after another) for rolling out 2G and 2.5G networks around the globe, suddenly all major operators in a double-digit number of countries planned to launch 3G in 2002/03. This caused a substantial capacity issue, especially with equipment suppliers and integrators, and again fuelled the discussion for reducing this burden also by reducing the number of elements and networks required – ‘network sharing’.


6. Concepts

6.0. Infrastructure sharing between operators: -

The concept of infrastructure sharing between operators, which, at the basic level of site or mast, has been well known from the 2G rollouts in many countries, was reviewed by greenfield as well as incumbent operators. The need for an increasing number of base stations (multiple times the number of GSM base stations) for a 3G network made the approach more attractive. With up to six license holders, even in smaller countries, competing for sites in many countries, the access to sites or towers became one of the focus points of operators’ rollout strategies. While governments had to incentivise operators to share infrastructure in 2G, now operators asked the regulators to weaken the requirements for independent infrastructure. Equipment suppliers reacted soon by offering 3G RAN (Radio Access Network) packages prepared for infrastructure sharing. Together with different forms of site sharing, shared UTRANs (UMTS RAN) were the most important option reviewed. More progressive scenarios like gateway core sharing or even fully shared networks were discussed especially and in most cases exclusively among greenfield operators looking for a “least cost approach” to roll out 3G networks. While being technically possible, these concepts where rejected by regulators due to the severe impact on competition and confidentiality issues. Geographic sharing, which does not include the sharing of network elements but of regions to be covered, was discussed especially in countries with tough requirements on geographic coverage 6.1. Concepts – MVNO, MVNE and resale Another group of strategic concepts reviewed in the context of network sharing and outsourcing was the approach of splitting the activities across the mobile value chain over two or more players (i.e. a network operator and a MVNO) with different focus areas. This addressed two important aspects in the 3G environment: It provided a (in many cases theoretic) loophole for players who wanted to participate in the 3G market without acquiring a license. Due to the high license cost in many countries this approach was considered by multiple potential players. In addition a greenfield operator with a niche market focus could use a part of its spectrum to provide immediate revenue. While reseller concepts have been around for many years in some countries with different success and will continue to do so in 3G age, MVNO concepts, which involve at least a separate core network for the market focussed player, were now reviewed in detail by players with a strong brand considering participating in the 3G market. Recently also more progressive MVNE (mobile virtual network enabler) concepts have been proposed by some consortia of finance and industry players in Europe. These concepts


involve a third party that focuses on providing back-office as well as network functions for a reseller while outsourcing the sites and possibly also parts of the RAN. So far these initiatives have not yet shown any tangible results. 6.2. Concepts – Outsourcing: -

A key problem with infrastructure sharing as well as MVNO / service provider approaches is the competitive aspect – with both concepts there is at least a slight risk of negative effects on the competitive position of an operator. An attractive alternative to avoid this problem is to transfer the ownership of a share of the network equipment, for example the sites, to a ‘neutral’ outsourcing partner, for example a so-called tower company. Operators become more and more convinced that due to increasing competition for sites there is limited strategic advantage in owning the sites to keep other operators out – especially since regulators are becoming more and more likely to force operators to let competitors in. By outsourcing tower operations, the operators can concentrate on serving their customers, while freeing up capital. While the concept of tower business has been extremely successful in the 2G rollouts in North America, building an industry with strong players like American Tower, Crown Castle and Spectra Site, the development in Europe has been comparably slow – so far. The 3G rollout is likely to change this situation over a short time – while the established tower companies from the U.S. position themselves in the European market, large real estate owners like railway or highway companies in multiple countries also consider bringing their resources to the market. Also equipment vendors and construction companies try to position themselves in this market. The resulting competition has lead to an increasing service portfolio (as shown in Exhibit-2) of tower companies for the 3G rollout. Starting with radio planning, it gives the client an overview of where the sites should be located - the site search order can be created. In the second step, site identification is performed and contact with real estate owners is made. The site identification result proposes two to three potential sites per nominal site. A technical evaluation is then performed on the sites concerning construction and radio transmission perspectives. Site construction and equipment installation makes out the next phase. In this step civil work design and construction is performed. Also installation of transmission and radio equipment can be included in this phase. Finally, site leasing and billing, site management services, maintenance and even ownership of infrastructure and radio equipment, operation and maintenance of parts of the RAN can also be included


A tower company can relieve the operators from many of the site activities related to UMTS network rollout.

Source: Arthur D. Little

The resulting portfolio now offers operators an opportunity to load off a substantial part of their initial investment – without endangering their competitive positioning. This advantage is especially critical for greenfield operators without an existing basis of sites but can also be valuable for an incumbent player in need of additional sites. Advantages and disadvantages:-

So far the market is not yet fully clear whether to support network sharing and / or Outsourcing to identify it as a potential risk. Due to the variety of approaches behind these labels a clear judgement is difficult. For an operator there are mainly three factors defining whether an agreement is beneficial - at least in the short to medium term view the strongest argument, which in most cases is also shared by investors, is the argument of expenditure reduction. In general all network sharing and outsourcing strategies imply some sort of financial savings, although in most cases only in a short time frame. Here the second argument comes in, which addresses potential competitive advantages and disadvantages. By this argument, outsourcing is clearly more beneficial, since it can give an operator potentially exclusive access to sites but poses no risks like the confidentiality issues that appear with network sharing. Considering the third argument, flexibility, outsourcing also shows


more advantages, since outsourcing players are more likely to offer customised services required by an operator than operators offer each other. When reviewing the recent developments on the markets in network sharing, MVNO approaches and outsourcing, these arguments seem to be reflected. While network sharing was reviewed intensively by many operators, greenfield as well as incumbent, the number of larger deals that materialised so far is limited. Those agreements which are realised, for example in Sweden (3GIS and UMTS-nät geographic sharing agreements), are often fuelled more by the specific conditions in a national market or even the specific situation of one player, as in the case of Telia, than by pure economic considerations. The situation is different for sharing agreements without a geographic focus, like the BTDT co-operation, but still remains limited to countries with specific market conditions, in this case extensive license cost. MVNO and resale agreements also seem to require specific market conditions. Those agreements which have been realised so far are influenced more by the historic development of the specific markets, where these kinds of co-operations were already utilised in 2G, than by 3G specific arguments like cost pressure and increased site demand. Examples for this development can be seen in the German as well as in the UK market. It is possible that this will change once the 3G market is fully established and some of the non-mobile players who announced their interest to participate in 3G engage into new MVNO agreements. Whether these players will utilise the MVNE concept will depend upon the specific market conditions as well as on the future positioning of MVNE (offering) players. For the outsourcing trend, the situation is different. While the developments in network sharing and MVNO strategies are limited to specific players in specific conditions, outsourcing is likely to become a major trend also in Europe. With players like Bouygues, Vodafone, Amena, Swisscom currently looking for or already engaging into major outsourcing deals, a situation like in the US, where the majority of mobile towers is owned by tower companies and not by operators, is likely to become reality in Europe, too.

6.3. Exit strategies and outlook: - A question that results directly out of the advantage network sharing and outsourcing can bring for an operator – mainly the reduction of required initial investment – is the question of exit strategies. While investors value an attractive business case especially the recent developments in the technology markets have shown that a credible and realistic exit strategy is required to control the risk of an engagement. Looking at potential exit strategies for network sharing and outsourcing deals, a


relatively clear split becomes obvious: As sharing and outsourcing agreements at site level become more and more common, these kinds of agreements also involve a comparably lower degree of risk. Due to the rapid development of the site and tower market, these elements can be acquired, although with some effort, on the market. Thus, an exit strategy out of a sharing or outsourcing agreement at site level seems possible, at least on a limited scale. For deals involving a geographic focus as well as for RAN sharing and, to a limited degree MVNO deals, a credible exit strategy is more difficult to define. From the current perspective, many questions regarding aspects of network sharing, like ownership of (different) shared resources, interoperability or procedures concerning the treatment of confidential data like resource utilisation and traffic load remain open. Addressing these issues will be critical for all players who are proposing larger scale network sharing or MVNO agreements to their investors. While the future roadmap for outsourcing, in particular on smaller but also on larger scale, is now quite clear, it still needs to be defined how and to what extent especially larger, multinational operators will engage in network sharing. There are definitely huge potential savings in a broad implementation of network sharing, not only focussing on ‘niche’ markets with specific conditions. Nevertheless operators still need to define a stable business case and a clear roadmap to utilise these potentials. The success or failure of the network sharing agreements which are currently being implemented will lead the way for the concepts applicable in the next wave of rollouts in countries with delayed licensing or developing nations.


7. MVNO: An Indian perspective: 7.0. Introduction: - Department of Telecommunications (DoT) has sought the recommendations of Telecom Regulatory Authority of India (TRAI, hereinafter referred the Authority) regarding Mobile Virtual Network Operator (MVNO). The recommendations have been sought on the need and timing for introduction of MVNO as well as terms and conditions of the license to be granted to such operators. Liberalization of the Indian Telecom Sector began in the year 1991. The Indian Telecom Network today is the second largest network in the world after China. As of 31

March 2008 there are more than 300 million telephone connections in the country of which 261 million are mobile connections. Approximately 8 million mobile connections are being added every month. The teledensity which was less than 1 per hundred in 1984 is today over 26 per hundred. The target is to achieve 500 million connections by year 2010. Till date most of the subscriber additions has been from the urban areas. In future it is expected that there would be significant additions from rural areas. As the market grows both geographically and in numbers the user requirements also vary significantly. The various categories of users are now clearly emerging with different preferences. One view point is that it is difficult for a large operator to service such diverse requirements effectively and these may get better addressed by niche operators who can cater to specific customer segments. They have better knowledge of the local market. The framework of wholesale and retail becomes relevant. The Authority had given its recommendations to allow resale in the International segment i.e. International Private Leased Circuits (IPLC) in December 2005. These have been accepted by the Government and the Government (Department of Telecom) requested the Authority to give its recommendations on terms and conditions for the resale in the IPLC segment. The Authority gave its recommendations on terms and conditions for resale in the IPLC segment to the Government in March 2007. The decision of the government is awaited on this. MVNO figured during the consultation process on Infrastructure Sharing. The

key comments of the stakeholders were following:

• Active infrastructure sharing is not a pre-requisite for launch of MVNO


• MVNO should be allowed to access the core network of the cellular

operators which will result in CAPEX and OPEX saving and optimal utilization of resources,

• MVNO can go with the customer services development whereas the network operator can concentrate into the development of core network,

• Indian market is not ripe for introduction of MNVO. The Authority gave its recommendations on Infrastructure Sharing in April 2007. Based on these, the Guidelines on Infrastructure Sharing have been issued by DoT on 1

April 2008. As per the Guidelines – “Sharing of active infrastructure amongst Service Providers based on the mutual agreements entered amongst them is permitted. Active infrastructure sharing will be limited to antenna, feeder cable, Node B, Radio Access Network (RAN) and transmission system only. Sharing of the allocated spectrum will not be permitted. The licensing conditions of UASL/CMSP to be suitably amended wherever necessary to permit such sharing.” The Service Provider can share passive infrastructure in accordance with the provisions of license of BSO’s, CMSPs and UASL. The procedure for SACFA clearance has been further simplified. The concept of MVNO has been prevalent in other countries since 1990s and to date there are in excess of 300 such service providers registered throughout the world, the majority of which can be found in Scandinavia, UK, Germany, France, Australia, USA, Hong Kong and Malaysia. 7.1. MVNO: Definition- MVNO model has gained popularity in the last few years. MVNO operates through commercial arrangements with licensed Mobile Network Operators (MNO). The MVNO provides the telecom service under its own brand to the subscribers. MVNOs do not have their own spectrum. The key difference between a simple reseller or a franchisee and MVNO is that MVNOs add value and sell either niche or generalized value added services to subscribers. There is no uniform definition on what constitutes a MVNO. Regulatory bodies around the world have adopted various definitions and different forms of regulatory intervention depending on the extent to which an MVNO relies on the facilities of the MNO. According to the Finnish Ministry of Transport and Communications the difference between MNO and MVNO is that the latter lease the right of use of radio spectrum from the licensed mobile network operators.


