Over the last decade, the Indian mobile industry has transformed the personal connectivity and customer service experience both in terms of the consumption of basic communication services and data-driven enriched content and mobile applications.
As a result of the policy initiatives driven by the government, the changing regulatory environment, and the advent of new competition, a dramatically different mobile virtual network operators (MVNO) world is emerging – moving parallel to the Internet of Things (IoT), enabled by evolving business models, and driven by a hyperconnected digital world. Despite uncertainties that still remain, the need for strategy and innovation, as well as the necessity to evolve, remain clear. Developing strategies to help meet business goals in the midst of an MVNO revolution raises many questions and requires a thorough understanding of the current landscape.
Indian Market Dynamics
The digital platform economy is transforming the way that people interact and do business. Combined with the phenomenal success of the mobile virtual network operator model, it will continue to shape the mobile industry for the next decade. With the telecom regulator issuing guidelines for MVNOs, India is set to herald an era of no-frills telecom services. Out of the 61 companies that received approval for a virtual network operator (VNO) from DoT in May 2017, a majority of the VNO licenses were awarded to companies in tier-II and tier-III cities such as Surat, Ahmedabad, Vadodara, Rajkot, Kanpur, Agra among others.
Interestingly, Adpay Mobile Payment India Private Limited, NTT Communications, and Microtalk Communications were the only companies who received a pan-India ISP license under the VNO regime.
Adpay runs an MVNO named Aerovoyce in Chennai, which was launched commercially in June 2017. Aerovoyce with BSNL offers voice, data, mobile value added services (VAS), integrated wallet/payment solutions, and entertainment contents. The company aims to capture 100,000 customers in the first three months of operations and invest300 crore over the next three years.
NTT Communications will use the VNO license to provide enterprise services only.
Plintron Global Technology Solutions is planning to launch its MVNO services soon. Plintron is partnering with BSNL to use its network to launch its telecom services. The MVNO operator will be launching services in all 22 circles.
The Lyca Group has planned to enter the mobile virtual network operator market by launching Lyca Mobile service in the country.
Virgin Mobile, Lebara Mobile, and Tune Talk, well-known globally as mobile virtual network operators (MVNO), may shortly foray into India. Hyderabad-based Xius, a supplier of mobile infrastructure solutions and payments technology, will soon approach the three global MVNO brands to launch their services in India.
The entry of such operators is expected to push down the cost of providing telecom services for companies and even give them room for cutting down tariffs.
However, offering enhanced network connectivity with consistent Quality of Service (QoS) has been a concern for most MNOs in the recent past and ensuring Service Level Agreements (SLAs) would continue to be a challenge. In a market where the primary telecom operators themselves are offering substandard voice and data services, MVNOs, who buy connections from networks, such as Airtel, Vodafone, Reliance, Idea, etc. are unlikely to be able to offer any better services. In fact, they may not be in a position to address subscribers' grievances about poor services, since they will have little control over the physical infrastructure of the host operator.
India has one of the lowest call rates in the world and a sizeable scale would be required in case of only re-selling minutes. Reliance Jio's entry into the telecom sector, along with its disruptive pricing, is all set to put a big dent on the MVNO market. Jio's entry has already affected existing telcos, forcing them to slash costs and take aggressive decisions to stay afloat. The impact on MVNOs could be so much that they would find it tough to negotiate feasible terms with telcos that could have partnered with them, since they are themselves fighting to hold on to margins.
While most markets where MVNOs have been successful have four to five operators, at best; in India, most states have up to 12 operators. Besides, since they sell lower-priced voice and data packs, MVNOs will have a tough time creating a market for themselves. ARPUs in India are already among the lowest in the world. Undercutting that will either extend MVNOs' gestation period or leave them deep in the red.
Overall, given the changes in the telecom sector currently, the scenario looks slightly hostile for Indian MVNOs.
Some Possible Opportunities
Bespoke products for highly penetrated markets. Highly penetrated markets, like Delhi, Mumbai, and Chennai, may have customer segments that are underserved in specific aspects of their service experience. Such clusters can be targeted by an MVNO.
Rural penetration. Rural India offers promising growth for data usage as there is low focus of existing players. This could offer potential opportunities for subscriber acquisition.
Tier-II and Tier-III Cities are upcoming hubs of business and academic activities. A focused approach can create a formidable market for an entrant.