Some of the definitions adopted by different organizations are:-

MVNO Directory A mobile network operator without a physical land based infrastructure, such as base stations, with the country where the MVNO operates.

Oftel An MVNO is an organization that offers mobile subscription and call services to customers but does not have an allocation of spectrum.

ITU A mobile Virtual Network Operators (VNO) is an operator that offers mobile services but does not own its own radio frequency. Usually, this operator has its own network code and in many cases issues its own SIM card. The mobile VNO can be a mobile service provider or a value-added service provider.

Pyramid Research …..MVNO provides mobile voice and data services to end users through a subscription agreement, but which does not have access to the spectrum ….

Malaysian Communications & Multimedia Commission (MCMC)

….an organization that does not have assignment of 3G spectrum but is capable of providing public cellular services to end users by accessing radio networks of one or more 3G spectrum holders….

OVUM An organization that offers mobile services to customers, has its own mobile network code, issues its own SIM card, operate its own MSC, does not have its own radio frequency allocation.

Office of the Telecommunications Authority of Hong Kong (OFTA)

At a highest level an MVNO may be viewed as an organization that offers mobile subscription and call services to customers but does not have an allocation of spectrum, rather it relies on hosting its service on a licensed Mobile Network Operator.

US Federal Communications Commission (FCC)

An MVNO arrangement is one in which “a network operators acts as a wholesaler of airtime to another firm, which then markets itself to users just like an independent operator with its own network infrastructure.”


Generally the MVNOs deliver their own SIM cards and take care of branding, marketing, billing and customer care. The difference arises whether an MVNO has its own infrastructure such as:-

• Mobile Switching Center (MSC) • Home Location Register (HLR) • Intelligent Network (IN) Platform.

Or does not own infrastructure but based on services provided by it such as:-

• Only pre-packaged services. • Tariff and service design control or • Service implementation and differentiation

The level of technical independence defines the services and the differentiation the MVNO is able to offer. Common in both approaches is that the more service creation elements an MVNO has, the more ‘true’ MVNO it is. Considering the Indian telecom scenario, following broad definition for MNVO could be considered: “MVNO licensee is an entity that does not have assignment of spectrum for Access Services (2G/3G/BWA) but can provide wireless (mobile) Access Services to customers by sharing the spectrum of the Access Provider (UAS/ CMTS licensee)”.

7.2. Different MVNO models: In general MVNOs can be grouped in four (non exclusive) ways:

• Facility based • Target market • Strategy based • Plan based.

Facility based MVNOs:- Facility based MVNOs have some network infrastructure of their own whereas non-facility based MVNOs do not own any network facilities and are, thus pure resellers. Target market based MVNOs: - It has two categories: those that operate as discount MVNOs and those that service life style based market niche segment. In the face of intensifying mobile (and in particular pre-paid) competition the long term sustainability of pure discount based strategy by


merely offering low prices without any form of product differentiation may have to be closely evaluated. In contrast, life style MVNOs target specific niche markets demographics and differentiate their services from those offered by their competitors. The purpose of adding value for members of the niche market segment that they serve is to increase the long term viability. Strategy based MVNOs:- These are categorized according to their specific categories. The strategies of these categories of MVNOs may vary widely. For example, they may consist of low cost international MVNOs, brand extension MVNOs, sub prime credit MVNOs, youth focused MVNOs and network carrier MVNOs. Again the ultimate purpose of the different strategies is product differentiation and market segmentation. Plan based MVNOs: - These may further be divided in two categories i.e. whether they offer pre-paid or post-paid plans. A MVNO can adopt a range of business models to “go to market.” At one extreme, it could act as a “Pure Reseller” wherein it re-brands an MNO’s service using its own brand name and sells through its distribution channels. On the other hand, it could adopt the role of a “Pure MVNO” in which the MVNO either buys or partners with third parties to provide all elements of the MVNO value chain beyond the spectrum and network infrastructure (Figure 1). The decision to adopt a given business model is governed by several factors including, the targeted scale of the business, level of in-house telecom expertise, extent of initial investment that the MVNO is willing to make, and the level of risk the MVNO is willing to undertake. The early MVNOs such as Virgin Mobile and Qwest in the U.S. had to build their own back-office processes and platforms to complement an MNO’s network. They accomplished this either by purchasing platforms and operating them in-house or through dedicated partnerships. However, with the increasing number of MVNOs entering the market a number of third parties emerged who could provide relevant processes and platforms (BSS/OSS). These service providers are referred to as Mobile Virtual Network Enablers (MVNEs). The MVNO business model deployed in different countries vary depending on the local conditions and the regulatory regime. While some MVNOs operate their own core network infrastructure including switching, Home Location Register (HLR), billing, customer care, value added services platforms and intelligent network systems, other MVNOs simply repackage network operators’ services and issue their own SIM cards by relying almost completely on the host network’s facilities with a little product differentiation. Accordingly the three types of MVNO models have been differentiated as:


• Full MVNOs: which provide their own network core including a Mobile Switching Center (MSC)

• Intermediate MVNO: which acquire a switched service, but either provide their own home location register (HLR) or share a jointly owned HLR with an MNO

• Thin MVNOs: which only provide additional applications and content

and which are not much different from pure resellers or service providers? These thin MVNOs are also called Enhanced Service Providers.

The borders between these three different types of MVNO are illustrated in Figure below Different type of MVNOs

Source:


Diamond believes that as mobile markets mature, there will be an opportunity for sever Indian companies with strong brands and loyal customers (e.g. leading national banks) and those with extensive distribution infrastructure (e.g. the Indian Postal Service) to offer their own brand of mobile communication services. However, most of these companies neither have the wireless expertise nor the risk appetite to make significant capital outlays for the wireless business. To facilitate cost-effective and rapid deployment of such services, a class of Mobile Virtual Network Aggregators (MVNAs) who act as intermediaries between multiple MNOs, handset providers and back-end platform providers on one hand, and potential MVNOs on the other, may emerge. MVNAs could dramatically reduce the time to market and lower the risk profile of launching an MVNO.


8. Emergence of MVNO in market and other opportunities:- The introduction of MVNO is seen as a natural progression towards enhancing free market principles and contributing to the efficient use of existing telecommunication infrastructure. The mobile value added services are still evolving. While the potential of mobile technologies is undeniable, new value added services are constantly emerging widening the range and types of service offerings and pricing plans, the likely applications and usage. Correspondingly, the possible types of services an MVNO might offer and the role they would play in the emerging market would also expand. It is observed that the entry of MVNO in the mobile market raises the level of competition by providing consumers with a wider choice of service providers, a wider range of innovative value added services and more competitive pricing plans. The goal for an MVNO is to make profit through fulfilling the expectations of the chosen customer segment so that the customers experience a level of service that satisfies their needs. An MVNO could compete in the market with the MNO. In such a scenario what could be the motivation for an MNO to share its network with the MVNO? International experience shows that there is a valid business case for MNOs and MVNOs to work together. It may be very difficult and too expensive for a large MNO to offer successfully a number of value added services particularly the niche ones, while for an MVNO it could a successful business proposition. MVNO could provide access service including various types of value added services in some remote areas or specific towns where MNO may not have its presence. An analysis of the mobile service providers in India clearly indicates that there is a steady decline in the Average Revenue Per User (ARPU). The ensuing graph shows the trends in ARPU for the GSM service providers.

The ARPU is decreasing every quarter. The mobile operators have to look for alternate sources to boost their revenues. A number of value added services like ring tones, picture downloads, game downloads etc. are contributing significantly to the revenue of mobile service providers. These are simple


value added services which a large MNO can manage on its own. However, there are several niche value added services like booking and delivery of tickets (air, rail, cinema etc.) which can be efficiently offered through a good distribution network which is well spread out in the service area. Also an MVNO who has a well recognized brand name in some other area would have good acceptability. Such MVNOs would help the MNO to widen and deepen its market. Generally, it is said that, markets which are sufficiently mature and tending towards saturation of demand and where excess capacity is available in the networks are the situations where introduction of MVNO would add value for the customers and the operators. However, it is not limited to this alone. In markets like the Indian Mobile Market, which is highly competitive, the customer acquisition is becoming increasingly difficult and complex. The supply chain or the present network of retail outlets are unorganized barring the company outlets which are limited in number. In India many of the 22 service areas have large geographical area and a single service area i.e. circle is comparable to an average European country. An MVNO with a strong retail chain may be able to address the issues of customer acquisition and customer care more effectively in its niche area of operations. The fact that many of the existing MNOs are already outsourcing a number of its activities, reiterates this aspect. Thus, there can be significant benefits to MNOs that offer MVNOs wholesale access to their mobile networks. The benefit arises principally in the form of:

• Extending mobile services to market segment with which MNOs have not had much success previously;

• Market expansion by reaching entirely new or previously un-served/ underserved market segment or geographical area;

• Better network utilization and realization of economies of scale; • Lower operational cost; • Effective product bundling and cross selling.

The points of concern for MNO would be:

• Cannibalization of the MNOs market share by MVNOs

• Backlash from poor MVNO performance;

• Adverse selection of MVNOs for partnering purpose;

• Greater customer churn.


While some MVNOs emerge from within the telecommunications industry itself, many others actually may have no prior connection with that industry. For example, the latter type of MVNO may be an airline, a sporting goods company, a broadcast or Entertainment Company, or a seller of popular beverages. The main idea is that such an entity attempts to leverage its popularity and brand appeal with certain segments of the population to cross-sell telecommunications (and, in particular, mobile) services. Although it may not own network facilities or have any special expertise in providing telecommunications services, an MVNO helps to take the MNO’s mobile services beyond a purely telecommunications context. It is this use of cross-over brand appeal that sets an MVNO apart from an ordinary reseller and helps to bind customers. But, MVNOs also help that process along by providing specialized services to niche market segments that MNOs serving broader market segments cannot address efficiently. In this scheme of things, the market segments that MVNOs reach may produce either lower or higher Average Revenue Per User (ARPU) than the traditional MNO, but there is always the possibility of additional positive profits (not just revenue) that require introduction of MVNO. Viewed another way, in this scenario with both product differentiation and price discrimination, overall consumer interest is better served by market deepening and widening. The Indian mobile telephony marketplace is composed of an extremely varied clientele. Service plans and tariffs respond to a wide range of incomes, usage characteristics, and demographics. However, there is little in terms of service differentiation and innovation in the Indian market place. Most of the business is in voice telephony or short message services (SMS). There is a huge potential to identify and serve niche and special segments of the market, such as children, students, different segments of businesses like the stock market, the elderly or people with disabilities, or business travelers. Hence, MVNOs have the potential to add to current offerings of the mobile services; they will allow an increase in the competition for service provision and benefit consumers by reducing prices and improving the range of services offered. MNOs are typically telecom firms and they might not have the same brand equity or marketing reach in rural areas as some fast moving consumer goods (FMCG) or services organizations (the railways, public sector banks, or post). If these organizations can become MVNOs, they might be able to extend their own service offerings in rural or semi-urban India and simultaneously assure revenues for MNOs in these areas. This could push network deployment all across the country and hence drive the take-up of advanced wireless services. Hence, MVNOs might be a unique method to drive telecom penetration and subscriber base growth in non-urban areas.


9. Mobile penetration and market readiness for MVNO:- Highly penetrated markets with limited competition between mobile network operators may lead to a situation where some customer segments are likely to be “under-served” in specific aspects of their mobile experience. The dissatisfaction could come from either poorly tailored products and services or intangibles such as a mismatch between their individual lifestyles and what their operator’s brands stand for. An underlying reason for this phenomenon is that mobile network operators suffer from the limitations of a “one size fits all” strategy. Such a strategy may lead to some scale benefits and lower operating costs but is likely to cause some dissatisfaction amongst specific customer segments with specific needs and desires. In order to systematically understand the relationship between the level of penetration and the degree of competition between MNOs on the emergence of MVNOs, Diamond analysed data from 16 countries where MVNOs have been operating for a few years now 9.0 Level of Mobile Penetration: Across all markets, there appears to be a threshold in terms of mobile penetration after which MNOs are likely to partner with potential MVNOs. For the sample of countries we studied this threshold seems to occur at a penetration of approximately 40%. 9.1. Level of Industry Consolidation:- In general, higher levels of consolidation favour the launch of MVNOs. This is consistent with Diamond’s experience from customer satisfaction studies that indicate higher levels of dissatisfaction amongst customers in less competitive markets. Measured in terms of the Herfindahl-Hirschman Index (HHI), fourteen out of sixteen markets in the sample had an HHI of over 18% at the time of launch of the first MVNO, which would categorise them as “highly concentrated” according to the guidelines followed by the U.S. Department of Justice for antitrust enforcement. When viewed in combination, it appears that markets typically display a level of mobile penetration above 40% at the time of launch of the first MVNO, with varying degrees of market concentration (HHI indexes ranging from ~20% to 50%). Diamond believes that these differences in the degree of competition (and concentration) can be explained partly by the different policies followed by regulators in each market.


Mobile penetration and HHI at the time of first MVNO launch

Source: Diamond analysis

Source: Diamond analysis


10. Regulatory considerations impacting MVNOs:- The finite and scarce resource of radio spectrum puts a limit on the number of MNOs that can provide services. MVNOs share the spectrum with the MNOs. For introduction of MVNOs, the most important aspect is putting in place appropriate regulatory framework. Should the MNOs be required by regulation to open up their networks for MVNOs and if so, under what terms and conditions? Or, is the MNOs’ incentive to lease out their spare capacities sufficient to facilitate entry by MVNOs? In Austria, when one of the four incumbent MNOs opened up its network for MVNO, the other three incumbent MNOs complained to the regulatory authority that introduction of further competitors would be a violation of license conditions and had to be regarded as a hold-up on their specific investment into network infrastructure In the European Union, until now there is no directive that obliges MNOs to grant access to MVNOs. Currently while there is a tendency in favor of MVNOs, no major regulatory actions have been undertaken. Regulatory approaches towards MVNOs differ quite substantially between jurisdictions. While, for example, Ireland, Denmark and Hong Kong have made specific regulatory provisions for MVNOs, several Nordic countries require MNOs to provide network access in quite general terms. Other countries such as the USA, the UK, Australia and New Zealand have no access obligations. In Germany, MNOs are required by regulation to enter into wholesale agreements with MVNOs (who basically act as resellers). Differences in regulation also exist with respect to the MVNOs’ treatment. For example, some jurisdictions that mandate MVNO access require MVNOs to undertake some minimum investment into their own mobile infrastructure while others have very little infrastructure requirements. The advocates of regulated MVNO access argue that MVNOs may offer innovative service bundles and also facilitate downstream innovations by incumbent MNOs in response to an MVNOs market entry. One other view is that new entrants slowly climb up a ladder of investment if they can enter a market without burdensome investment requirements. Following this line of reasoning, regulated MVNO access may spur investment by new entrants. On the other hand, incumbents MNO’s investment incentives are likely to decrease if they have to share their facilities with competitors. Since forced access reduces the rents that an incumbent can appropriate from its investment, the incentives to invest will decrease so that mandated MVNO access may reduce investment by incumbent operators. At a minimum, the launch and operation of MVNO requires wholesale agreement with MNO, start up capital and capital to cover operational expenditure and consumer acquisition cost. If any of these requirements


proves to be a barrier to entry for new firms (MVNOs) attempting to enter the mobile market, such barriers are required to be addressed Apart from the barriers for entry of the MVNOs, there is a also need to analyze the exit barrier. The most important barrier to exit is posed by “sunk” asset i.e. asset that lack alternative uses. Not being facility based, MVNOs for the most part do not incur sunk cost or face exit barrier Wholesale network access and origination service provided by MNOs to MVNOs appear to fall within the purview of “access and call origination on public mobile telephone network for Significant Market Power (SMP) assessment”. Thus in determining the regulatory framework for MVNOs it is required to assess the level of competition in that particular market and determine when any particular MNO or group of operators posses SMP. The overriding concern of policymakers in many jurisdictions that leads them to contemplate requiring MNOs to provide mandatory wholesale access to MVNOs is almost invariably one about the power of the vertically integrated firm to exercise a price squeeze. Thus, if the wholesale service sold by that integrated firm is an essential facility, and retail competitors remain economically and technologically dependent on that integrated firm for that service, regulators must take the danger of price squeeze seriously. But, in such an environment, voluntary MNO-MVNO relationship simply cannot emerge. Accordingly, the empirical fact that such relationship are now widespread (including the linkup of certain MVNOs with multiple MNOs) reassures us that the conditions under which MNOs provide wholesale services to MVNOs are far from those that raise the spectre of price squeeze. Whether barriers to entry which a new entrant faces warrant regulatory intervention depends on whether the network of MNO is considered to be a showeable address. Market evidence in various countries indicates that mobile service markets are sufficiently competitive facilities are not monopoly controlled and can be economically and technically duplicated. Different regulatory models exist internationally for MVNO. In one model the MNO is required to share some percentage of its spectrum with MVNO. In some cases the sharing is mandated only for 3G services. In another model, the opening of their network by MNO is on voluntary basis and it is not mandated. There are cases where the MNO find it difficult to fill its network with their own subscribers and hence are eager to cooperate with MVNO.


11. Other regulatory issues MVNOs facing in India:- 11.1. Issue of Licence: As per the Section 4 of the Indian Telegraph Act, any entity providing a telecom service would require a license/ authorization from the Government for the same. As MVNOs would be providing telecom service to the customers under its own brand which would be different from that of MNO, a license would need to be issued to the MVNO under section 4 of the Indian Telegraph act. MVNO is basically reseller/subset of MNO. The range of MVNOs is really wide, the simplest being an enhanced franchisee of MNO to the full MVNO which is equivalent to the MNO itself with the only exception that the spectrum is not allotted to the MVNO. Therefore, the regulatory and licensing issues for MVNOs need to be discussed in view of the existing licensing provisions for MNOs.

11.2. Eligibility Conditions:- While prescribing the eligibility conditions for offering a telecom service, the factors considered are prior experience of the company in offering telecom service, the net worth and paid up capital of the company. These conditions are to ensure that the licensee company is able to roll out the network quickly and meet the roll out obligations. Also the company has to have the financial strength to set up the network and run it. State of the market conditions i.e. whether the market is opened up for the first time or already there are number of players in the market and the size of the market, are important while prescribing the eligibility conditions. Similarly the number of licenses that would be granted is relevant. In the case of MVNOs the international scenario shows that while some MVNOs are from the telecom industry there are many who have no prior connection with the telecom industry. The Company may use its strong brand name in another area such as sports, entertainment etc to address niche markets. Also the company with large retail networks may leverage it for extending telecom services. In the case of UAS licenses there is requirement of minimum net worth and paid up equity capital for each service area. These requirements were finalized taking into account the business potential of the service area i.e. the amount of investment that would be required to be made to set up the telecom network in the service area and meet the roll out obligations.


The MVNOs may not be offering service in entire service area of the MNO. For promoting the MVNOs an enabling regime should be there. The entry barrier should not be such that the genuine MNVOs are not able to make it. At the same time there should be some provision so as to encourage only serious players. In some countries where MNO is not mandated to share their network, the MVNO, besides meeting the eligibility conditions has also to conclude a commercial agreement with MNO before they can apply for a license. This is to ensure that MVNO is able to commence operations once license is issued. 11.3. Spectrum sharing:- MVNOs do not have any separate assignment of spectrum by the licensor. MVNOs share the spectrum of the parent MNO. So introduction of MVNO envisages spectrum sharing. In India, unlike in many other countries, the spectrum has not been auctioned so far. The access service licensees (UAS/CMTS) are eligible for start up spectrum for 2G services as part of their license. The start up (initial) spectrum is allotted to the licensees depending upon availability. Further allotment of spectrum (2G) is based on the number of subscribers (subscriber linked criteria) and availability of spectrum. For usage of spectrum the access service providers pay an annual spectrum charge which is a percentage of Adjusted Gross Revenue (AGR). The annual In the European countries and USA where MVNO has been permitted, the access providers have got the spectrum through auction. The Government of India has decided to auction the spectrum for 3G and Broadband Wireless Access (BWA). This will result in a situation where some of the MNOs would have spectrum only in 2G band whereas others would have part of their spectrum allotted to them as part of the license in 2G band and remaining acquired through the process of auction (3G and BWA). The MVNO could be sharing the spectrum in 2G, 3G and BWA bands. 11.4. Entry fees: - Two types of payments are associated with acquiring a telecom license – entry fee and annual license fee. The MNOs are required to pay an entry fee. This varies with the service area. The fourth cellular license was auctioned in all the service areas in 2001. The entry fee for each service area is equivalent to the entry fee paid during the fourth cellular license auction. The MNO is issued UAS license after payment of the entry fees. UAS licensees are eligible for allotment of initial spectrum in 2G, depending upon availability and subsequent 2G spectrum based on subscriber linked criteria and availability of spectrum.


11.5. Service Obligations of MVNO: - MVNO being a reseller of MNO, some of the service obligations of MNO’s may get passed on to the MVNO. The service obligations will be different depending upon the nature of infrastructure set up by MVNO. The service obligations of MNO are billing, customer care, national security requirements, quality of service, access to emergency services, subscriber verification, directory services, number portability, controlling of unsolicited commercial communications and tariff. 11.6. Annual License Fees: - The services offered by MNO and MVNO are similar in nature, if not the same. It is important that the revenues accruing to the Government should not get reduced due to accounting juggleries and cross-booking of revenues between MVNOs and MNOs. Therefore, it is logical that the annual license fees for MVNO should be the same as for categories of A, B & C Circles with a minimum prescribed license fee. The MNO pay an annual license fee 6% or 8% or 10% of the Adjusted Gross Revenue (AGR) depending upon the service area Out of this 5% is towards the Universal Access levy. Broadly the license conditions provide for arriving at the AGR after deducting from the gross revenue, PSTN related call charges paid to other access service providers/ roaming charges and service tax/ sales tax paid to the Government (if the gross revenue includes that component).


Source: TRAI consultation paper no. 9/2008

Source: TRAI consultation paper no. 9/2008


Apart of this spectrum allocation some of the spectrum has been allocated to BSNL/MTNL on trial basis.