M2M and cloud play. Specialized needs for Machine-to-Machine (M2M) and IoT may be targeted over the next two to three years to offer potential for rapid device additions and growth of connected devices.
Digital India and smart cities. With the government's emphasis on creating smart cities, providing better rural access and connectivity, mobiles are slowly enabling the enterprise segment. Key aspects such as mobile payments and IoT will take precedence in the near future, thereby creating opportunities for players to offer services for the niche segment.
The global market for mobile virtual network operators is expected to reach USD 75 billion by 2023, estimates Forrester Research. Growth is expected to remain at about 7–10 percent annually. After a difficult start to 2016, consumer sentiment improved in most major markets and new customer numbers rose for MVNOs in Europe, Asia, and the United States.
Europe saw the most activity, followed by the United States, and Asia, with many emerging markets developing more slowly – China was, however, an exception which saw relatively rapid market increase.
European MVNOs were particularly concerned about increased carrier rates, with margins decreasing as carriers conducted price wars. Increased regulation was also a key concern in Europe, where the European Commission is preparing regulations to cap roaming charges – some believing that the move will price wholesale roaming too high. In Europe, there is also grave concern about Brexit, as the largest European MVNO market leaves the Union. There has been relatively steady growth in Europe, compared with other major markets, in LATAM, APAC, and Africa. New entrants will increase competitively in these regions, as they are still underserved. In the Middle East, on the other hand, regulatory barriers are still keeping MVNOs out in many markets, although some survey respondents believe that this will change in the near future.
In the United States, where growth has been steady, the transition to VoLTE is of major concern, as is the need to improve customer focus to increase market share.
A vast majority of players plan to invest in new technologies in 2017 – eSIM is a notable example. Better-defined offers will be a key factor in MVNOs' ability to compete. As part of this, current and new MVNOs will also need to improve brand identity, clearly building brands that have specific customer segments as targets.
Offering a mix of services, including those that are not necessarily telecom-related, will also be a key strategy for MVNOs in the coming years.
Improved customer service, so that the customer experience becomes entirely satisfying, will also be critical for operators in the near future. Overall, MVNOs see themselves as well-positioned for growth and profit in the coming years, as the potential for attracting new customers with innovative offers and services remains important, if the companies can evolve to become closer to the customer.
There are still large numbers of new entrants in the sector, particularly in Europe and Asia, but consolidation is expected as some MVNOs fail to develop a clear brand identity and to successfully target specific customer segments.
The Road Ahead
Most industry players believe organic growth will surpass growth by acquisition, or by offering new sub brands. Innovative offers and pricing are seen as key elements to this organic growth. Operators are still devising packages that make insufficient reference to the customer, and they are not making enough effort to fit services to customer needs. This is where MVNOs can seize the opportunity to grow. MVNOs have the ability to offer a wide range of services, going well beyond telecoms. They can offer, along with voice and data, improved security for communications, as well as higher quality services and a much broader and higher quality of content. But they also have the ability to offer services like banking, money transfers, insurance, and OTT applications. Then, better-targeted offers combined with vastly improved customer services will support growth as well. One still sees, again and again, reports in the press, of customers who have had bad experiences with MVNO services, waiting on hold for far too long, or obliged to call back five times in order to get an issue resolved. Operators acknowledge that MVNOs have a lot of progress to make in this area, and such amelioration would offer growth opportunities.
MVNOs have also been less successful than might have been expected at targeting underserved or specialized niches in the market. In principle, they could be more flexible and more responsive than the larger MNOs. But MVNOs have hesitated, to target niche markets that risk not offering sufficient revenue in return. Some operators have also been insufficiently skilled at creating a brand identity that is distinct, one that could be developed for a specific market.
Brand identity, with more clearly targeted markets, has become indispensable for MVNO growth, and those companies that can succeed in building brands will take the market share and be able to exploit growth opportunities. A similar growth opportunity will come from the alliances between cable operators and MVNOs. More and more cable providers will rent a specified amount of capacity from a wireless operator and then resell it to its customers, while the MVNO can offer a swathe of cable-based services to its users. Neither company has to build their own infrastructure while adding new services to their offer.
Overall MVNOs see themselves as well-positioned for growth and profit in
the coming years, as the potential for attracting new customers with innovative offers and services remains important. However, these opportunities will require a ramping up of customer focus and customer service if they are to capitalize on this opportunity.