12. UAS LICENSE CONDITIONS: -

The eligibility for award of UAS License has been prescribed by the DoT vide its Guidelines dated 14/12/2005. The applicant should be an Indian company, registered under Indian Companies Act, composite foreign holding should not exceed 74%, majority of Directors on Board shall be resident Indian Citizens, share holder agreement shall specifically incorporate the condition that the majority of Directors on Board including the Chairman, Managing Director and the Chief Executive Officer shall be resident Indians, comply with restriction on remote access and traffic monitoring, shall have minimum paid up equity capital and net worth requirement as prescribed. 12.1. Scope of service As per UAS License, the scope of the MNO license cover collection, carriage, transmission and delivery of voice and/or non-voice MESSAGES and includes provision of all types of access services. Access service provider can also provide Internet Telephony, Internet Services and Broadband Services including triple play i.e. voice, video & data, Voice Mail, Audiotex services, Video Conferencing, Videotex, E-Mail, Closed User Group (CUG) facilities. If required, access service provider can use the network of NLD/ILD service licensee. 12.2. Roll out obligations In metros, 90% of the service area shall be covered within one year and in telecom circles, at least 10% of District Headquarters/towns to be covered in the first year and 50% of District Headquarters/towns to be covered within three years. Coverage would mean that at least 90% of the area bounded by The relevant service market be defined as wire line and wireless services. Wireless service market shall include fixed wireless as well.

Municipal limits should get the required street as well as in-building coverage. Delay in fulfilling the roll out obligations attract liquidated damages to the tune of Rs.5 lakh per week for the first 13 weeks, Rs. 10 lakh per week for the next 13 weeks and thereafter @ Rs.20 lakhs per week for next 26 weeks subject to a maximum of Rs.7.00 crores.


12.3. Mergers and Acquisitions

Salient points in the merger and acquisition guidelines of DoT dated 21st

April 2008 are:

• Prior approval of the Department of Telecommunications shall be necessary for merger of the licence.

• Merger of licences shall be restricted to the same service area. • The market share of merged entity in the relevant market shall not be

greater than 40% either in terms of subscriber base separately for wireless as well as wireline subscriber base or in terms of Adjusted Gross Revenue.

• No M&A activity shall be allowed if the number of UAS/CMTS access

service providers reduces below four in the relevant market consequent upon such an M&A activity under consideration.

• Consequent upon the Merger of licences in a service area, the post

merger licensee entity shall be entitled to the total amount of spectrum held by the merging entities, subject to the condition that after merger, licensee shall meet, within a period of 3 months from date of approval of merger by the Licensor, the prevailing spectrum allocation criterion separately for GSM & CDMA technologies, as in case of any other UAS/CMTS licensee(s).

• On merger, spectrum enhancement charge shall also be charged as

applicable in case of any other UAS/CMTS licensee. • In case consequent to merger of licences in a service area, the

licensee becomes a “Significant Market Power” (SMP) post merger, then the extant rules & regulations applicable to SMPs would also apply to the merged entity.

• The annual license fee and the spectrum charge are paid as a certain

specified percentage of the AGR of the licensee. On the merger of the two licenses, the AGR of the two entities will also be merged and the license fee will be therefore levied at the specified rate for that service area on the resultant total AGR. Similarly, for the purpose of payment of the spectrum charge, the spectrum held by the two licensees will be added/merged and the annual spectrum charge will be at the prescribed rate applicable on this total spectrum.

• For regulating acquisitions of equity stake of one access services

licensee Company/ legal person/promoter company in the enterprise of


another access services licensee in the same license area, present guidelines on Substantial Equity of 10% or more shall continue.

• Any permission for merger shall be accorded only after completion of 3

years from the effective date of the licences.

12.2. Substantial Equity The restrictions on substantial equity are as follows: The LICENSEE shall ensure that:

• Any changes in share holding will be subject to all applicable statutory permissions.

• No single company/ legal person, either directly or through its associates, shall have substantial equity holding in more than one LICENSEE Company in the same service area for the Access Services namely; Basic, Cellular and Unified Access Service. ‘Substantial equity’ herein will mean ‘an equity of 10% or more’. A promoter company/ Legal person cannot have stakes in more than one LICENSEE Company for the same service area.

12.3. Foreign Direct Investment (FDI) The total composite foreign holding including but not limited to investments by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs), convertible preference shares, proportionate foreign investment in Indian promoters/investment companies including their holding companies, etc., shall not exceed 74 per cent. The 74 per cent foreign investment can be made directly or indirectly in the operating company or through a holding company and the remaining 26 per cent will be owned by resident Indian citizens or an Indian Company (i.e. foreign direct investment does not exceed 49 percent and the management is with the Indian owners). It is clarified that proportionate foreign component of such an Indian Company will also be counted towards the ceiling of 74%. However, foreign component in the total holding of Indian public sector banks and Indian public sector financial institutions will be treated as ‘Indian’ holding. The licensee will be required to disclose the status of such foreign holding and certify that the foreign investment is within the ceiling of 74% on a half yearly basis.


12.4. Bank Guarantees The applicant company shall submit Financial Bank Guarantee (FBG) of amount equal to Rs. 50, 25 and 5 Crores for category ‘A’ ‘B’ & ‘C’ service areas respectively before the date of signing the license agreement in the prescribed Performa given in the License Agreement. Initially, FBG shall be valid for a period of one year and shall be renewed from time to time for such amount as may be directed by the Licensor. The applicant shall also submit Performance Bank Guarantees (PBG) of amount equal to Rs. 20, 10 and 2 Crores for category ‘A’ ‘B’ & ‘C’ service areas respectively in the prescribed Performa given in the License Agreement before signing the license. PBG shall be valid for a period of three year and shall be renewed from time to time. FBG and PBG must be from any Scheduled Bank or Public Financial Institution duly authorized to issue such Bank Guarantee. The Fees, charges and royalties for the use of spectrum and also for possession of Wireless Telegraphy equipment shall be separately securitized by furnishing FBG of an amount equivalent to the estimated sum payable annually in the Performa annexed, to WPC, valid for a period of one year, renewable from time to time till final clearance of all such dues.


13. Products and services offered by MVNO: - BEARER CAPABILITY/SERVICES:- The following bearer capability/services, necessary for carrying the MVNO roaming traffic in the Networks, are offered: (In addition, road-map information on system development from the equipment supplier is offered, if permitted by the supplier). CAPABILITIES:- Home Access (Inter-PLMN Backbone Roaming) GSM Service QoS (Release 97 & 98) Service Access Point (Internet Access) ADDITIONAL GSM FEATURES:- Call Forwarding to Abroad, Unrestricted CAMEL Phase 1 CAMEL Phase 2 UDI (V110 9.6 kbit/s) Operator Determined Barring Support of DTMF Signalling IMSI Attached/Detached IMEI Handling in MSC’s Equipment Identity Register (National) Enhanced Full Rate Coding BANDS and MODES:- Single Band GSM 900 Single Band GSM 1800 Dual Band GSM 900/1800 TELESERVICES:- Speech telephony, MO/MT Speech, emergency calls (with or without SIM cards) Short Message Service MT/PP

Short Message Service, MO/PP

Automatic Facsimile Group 3, T, MO/MT

SUPPLEMENTARY SERVICES SUPPORTED:-

Calling line identification presentation (CLIP)

Calling line identification restriction (CLIR)

Call forwarding unconditional (CFU)


Call forwarding on mobile customer busy (CFB)

Call forwarding on no reply (CFNRy)

Call forwarding on mobile customer not reachable (CFNRc)

Call waiting (CW)

Call hold (HOLD)Multi party (MPTY) (up to 3 subscribers)

Barring of all outgoing calls (BAOC)

Barring of all outgoing international calls (BOIC)

Barring of all incoming calls (BAIC)

Barring of all outgoing international calls except to HPLMN (BOIC-exHC)

Barring of all incoming calls when roaming outside HPLMN (BAIC-Roam)

BEARER SERVICES:-

Circuit duplex asynchronous (CDA), transparent/non-transparent, MO/MT, 9.6 kbit/s

GPRS

EDGE


14. Test plans for technical solution: - 14.0. General Aspects of Testing Execution:-

The Technical Release Test (TRT) will be executed in cooperation between Telenor Mobil and MVN Operator. Telenor Mobil and MVN Operator will agree on a test specification defining the TRT. All test cases will be executed together by both Parties. If it is necessary to extend the testing period, both Parties have to agree. Both Parties will create a detailed TRT schedule after setting up test cases. This time schedule is not part of this Annex. Both Parties have to ensure that experienced personal is available during testing. Results of executed test cases will be exchanged as soon as possible. A test case is successful, if all expected test results are fulfilled. Executed test cases will be marked as successful / not successful with the date of execution. After end of TRT one common detailed test report will be created. This report contains a short description of every test case including test result and the executing date. TRT is successfully finalized at the earlier of the following events:

• All major test cases are tested without major failures or • MVN Operator starts to commercially use the tested functionalities.

If there is any need for further testing after TRT, a schedule will be part of a test report. Both Parties will endeavour to perform the testing according to the test plan and schedule. Telenor Mobil is allowed to interrupt TRT, if there is a need for tests to solve major problem. In the Telenor Mobil live Networks. 14.2. SIM- cards, mobiles and other test equipment: -

MVN Operator is responsible to provide at least 10 MVN Operator SIM cards including mobile terminals, which are suitable for executing all test cases. MVN Operator has to ensure that all subscriptions are already made to MVN Operator HLR. To ensure that protocol test equipment is available for the whole TRT period, MVN Operator has to provide suitable equipment (e.g. Tektronix K1205). 14.3. Test Configuration (Hard- and Software): -

Final test configuration will be clarified between both Parties, but MVN Operator has to ensure that MVN Operator hardware is already available for TRT. Both Parties shall exchange necessary configuration data for establishing connection. Details have to be specified between both Parties.


14.4. Future testing aspects: -

New services whi ch could have an impact on the Telenor Mobil Networks have to be tested between both Parties, before they go into commercial use. If additional tests are necessary due to problems in live operation, both Parties have to agree for new testing periods and test cases.


15. USE OF SS7 – TECHNICAL COMPETENCE AND SECURITY REQUIREMENTS: - 15.0. Technical requirements: - The Parties’ systems (in other words, technical equipment plus associated software) should normally have had documented significant operational time using SS7 in national or international telecommunications networks. Quality assurance systems applied when upgrading/installing new equipment and/or software must be documented. The Parties must confirm that the quality assurance systems are used in daily operations. If the Parties implement items of equipment/software that have not had any documented operational time, the quality assurance systems for installation, upgrading, commissioning and testing must be documented. The Parties must confirm that the quality assurance systems are used in daily operations. A special agreement must be made, if, after this, one of the Parties requests extended testing. In the event of implementing equipment/software without any documented operational time, the Parties can request specially agreed testing. The result must be documented and accepted by the Parties prior to commissioning. The Parties must be able to carry out and complete a test procedure on SS7. Performing test procedures will also apply when updating/installing new equipment and/or software in the event of changes that might have a significant impact on the other Party’s network and/or services. The Parties agree to ensure correct signalling information relating to the customer/subscriber placing the call regardless of source, and to ensure that there will be no change in such information. The Parties agree to convey traffic or signalling reports to/from any third Party in such a manner as to prevent it from being able to damage the Parties’ networks, service or customer relations. It is assumed that the Parties will establish and maintain systems for monitoring and tracking signalling information, in order to prevent incorrect operation and misuse. In the event of any changes in the standards of the signalling system, the Parties will be obliged, at their own expense, to upgrade their own system.


15.1 Skill Requirement: - General: - The Parties must, at all times, have at least one person with documented skills in SS7 working as principal supervisor in the area. The term “documented skills” is used here to mean a description of formal qualifications, plus at least 1 year’s documented experience of working with SS7 during the past 2 years. The Parties must have an operations centre providing continuous 24-hour cover. The Parties must have access to SS7 skills 24-hours a day. If operation of SS7 is based on the use of subcontractors, documentation must be presented to show that the subcontractor concerned satisfies the requirements indicated in these terms and conditions. If the Parties meet requirements for an operations centre providing continuous 24- hour cover and 24-hour access to skills by using resources outside Norway (for example, in the case of remote operation), the Parties must provide evidence to demonstrate the manner in which the other requirements defined in this Agreement will be fulfilled, including safety procedures as well as physical and logical measures and personnel safety. 15.1. Personnel clearance: - The Parties must have a safety supervisor within their own organisations, reporting on safety issues directly to the company’s management. The safety supervisor or the Parties’ personnel with operational access to SS7 must have no convictions for infringements of criminal legislation. At the request of one of the Parties, exceptions can be made from this requirement if any infringement of the law committed by named personnel is not regarded as having any relevance to the security clearance assessment undertaken by the other Party. The Parties must themselves initiate clearance of their own personnel for the Requesting authority if this is a consequence of the requirements of government legislation. There must be a list of the Security Supervisor plus those members of the Parties’ personnel who will have operational access to SS7 and who fulfil the necessary requirements. The list must be kept constantly updated and must be stored in a responsible manner. The Parties can obtain confirmation from


the public authority requesting it, that the requirement regarding security clearance has been satisfied.

15.2. Security requirements: -

15.2.1. Physical security:- The Parties’ buildings housing the network elements that can be logged on to for SS7 operating functions must be protected in accordance with the following minimum requirements:

• Outer doors must be manufactured in accordance with the Norwegian standard, NS 3170 Grade 2. Doors must be equipped with at least one approved locking device.

• Telecommunications engineering equipment must be located in rooms with no windows. If it is impossible to avoid windows, for particular reasons, the glass must be at least of Grade B1/C1 according to the Norwegian standard, NS 3217, or the windows must be fitted with steel window shutters at least 5 mm thick. Windows in the front of the building must, as a minimum, have two point locking devices and have at least two-layer insulating glass units.

• The building must be equipped with an approved AIA (Automatic Intruder Alarm). Buildings that are particularly exposed (such as buildings that have previously been subject to burglary), or parts of buildings, must be equipped with access control and/or Interactive TV.

If circumstances indicate that the building as a whole may not be secured in Accordance with this requirement, any rooms in which the equipment and operations terminals are to be located must satisfy this requirement.

15.2.2. Confidentiality declaration:- The Parties must have an internal system for obtaining a confidentiality declaration from those members of their own staff who are going to come into contact with networks belonging to other operators. The confidentiality pledge must be signed and should be stored in a satisfactory manner. The declaration is intended to prevent any confidential information coming into the possession of unauthorised persons or from being misused.


15.2.3. Document security:- Any information from Telenor Mobil and documentation linked with SS7 concerning shared traffic with Telenor Mobil, must be stored in a satisfactory manner, e.g. in accordance with guidelines drawn up by Telenor (Policy and Guidelines for Document Security).

15.2.4. IT security:- The Parties must develop and establish standards and procedures for IT security, including procedures for maintaining user privileges. Strict user authentication will be required, and/or encryption of the connection, if the user has access to SS7 from a location other than the central unit, e.g. in the event of remote operation. Single-use password systems are often used when strict authentication is applied.


16. MVNO global initiative:- “MVNO Global” is initiative founded by leading experts of telecom and finance industry, striving to consolidate already operating Europe’s MVNO’s, and to create Europe’s global alternative mobile operator 16.0. Mission: -

To develop global alternative GSM/UMTS mobile operator and service enabler using full infrastructure Mobile Virtual Network Operator (MVNO) concept. Introduce and complete consolidation horizontal merger of existing MVNO’s, one from each country, and rising funds to expand globally

Rationale: -

The key principle behind initiative to merge existing MVNO’s is to create shareholder value over and above that of the sum of the companies; hence companies together are more valuable than separate companies. This rationale is particularly alluring to existing MVNO’s and SP’s operating in tough mobile markets like Denmark and Finland. The companies should come together to benefit from economies of scale, thus reducing duplicate departments or operations, lowering the costs of the company and increasing profit. The companies in addition benefit from synergy: better use of complementary resources, centralized service platform and value of global brand name.

16.2. Technical description: -

MVNO Global network platform should consist from GSM switching equipment in each country connected to each other by broadband connections. Each country’s GMSC is connected to other incumbent operators under terms of interconnection agreements. Every GMSC should be connected to countries MNO: host mobile network operator. Service platform and applications should be centralized, as much it is technically possible in order to reduce CAPEX. Roaming agreements should be signed to rest of the worlds GSM networks. In each country Global MVNO should have its own MNC (Mobile Network Code) in each country and IMSI range.


16.3. MVNO in EU: - This paper studies the strategic position of mobile virtual network operators, MVNO, a new type of mobile communication service providers. MVNOs buy network capacity from a mobile network operator (MNO) to be able to provide a full portfolio of mobile services for their own subscribers. The recent changes in regulation have enabled the entrance of MVNOs to increase competition. This paper provides insight into different types of MVNOs and their alternative business strategies. Strategic decisions of an MVNO have to be made based on existing market situation, own competitive advantages and the needs of the selected customer segment. Also the external environment, internal resources and strategic position of the company need to be researched. A model that guides through this decision process is presented and applied to mobile communications business. As a case study, the Finnish MVNO business environment is analyzed. In Finland, almost all the MVNOs have adopted the strategy of competing with price rather than services. The success of this choice is still to be seen as the market matures: can the new MVNOs operate more effectively than the incumbent operators and sustain the lower prices. In addition to that, Finnish MVNOs who chose other strategies than price competition are introduced and their strategy choices compared to the general strategies evaluated.

16.3.1. Introduction:-

In Western European countries the mobile communication market has reached its saturation point (approximately 90% penetration of population). As the market has matured, the basic subscription has become a commodity product and the competition at the market is based mainly on price. Until recently, the business has involved only few actors in the mobile operator market. The two main types of operators are

• mobile network operators (MNOs) providing a mobile network for the purposes of transmitting, distributing or providing messages and

• mobile service operators (MSOs) transmitting messages over a mobile network obtained for use from a mobile network operator.

• European Union, however, continues its efforts to increase competition in the market. Communication directives issued by EU have changed the telecommunications regulatory framework so that basically every interested party could start offering SIM-based mobile services without the network or rights to the required radio spectrum. Also the launch of mobile number


portability has decreased customer loyalty and increased churn. All these changes have opened up the mobile communications market to new service providers The purpose of this paper is to introduce the business concept of the mobile virtual network operator (MVNO), a new type of communication service provider. This is done by researching the basic concept, defining the alternative business models and by introducing the MVNO situation in the Finnish mobile operator market as a case study.

16.3.2. Regulation:- Recent changes in the regulatory environment and especially in the communication directives issued by European Union have enabled the business opportunity for MVNOs. The most significant directives are presented in the following. The division of telecommunications operators to network operators and service operators is based on the EU legislation. The main focus of telecommunications regulation is to obligate network operators to lease out capacity from their networks to all service providers at a fair price. A fair price consists of appropriate investment, operating costs and modest return on the investment. The regulatory term ‘significant market power’ (SMP) is used to describe an operator having a remarkable market share of a certain type of a service. Network operators having SMP must provide fair access to their networks. Furthermore, they are obliged to provide the financial information of transmission services to the regulator so that the fairness of their network tariffs can be estimated. The purpose of these regulatory actions has been to increase competition in the mobile communications business field and thus accelerate the development of new services and technical innovations. MVNOs are favored by regulators because they promote this goal. To make the mobile communications market easier to access, national regulators can impose incumbent operators to lower the barriers to enter the market. Examples of these acts are mobile number portability (MNP) and price regulation of interconnection and termination fees. Especially for the small MVNOs, the regulation of these fees is essential to enter into mobile communication markets. Despite of the new directives and rules, not all EU members have incorporated the European Union Directives into national law. Besides that, most regulators have found that their existing regulations cannot be applied to MVNOs without amendment especially the amount of regulation needed in the relationships between MVNOs and MNOs is still under consideration in many countries: should regulators e.g. force the MNOs to reserve a certain


limit for MVNOs? This decision has already been made e.g. in Hong Kong, where regulator requires 3G networks to reserve 30-50% of their capacity for MVNO use

16.3.3. MVNO business strategy guidelines:- MVNO business consists of providing services to the customers. The simplified business objective would be to maximize the profit of the total business Profit = ARPU * Customers – Cost, ARPU meaning the average revenue per user. After the entrance of MVNOs, the ARPU generated by customers has transferred from MNOs to MVNOs. To be able to offer services to its customers, an MVNO pays to the MNO for the network capacity it uses. These contracts between MNOs and MVNOs are bilateral and usually based on the total traffic (can also include a fixed fee per user). In mobile communications, two main sources of revenue can be identified: communication services (call/data traffic) and value added services1. A new MVNO can base its strategy on providing mainly one or both of these. For a company starting its business as a MVNO, several items need to be considered. How to attract customers to use the services of the MVNO? What kind of services to provide to offer the maximum value to customers and to get high ARPU? How to keep the costs sustainable? Based on this information, the following choices have to be made:

• Choice of the source of revenue • Technology choice • Partner choice and • The choice of the customer segment

Different internal and external factors have impact on the business strategy to be chosen by an MVNO. The most suitable strategy can be found by considering the following four blocks: internal resources, external environment, existing strategic position, goals and objectives. The blocks with different parameters are presented in Figure 1.


Strategy decision model

Source: University of Stockholm The effect caused by the external environment is remarkable, including the five forces defined by Porter. Most communication markets have more than one MNO, Which diminishes the power of suppliers. Also national regulation authorities can reduce the MNO power by restricting the charges to be paid for the MNOs. The barriers to entry to the MVNO market are rather low because of the regulation decisions. The biggest entry barrier is the switching cost of mobile subscribers. Regulators can significantly reduce this cost by enforcing obligatory number portability. One important factor having an impact on the willingness to switch the operator is the group effect because of the cheap intra-operator calls, subscribers are not eager to switch the operator ‘alone’ but instead together with a certain group whose members make a lot of calls to each other (e.g. a family, a group of friends). Low barriers to entry increase the amount of competitors in the field, giving the buyers power. The ‘buyer’s market’ type of a situation results in lowered prices and smaller profits. As long as MVNOs compete with price instead of service differentiation, the presence of close substitute remains high and competition of the same customer group continues. On the other hand, fixed internet and content printed on paper can be seen as substitutes that don’t encourage the usage of mobile communication services (e.g. bus time tables freely available on the Internet or as printed books).


Existing strategic position defines the position among customers and partners. It gives visibility to the MVNO and diminishes the need for marketing and other promotion costs. Many MVNOs have already a well-known brand which to exploit in the business. MVNOs can utilize their position to create business synergies with their mobile communications operations. The existing position can, however, also decrease the reliability in case the existing position differs from the desired one. Existing internal resources have a significant effect on the initial costs of MVNO business and on the service composition to be offered to the customers. Also a certain set of internal resources can form a good basis for synergies in MVNO business operations. These resources also decrease the risks during the ramp- up of business.

16.3.4. Business strategy scenarios MVNO business strategies can be divided into five main groups:

• Low price • Narrow focus • Service differentiation • Service reselling • International clustering

In case the MVNO business strategy is based on offering services with low price, the main competitive advantage must be the ability to keep costs low. All the operations of the company must be aligned to meet this target. The service portfolio is narrow including only the basic services for selected, rather large customer groups. Low organizational structure, large customer potential, and short reaction time to changes in the market are benefits for the MVNOs following the ‘price leader’ strategy. However, in order to survive with this strategy choice, a large customer base is required because of the small profit margins. Also the amount of resources for new service development is minimal and trade-offs are needed to be able to provide the most cost-effective services. Service platforms and roaming contracts are usually not handled by the price leader itself but by the MNO. One major challenge for a low price MVNO is the cost level of its MNO contract. A market, where each MNO controls its own family of MVNOs may not create enough competitive incentive to MNOs unless the number of clearly competing MNOs is large enough, at least three. MVNOs that select to focus on one customer segment typically cannot achieve business volumes big enough to justify investments on own service platforms. Tailored marketing and customer care for the chosen segment allows setting the expected average revenue per user (ARPU) high. Strategic alignment between the partnering MNO and MVNO is typically good since a large MNO cannot easily focus on small niche segments. This MVNO strategy is suggested by many authors.


A MVNO can also select to offer differentiated, value added services for demanding customers. Here the service mix should be rather large to attract (especially business) customers. One possibility is to offer bundled services based on the company’s earlier core competence (e.g. fixed and mobile subscriptions, office solutions). These ‘service leaders’ might also have multiple target segments that use the same services with different, customized content. While competing with differentiated services, a MVNO has the potential to gain rather high average revenue per user (ARPU). Also the ability to develop new services independently (or in co-operation with partners) for the dynamic needs of the customers is an advantage. A major problem with this strategy has been the absence of profitable business models: users are not ready to pay for the services (only some service concepts, like voice mail and ring tones, have been successful). A MVNO

with strong technology competences but low brand value can select to become a reseller and enabler for other MVNOs already having a strong brand. This strategy requires large customer volumes due to the low expected ARPU, which is likely to create conflicts of interest with the supplying MNO. Consequently, the regulator’s support appears particularly crucial for this strategy. Global and regional MNOs can select to enter a new country as a MVNO instead of investing in or acquiring a local MNO. This clustering approach enables a fast initial service roll-out if the foreign MNO can use their existing service machinery located outside of the target market, as well as their existing service portfolios. As a drawback the foreign MNO entering as a MVNO have to start from a zero market share.

16.3.5. MVNO strategies and their features


17. International experience of MVNO in different

countries:- 17.0. Hongkong:-

There are about 7 MVNOs operating in Hong Kong. The first MVNO was launched in the year 2001. Hong Kong is the highest MVNO penetrated Asian market with 7,20,000 customers, nearly 7.5% market penetration. In Hong Kong, the regulator requires 3G networks to reserve 30% of their capacity for MVNO. The Mobile Virtual Network Operator (MVNO) Services are operating under public telecommunications services licensed under the Public Non-Exclusive Telecommunications Service (PNETS) license13, the list of all the services include:-

• international Value-Added Network Services (IVANS) or Internet Access Services

• External Telecommunications Services (ETS) • Mobile Virtual Network Operator (MVNO) Services • Radio distribution systems for cellular services operated within

premises of the landowners or operators The applicant for a PNETS licence should be a company registered under the Companies Ordinance in Hong Kong, but there is no foreign ownership restriction on the licensee. If the applicant is a company incorporated in Overseas, the Telecommunications Authority (TA) may consider its application provided that it has registered under the Companies Ordinance as an overseas company. Generally, there is no restriction on the number of licences granted for the PNETS licence and the TA is prepared to consider new applications at any time. The licensee shall comply with any code of practice concerning technical configuration and operation of the service that may be issued by the TA from time to time. MVNO Rights with respect to numbering arrangements:-

• It will be allocated its own number set under the telecommunications numbering plan; and

• It may be allocated a Mobile Network Code. Obligations with respect to numbering requirements:-

• The MVNO shall conform to the TA’s telecommunications numbering plan;

• The MVNO shall facilitate mobile number portability; and


• The MVNO shall provide emergency services to its customers.

MVNO for Third-Generation (3G) Services:- The MNO is obliged to open 30% of its network capacity to MVNOs who are not affiliated to any MNOs. In order for an MVNO to be qualified for the TA’s regulatory support on its access to the MNO’s network, the MVNO is required to meet the following minimum requirements on network operation and infrastructure:-

• Provide its own mobile switching and gateway infrastructure for circuit and/or

• Packet switched traffic;

• Enter into its own interconnection and roaming agreements;

• Provide its own business support systems, such as billing and

customer care;

• Maintain its own Home Location Register of customers (or equivalent functionality);

• Satisfy requirements for call control as required by the TA and

normally associated with a telecommunications operator; and

• Issue its own SIM cards. The TA will have regard to certain criteria when determining whether or not it will offer regulatory support to an MVNO. The criteria for, and the terms of, the TA's intervention are set out in the guidelines. In the event that a non-affiliated MVNO and a MNO cannot agree with each other on the terms of interconnection, either of them may call upon the TA to intervene in the dispute and to determine the terms of interconnection. If an MVNO makes a request for a determination, the TA is unlikely to intervene if:-

• The MVNO is affiliated to the MNO or to any other MNO.

The MVNO already has access to the network capacity of any other MNO's network (as defined in the mobile carrier licence) equivalent to 30% or more of the network capacity of the network to which the MVNO is seeking access. If the TA receives a request for access to a network from an MVNO that


already has access to another network, the TA will take into account the extent to which the MVNO already benefits from the open network access framework and such other factors as he may consider relevant such as the market position of the MVNO.

• The MVNO does not satisfy the minimum infrastructure requirements.

• The relevant MNO has reached its 30% open network access

requirement. 17.1. JAPAN: - In Japan, the first MVNO started its operations in Oct. 2001.Japan Communication Inc (the first MVNO in Japan) gained a profit in fiscal year 2002 for the first time since its establishment, gave the positive prospect among potential MVNOs. One of the networks, Personal Handy-phone System (PHS) network is utilized by the MVNOs in Japan. For encouraging MVNO business, Japanese government had set up the guidelines for MVNO in June 2002. MVNOs have made the internet connection seamless by combining wireless LAN network with PHS network. Such service was launched in the market by several MVNOs in year 2003. This type of service is the main stream of MVNO business. 17.2. Netherlands: - The Mobile Virtual Network market in the Netherlands is among the most active in the world. New entrants have attracted many customers by offering significantly lower international calling rates. The MVNO market in the Netherlands currently counts around 39 Virtual Operators. The majority of the new entrants are focussing on the low-cost segment. The players in the Dutch MVNO market can be segmented into different categories. Retail chains, charity organisations, fixed-line telecom operators and calling card companies have entered the market to broaden their service portfolio, offer attractive international calling rates or increase the customer loyalty. These new entrants have changed the telecom landscape by pushing the operators to the role of network providers. MVNOs have appeal because they target a specific market segment with needs which they know best to answer. Operators that are currently cooperating with MVNOs are those who struggled to fill its network with their own subscribers. They are eager to cooperate since they only have to lease network capacity and can profit from the success of the new entrant without costly investments.


17.3. Malaysia: - In Malaysia, 4 MVNOs are providing their services. Malaysian Regulator, Malaysian Communications & Multimedia Commission (MCMC), in its guidelines

has identified four prevalent business models and the characteristics of each of these business models and the corresponding licensing requirements are as detailed below

The actual licensing requirement of MVNOs are ascertained by the MCMC upon assessment of the applications vis-à-vis the CMA and the relevant subsidiary legislations on a case to case basis. As the MVNOs are largely dependent on MNOs to enter the market and compete effectively, the key factor that ensures sustainability of MVNOs is the terms and conditions of access to the radio network as well as other incidental facilities and services required to provide services to end users. The MCMC intervenes if it is satisfied that such intervention is necessary to ensure long term benefits to end users and growth in the industry.


The MCMC allocates a specific block of numbers for mobile virtual network operators who wish to establish their own brand names. These numbers will be assigned for use with network services and application services provided by Network Service Providers and / or Application Service Providers who operate their own home location registers and billing systems. 17.4. France: - In France around 10 MVNOs are operating. The French operators have succeeded in preserving their dominance by signing up MVNOs on their own terms. The MVNOs have captured nearly 2.8 percent of the total French mobile market by 31st Dec 2006. The MVNOs’ poor market share since launch has in part been driven by factors such as complex number portability arrangements, and lengthy subscriber contracts which discourage churn. There are also substantial differences in wholesale pricing by the operators – particularly when compared to the UK where rates are reportedly much lower. MVNOs face a difficult challenge in adding subscribers. The incumbents rely heavily on 24 month lock-in contracts, decreasing the incentive for subscribers to switch operator midway. Coupled with the difficulty in porting numbers, it could be construed as a strategic deterrent for MVNOs in the market. Most MVNOs offer prepaid services, promoting prepaid as a complement rather than a substitute to post-paid services. 17.5. Singapore:- The first Asian MVNO was launched in Singapore in 2001. In Singapore, the MVNO must use part of the networks of the MNOs licensed by Infocomm Development Authority (IDA) under the Facilities-Based Operations Licence to originate and deliver its customers’ calls. The MVNO must pay the licensed MNO for the use of network and or the essential radio segment of the networks MVNOs must commercially negotiate for access to 3G networks. IDA will, however, intervene in cases of unduly restrictive or anti-competitive practices in accordance with the relevant provisions of the Telecom Competition Code. The regulatory approach for 2G and 3G MVNO follows the following consistent regulatory principles:

• Primarily reliance on market forces in competitive markets to promote and deliver consumer welfare.

• Regulatory intervention only where there is market failure and to the

extent necessary to remedy that market failure. All Facilities Based Operators (FBO) and Service Based Operators (SBO) MVNO licensees are required to implement and support number portability.


One of the UK’s mobile providers attempted to enter the market as an MVNO in 2001. However, due to a low take-up of its services, it ended its venture within a year. 17.6. Pakistan Pakistan Telecom Authority (PTA) defines MVNO

as an operator that does not own spectrum but has commercial arrangements with conventional MNOs to buy minutes of use (MoU) for sale to its own customers. Pakistan has started issuing MVNO Licenses from May 2007. A few points from the framework:

• PTA will oversee and approve the MVNO agreements and breakups.

• PTA shall allocate separate number blocks to MNOs for use by its MVNO partner.

• MVNOs cannot sign separate roaming agreements with operators

other than the parent network operator.

• MVNOs will contribute to universal service fund and research & development fund, among other fees.

PTA has kept the barrier to entry (fees, conditions etc) for MVNOs fairly low. Mobile operators are also permitted to support MVNO services. Only a company registered with Securities and Exchange Commission of Pakistan (SECP) is allowed to provide MVNO service. The MNO that make commercial agreement for MVNO operation in Pakistan have to submit the same to the Authority for approval prior to giving effect to this agreement. In addition to the commercial agreement, MVNO also submit application to the Authority for the award of MVNO Class License. The MVNO Class License is issued for a period of agreement between MNO and MVNO or a valid term of his parent MNO or which ever is smaller. If the Authority for any valid reason terminates the license of Parent MNO, then the concerned MVNO class license shall automatically stand terminated. This Framework may be reviewed by the Authority, form time deems it fit or circumstances so require.


Source: consultation paper no.9/2008 issued by TRAI


18. Case Study: Virgin Mobile in India

India’s first nation-wide youth focused mobile service

Tata Teleservices launches Virgin Mobile branded services to India’s youth

2nd March, 2008, Mumbai: ‘Virgin Mobile’ services are being offered to consumers by Tata Teleservices through a brand franchise with the Virgin Group. Virgin Mobile India is an association between Virgin Group and Tata Teleservices which will facilitate Tata Teleservices with its experience and expertise in designing, marketing and servicing TTL’s Virgin Mobile branded products for the youth segment. The Virgin Mobile brand philosophy of ‘Think Hatke’ is encapsulated in Virgin Mobile India’s desire to redefine India’s mobile services landscape. “The launch of Virgin Mobile today sees the Virgin Mobile brand arrive in India – a day I have looked fo rward to for many years. India is a country I hold dear to my heart; the vibrancy of its youth and culture truly makes it Virgin territory! At Virgin Mobile we believe that the existing operators are all pursuing the same strategy: to get as many subscribers as quickly as possible. Virgin Mobile’s strategy is different. We want to deliver a more tailored, more relevant offering for a single, distinct segment. We are not pursuing scale for scale’s sake”, said Sir Richard Branson, Chairman and Founder of the Virgin Group, in today’s press conference. “Our association with the Tata’s unites the passion of our two business groups for putting customers first and finding innovative, fun ways of enriching their lives, and it represents Virgin Group’s strong focus on India. In true Virgin tradition, Virgin Mobile brings to all its customers ten firsts to the Indian telecoms market - we’re even going to pay our customers to talk. Now that really is “Think Hatke!” he added. TTL’s Virgin Mobile offers India’s youth at least ten industry ‘Firsts’ that include ‘Get Paid to Receive Calls’, ‘One-touch VAS access from every Virgin Mobile-branded handset’, ‘Call more for less’, ‘True Care’ and a value-for-money handset range that makes ‘Virgin Mobile’ the only service brand offering handsets that are ‘100% colour, 100% FM. In another ‘First’, Sir Richard Branson, launched Virgin Mobile brand in India, by ‘flying’ down the façade of The Hilton Towers in Mumbai and unveiling the Virgin Mobile logo in mid flight. Anil Sardana, Managing Director, Tata Teleservices said "We are very excited about our association with the Virgin Group. Their service innovation


and strong brand resonance with the youth segment will allow Tata Teleservices to offer a truly world-class service experience to our youth subscribers. This association also supports our efforts to be the fastest growing mobile network in India". “There are more than 215 million Indians aged between 14 - 25 years old. Over the next three years, we expect this segment to be adding over 50 million new youth subscribers and to have mobile service revenues of over Rs 350 billion. By focusing exclusively on a single segment and by continuing to deliver innovative services that cater to this segment’s distinct needs, we believe Virgin Mobile can capture more than 10 percent of this incremental market within 3 years of launch,” said Jamie Heywood, Deputy CEO, Virgin Mobile India. About Virgin Mobile: - TTL’s Virgin Mobile brand is India’s ‘first’ national youth-focused mobile service. Virgin Mobile branded services will be offered to the Indian consumers by Tata Teleservices through a brand franchise with Virgin. Virgin Mobile India will facilitate Tata Teleservices with experience and expertise in designing, marketing and servicing of Virgin Mobile branded products for the youth segment. Virgin Mobile services will be supported from nine centers across nine cities and will have a bench strength of 250 personnel. At launch, although the Virgin Mobile branded service will be available nationwide, it will focus on subscriber acquisition in the top 50 cities which will extend to over 1000 cities by year end. Virgin Mobile branded handsets will be available across 15,000 outlets and its top up cards across 40,000 outlets nationally. About Virgin – The Group:- Virgin, a leading branded venture capital organization, is one of the world's most recognized and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow very successful businesses in sectors ranging from mobile telephony to transportation, travel, financial services, leisure, music, holidays, publishing and retailing. Virgin has created more than 200 branded companies worldwide, employing approximately 50,000 people, in 29 countries. Its revenues around the world in 2006 exceeded £10 billion (approx. US $20 billion). About Tata Teleservices:- Tata Teleservices is one of India's leading private telecom service providers. The company offers integrated telecom solutions to its customers under the Tata Indicom brand, and uses the latest CDMA 3G1X technology for its wireless network. Tata Teleservices along with Tata Teleservices


(Maharashtra) Limited operates in more than 5000 towns across 20 circles i.e. Andhra Pradesh, Chennai, Gujarat, Karnataka, New Delhi, Maharashtra, Mumbai, Tamilnadu, Orissa, Bihar, Rajasthan, Punjab, Haryana, Himachal Pradesh, Uttar Pradesh (E), Uttar Pradesh (W), Kolkata, Kerala, Madhya Pradesh and West Bengal VIRGIN MOBILE First’s: -

• Get paid to receive calls – Virgin Mobile customers will get 10 paise credit for every in-coming minute they receive from any network.

• Easy Handset upgrades: Virgin Mobile is India’s first CDMA service where all customers will be on RUIM (SIM)-based phones, thereby giving them the convenience of upgrading their phones without having to change their number or re-enter their address book.

• True Care: All Virgin Mobile customers will be called back by the same

call centre agent to address their query.

• Call more for less – After the 1st 2 mins of calls each day (which will be charged at Re1) all Virgin Mobile customers nationwide will automatically be able to call any local network at any time of day for only 50 paise per minute with no commitment or extra charge.

• One Touch access to V-Bytes: 100% of Virgin Mobile-branded

handsets will have a simple one-touch access button that takes customers directly to our unique VBytes portal.

• Safe Secrets: All Virgin Mobile RUIM (SIM) cards will have a secret

folder where SMSs can be stored and password-locked to keep them safe from prying eyes.


19. Case Study: MVNO in Finland:- Finland has already a history in GSM business: the first GSM call was made in Finland and until the year 2000, Finland had the highest mobile subscription penetration in the world (over 90% today). In addition to that, also the competition has long roots in the Finnish telecommunications market because of the numerous local telephone operators and the competition between public and private telephone operator families. Besides the historical facts, the Finnish MVNO market is interesting due to the presence of a large number of diverse MVNOs. However, despite the Finnish success in the market, the country has fallen behind in inter national rankings and mobile data usage during the last two years. Finland has also been late compared to the leading European markets enabling MVNOs. Finland has three GSM licenses (Sonera Mobile Networks, Elisa Mobile and Finnet Verkot) and four UMTS licenses2 (the incumbent GSM license holders and Swedish Tele2). The market share situation of incumbent operators is TeliaSonera 49%, Elisa Mobile 28% and dna (Finnet Group) 15% (as of March 2004) Market shares in the Finnish GSM market

Source//:www.numpac.fi (Referenced- Finland numbers) Recent changes in regulation have made the market easily accessible for MVNOs. The three incumbent operators are referred to as significant market powers in the call termination (downlink) traffic market by the Finnish Communications Regulatory Authority. EU legislation imposes that uplink wholesale traffic in mobile networks is coming under SMP legislation in EU markets and incumbent operators are required to publish the terms and prices of interconnection [9]. The most effective trigger for MVNOs to start


their operations, however, was the requirement to enable mobile number portability (MNP) between mobile network operators in July 2003. MVNO market structure: - There are already more than fifteen MVNOs in Finland, and the amount is increasing. New MVNOs together with new content providers bring a large number of new players in the market. As a consequence, the value chain becomes a more fragmented value net. The main business strategy of the MVNOs in Finland is to compete with price. Thus far, only few MVNOs have chosen clearly another than the low price strategy.

Effect on the market: - After the entrance of MVNOs, all the three incumbent operators have had to lower their prices and subsidize their subscriptions with free air time and goods. The decrease in the prices of GSM calls was 6,9% during 2003, which causes a significant gap in price changes compared to the earlier years. This gap is illustrated in Figure 3. New MVNOs have also roughly doubled the churn: during the first eleven months after the MNP and the invasion of MVNOs, 21% of the subscribers have changed their service operator (resulting 23% yearly churn) Changes in GSM call prices

Source: Assessing MVNO Business opportunities. University of Stockholm.

Because most of the new MVNOs in Finland have chosen the low price strategy, the usage of new services hasn’t increased as expected. MTV3 is the only MVNO providing new differentiated mobile content services for consumers. Even the MVNOs following the focus strategy compete mainly on price. New ‘tariff packages’ have been introduced with free text messages


(a.k.a. included in the monthly subscription fee). On the other hand, many MVNOs have chosen the ‘one rate for all calls’, resulting incumbent operators to switch from multi tariff pricing to a more unified pricing. Also the distribution channel of subscriptions has dispersed. Now it is possible to buy a GSM subscription on the Internet, or even at the hamburger counter. Based on the on-going development of competition in the Finnish GSM market, MVNOs are also likely to exist in 3G networks in Finland to share the costs of the networks and to develop new attractive services (e.g. to create differentiated products to their customers). A good example of this development is Sweden, where even the strong incumbent operators (Tele2 Sweden and Telia) are sharing the third generation network to meet the coverage requirements set by the licensee. This kind of network sharing is possible also in Finland : the current regulation allows Finnish 3G network operators to share up to 65% of their networks Conclusion: - Our case study shows that the presented generic classification of MVNO strategies is applicable at least in the Finnish market. Our qualitative conceptual model helps to identify and explain strategic choices of real MVNOs. The lack of documented experience prevents estimating the sustainability of the low price MVNO strategy dominant in Finland. More data is needed on the dynamics of the MVNO business case, especially regarding the terms of MVNO-MNO contracts.

The key items for MVNO’s success are the ability to acquire new customers at a lower cost than the industry average, generate higher ARPU or exhibit lower churn rates. In addition, new MVNOs must make sustainable agreements with MNOs for transmission (and in case of a true MVNO, also interconnection costs). Lower price is only a short-term strategy, because it can be easily responded by competition at least temporarily.


20. Price agreement affecting the MVNO: - Mobile communications markets contain several kinds of players who offer mobile services to customers. Some of them do not own the entire infrastructure necessary to deliver the services, including a license to utilize the radio spectrum. A useful overview of these kinds of operators is given in Ovum 2000. In August 2000 we witnessed the appearance of the first mobile virtual network operator (hereafter MVNO or virtual operator) in the world when Tele2 signed an agreement with the mobile network operator Sonofon in Denmark. A year later Tele2 signed another MVNO agreement, this time with Telfort in the Netherlands. Mobile network operators (hereafter MNO or network operator) in the Netherlands do not have an obligation to give access to MVNOs. In Denmark mobile network operators are obliged to provide access to their networks, including MVNO access, but merely on the basis of commercially negotiated agreements. Apparently, both the mobile network operators and Tele2 have found the MVNO concept commercially interesting. In this paper we discuss what might influence the parties’ incentives to voluntary enter into an MVNO agreement. We emphasize particularly the effect of prices and price structures between the host MNO and the MVNO. A comparison will also be made between accessing the MNO network as a service provider and as an MVNO. The rest of the paper is organised as follows. we give a brief overview of the relationship between a network operator and a mobile virtual network operator. In section 3 we take a closer look into the MNOs’ choice of how to market their infrastructure-based products. We then go on to discuss the effects of different price structures offered to potential third party market organisations, like service providers (SP).


A mobile virtual network operator’s customer – making and receiving calls

Source: www.tele2.com 20.1. The MVNO and MNO relationship: - A mobile network operator controls the whole chain of values needed to produce mobile telecom services. It holds a radio spectrum license, issues its own SIM cards, owns and operates the infrastructure including the base stations, switches and the gateway with the home location register (HLR). It is in full control of marketing, branding and pricing, as long as it stays within the regulatory framework. A mobile virtual network operator offers mobile services to customers, but does not hold a spectrum license and has to make an agreement to access an MNO’s radio network. However, the MVNO issues its own SIM cards, has its own switch, HLR and service platforms, and has a full customer-care and billing system. Figure illustrates the structure of these two operators and demonstrates the routing of a call made by an MVNO customer to a customer in another network (black arrows) and vice versa. For the outgoing call, the nearest base station of the host MNO first accepts the MVNO customer’s SIM card, and the call is routed to the MNO switch and then on to the MVNO’s switch. This operation will be referred to as ‘roaming out’ in the following. Finally, the call


is routed to the network of the other operator. The dotted arrows depict the routing of an incoming call. The part from the MVNO’s switch to the terminal (SIM) of the MVNO customer is referred to as ‘roaming in’. A call from one MVNO customer to another (not illustrated in the figure) is the combination of roaming out and roaming in.

The choice of the MNO on how to market their infrastructure-based products

Source: Foros and Hansen

20.2. The Network Operator’s Choice of Market Channel: - An MNO faces several options on how to market their infrastructure-based products. It might choose to let its own market organisation sell the final products; it might choose to use a third party such as a virtual operator or a service provider, or it may choose a combination of these. As pointed out by e.g. Foros and Hansen (2000), the strategy of the MNO towards such third parties depends on the business stealing and the volume effects: Does the network operator simply face a new competitor who steals customers from their own core business, or will the third party contribute positively to the revenues by making the old customers buy a larger quantity or by bringing in new customers. Even if the third party does not add value through the volume effect, the network operator may choose to use the third party as a market channel. If


the third party can run the market operation more effectively than the MNO,5) total profits will be larger if the former runs the market operation. If the two parties are able to agree upon a contract that splits total profits such that both parties are better off, an outsourcing of the market organisation could be realised. A network operator with a small customer base will probably have higher incentives to give access to a third party than one with a large customer base. The reason is twofold: Firstly, the smaller network is more likely to have idle Capacity than the larger, and hence is more likely to avoid congestion when connecting the third party customers. Secondly, the business-stealing effect for the smaller network operator will be less because the third party will capture more customers from the larger network. The fact that neither Sonofon in the Danish market, nor Telfort in the Dutch market are the largest operators in their respective markets lends support to our assertion that small players relative to large players, indeed have larger incentives to give access to third parties. 20.3. Third Party Price Structures: - Tables 1 and 2, together with Figure 3, give an overview of the structure of the end-user prices, and the roaming and interconnect price components that need to be specified for the call portfolio of an MVNO and a service provider (SP).6) The structure is partly based on the observed MVNO agreement beween Tele2 and Sonofon, and on the general agreements the Norwegian network operators Telenor Mobil AS and Net- Com GSM have made with their service providers, see Sonofon and Tele2 (2000), Telenor Mobil (2001), and NetCom (2001) respectively. Nevertheless, the structures are quite general, and provide a fairly wide-range description of the core business models of an MVNO and an SP. A positive symbol denotes an income for the MVNO/SP, and a negative symbol a cost. Hence, if all price elements were scalars and the subscribers of the MVNO make x calls to subscribers of the MNO, the MVNO makes a surplus of (t1–(p1 + p3))x from these calls. However, each element will in general comprise a vector of prices. Thus, the end-user prices, ti and si, i = 1,2,3, will contain all the elements in the price menu the MVNO/SP offers its customers. Normally this would include monthly subscriptions, connect charges, and airtime tariffs. The same goes for the elements in the last two columns. At least, most MNOs would require different airtime tariffs for peak and off-peak periods. Furthermore, the prices may or may not contain connect charges and subscription. For a call made from one MVNO customer to another MVNO customer, the MVNO would pay the MNO p1 for transmitting the signal from the call-originator’s terminal to the MVNO’s MSC (roaming-out), and p2 for


transmitting it from the MNO’s MSC to the receiving MVNO customer (roaming-in). The price p3 is the MNO’s termination price. For a player with significant market power, the regulatory authority may determine the level of this. Thus, although the roaming in and termination services are technically identical, the prices p2 and p3 may differ for a network operator that is free to set its own MVNO access prices. For calls made from the MVNO to a customer subscribing to any other network, the MVNO would pay p1 for roaming out to the MNO and m2 in transport and interconnect charges to the terminating network. The MVNO itself must negotiate its interconnect charges with other networks. Finally, for incoming calls, the MVNO must pay p2 for the roaming- in service provided by the MNO. In addition it receives q1 and q2 in whatever interconnects charges it manages to negotiate with the parties. The price structure for the SP is much simpler. It pays r1 to the MNO for calls terminating in the MNO’s network, which calls to MNO customers and other SP customers. Furthermore, it pays r2 to the MNO for calls terminating in other operators’ networks. Thus, the SP ‘inherits’ all the interconnect agreements (including roaming) of the host network operator, and does not receive or make any payments to other network operators than its host MNO. This simple structure reflects the fact that the service provider is reselling the services provided by the MNO. In contrast, the MVNO controls its own facilities, as illustrated in Figure 1. The latter, issuing their own SIM cards, will have to negotiate their own international roaming agreements and interconnect agreement. Table 1 Income and costs from calls. MVNO

Source: Source: www.tele2.com


Income and costs from calls. SP

Source: www.tele2.com

Payments between different telecom operators

Source: www.tele2.com


21. Future of MVNO: -


21.1. Future MVNOs: - There are many upcoming MVNOs in the pipeline, however they are very different; they seem to be more mature, building on a core business proposition and mobile as a channel, rather than playing directly in the mobile space with a brand. For me the hottest MVNO prospects are:

• Music MVNOs: - with wholesale data and even "all you can eat" data tariffs emerging but being slow to take-up, this model could work well. However, it will not be downloading as much as you like to a "free Nokia N91". It is more likely to take the form of an established music brand enabling either an On Device Portal to browse, find and purchase music, even download a certain amount of lower quality/realtone tracks immediately over 3G, but the general ideal will be to download and save them on a PC or shared network space and upload them to the device by memory card or even USB connection. As an advocate of wireless & mobile I have found it difficult to admit, but the fact is that MP3s over bluetooth, 3G and even Wi-Fi, just don't make for a great user experience, or aid battery life - the spanner in many mobile cogs!

• Healthcare: - The opportunities are huge: I pay a handsome sum of money every month to an insurance company, less now I have filled in various profiles... the next step is for my insurer to give me a Nokia 5500, which could easily be paid for and more with my insurance, and which uploads my daily footsteps info to their database to reduce my premium when I exercise regularly. To see the output from the Nokia 5500

• Content MVNO: -The content MVNO can work, despite the demise of ESPN, but it will be based on data usage with maybe an On Device Portal or a custom OTA firmware, where the "Vodafone Live" button starts the customer experience, rather that custom handset, and the business model will be around the value of that content, rather than trying to compete on minutes with the network; it has to be a content blackberry in terms of user take-up.


• Global MVNO: - There has been little talk of this model, and so far we have just seen a few SIM based products, however, there is a huge Market for the global traveller, from big city banker to individual consultant with passport, will travel, all the way down to interailing youth. There are many VAS that can be added to this model, from student info to VoIP or even just automated calling card applications.

• Converged MVNO: - People have Skype, Dect phones, mobile phones, work IP phones, work analogue phones, SOHO phones, IM, SMS, uncountable emails, some web, some on exchange, some on their laptop/desktop... there is space for converged MVNOs in every sector, its just a question of who will move first, and watch everyone follow. Or Has Apple already led, and it will take the followers to not be so preoccupied with exclusivity and 40% to realise that convergence, and a X% of their mobile, broadband and roaming is a better deal.

21.2. Future drivers for growth: -

• The market driving user segment will be 19-25 year old.

• On balance, consumers are expected to lead the market, but with business offering better margins.

• Communication applications such as messaging and chat rooms are expected to be the most widespread, ahead of information, entertainment, and in particular, m-commerce, which appears to be some way off.

• The money, however, appears to be in entertainment. There is

unanimity that information services such as traffic or stock quotes, will fail to deliver revenue.


22. Key challenges and issues concerning MVNO:-

In spite of the great scope of the MVNOs in coming future there are still various issues and challenges lying ahead of the MNOs worldwide.

Slowing subscriber growth: - The market is gradually saturating as a result of which the average rate of growth of increase in number of mobile users is decreasing therefore the slower subscriber growth rate is matter of concern for the operators.

Reducing ARPU: The measure of financial efficiency of any telecom company, average revenue per user that is ARPU is consistently falling owing to the growing competition and falling tariff rates.

Higher Churn: with number portability coming in the place it has become even more difficult for the MNOs to sustain their mobile subscribers and retain the growth of ARPU and number of subscribers.

Higher cost of acquisition: The cost of acquisition of infrastructure and necessary roll outs in consistently increasing.

High cost associated with data focus: The cost associated with the acquisition of spectrum for the mobile operations and infrastructure is increasing due to increasing labour and high bidding for the spectrum allocation.

Slashing of the enterprise value: - Due to the falling tariff rates the EBIT is decreasing

Slower development of 2.5G/ 3G technology: - Companies have delayed the roll put plans of these technologies thus making it a costly affair.

Consolidation occurring as weaker players fails: - Merging of infrastructure results in surplus of capacity


23. Conclusion: -

The landscape of the telecom market is changing all over the world and now the emphasis is shifting towards reduction of infrastructure reduction and the competition is being facilitated by access to the intelligent networks. The telecom operators are finding it difficult to address all the segments and the network brands are no longer able to address all the segments. Data that is travelled is not only voice data but today the bundled packet of data is needed.

Consumer and lifestyle brands can add value to the existing telecom market and the ultimate customers in a big way because the existing customer base facilitates in cross selling of the product. Moreover structural adjustments may be necessary such as regulatory and commercial adjustments.

MVNO after a successful deployment in Europe and some Asian markets can be the next big thing for the Indian telecom market. Indian telecom market which is growing with the average growth rate of 45% annually has a lot of promise in form of the untapped rural market where the teledensity is still very low.

MVNO is a better option for the foreign players who want an entry into the lucrative Indian telecom market because of strict regulatory obligations and increasing cost of infrastructure build out as being an MVNO the operator can skip all these requirements up to some extent

Convergence with help of MVNO.


MVNO can also provide a better platform for the convergence of services such as:

1. Fixed networks. 2. Mobile networks 3. Private networks 4. Wireless networks 5. Internet

Brands with established market presence and desire to leverage their business for the benefit of the customers can become the MVNO.

23.1. Obstacles for this new breed: -

• Existing operators are suspicious of their objectives: - Afraid that they will churn their own customers

• Difficult to negotiate a satisfactory wholesale agreement: - Cost plus or revenue minus

• Limited understanding of technology and applications: - Need handholding and expert advice

• Expensive to build an IN platform: - Operator may not be willing or able to share their existing platform

• Opportunity for a new entity to facilitate their development


23.2. The key questions for the operators will be: -

• How do I introduce and manage the innovation to address new market segments

• How do I lower my acquisition costs?

• How do I retain my customers?

• How do I add more value to my business?

• How do I justify network expansion and upgrade?


24. Recommendations:-

� Before allowing the entry of foreign MVNOs in India TRAI should make it clear, what kind of obligations may be imposed on MNOs so that mobile virtual network operations are implemented effectively in India compared to its implementation in other countries

� Justify the suggestions for the eligibility criteria for different MVNO models and regulatory frameworks.

� The number of MVNOs attached to any mobile network operator should be specified

� Figure out the best way to protect the subscribers both in terms of continuity of service and applicability of tariff plan,

• In case of a dispute between MVNO and MNO?

• In case MVNO wants to exit the business

� Review the need for the development or enforcement of the current consumer protection policies, guidelines or instructions to address the issue of slamming or miss-selling.

� Comment on the method of establishing the costs associated with the provision of MVNO services by the host network operator.

� TRAI should seek feedback whether it needs to make provision within

the regulatory and licensing regime to safeguard against effects of cost avoidance or should this be left to market forces.

� TRAI should also seek feedback regarding if some of the regulatory instruments have to be revisited to ensure that there is adequate provision to at best prevent and at worst minimise the opportunity for “win back” within an MVNO scenario.


25. References: -

1. MVNO Directory, MVNO Defined, available at http://www.mvnodirectory.com/ mvnodefined.html

2. InfoDev, Definition of a Mobile Virtual Network Operator, available at http://www.ictregulationtoolkit.org/content/practice_notes/detail/1985

3. ITU, Regulatory treatment of mobile VNOs, available at http://www.itu.int/osg/spu/ni/3G/resources/MVNO/index.html.

4. www.trai.gov.in

5. Consultation papers issued by TRAI

6. www.mvnoforum.com

7. Voice and data

8. press release http://www.bit.se/bitonline/2001/08/24/20010824BIT00230/08240023.htm or

http://www.Tele2.com

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