New Virtual Network Operators License Regime – Unified Licence VNO (UL-VNO)

On June 3, 2016, the Telecom Department has released licence guidelines for virtual network operators for license called Unified Licence VNO (UL-VNO). This opens the door for a new class of telecom players in the country viz. VNOs. Earlier, there was a proposal by the Telecom Commission to allow a licensing regime that would facilitate entry of VNOs or Mobile Virtual Network Operators (MVNOs). VNO policy and license regime would help spread the internet better in areas where large firms are typically not interested in—that is, it could help further Digital India in villages and small towns.

Important Facts

What are VNOs and NSOs?

Virtual Network Operators or VNOs are basically resellers the telecom services. Unlike the Network Service Operators (NSOs), the VNOs don’t own their own infrastructure {such as towers}. What they do is that – they enter into a business agreement with a NSO to obtain bulk access to their network services at wholesale rates and then set retail prices independently. Thus, when we become customers of VNOs, we are actually getting service from a shared network infrastructure which is actually owned by NSO but we are billed by VNO. Thus, the biggest advantage of VNOs is that they are not required to duplicate the infrastructure. The core investments by leading NSOs is shared by both NSOs and VNOs.

What are MVNO, MOLO and MVNE?

A mobile virtual network operator (MVNO) or a Mobile Other Licensed Operator (MOLO) is a VNO who provides mobile services. They don’t have core infra. They may invest in customer service, billing support systems, marketing, and sales personnel etc. which makes them resellers to retail customers. However, if they don’t want to invest in these also, they can simply deploy the service of a mobile virtual network enabler (MVNE).

About Global / Indian presence of MVNOs

MVNOs did not exist in India so far. They exist in countries like the United States and United Kingdom. Virgin Mobile, Tracfone, Tesco, Lebara Mobile, Lyca Mobile, TalkMob, and Giffgaff are some key players in the global MVNOs space. It is observed that these existing MVNOs would reach $73.20 billion by 2020, by increasing mobile subscribers and demand for data services.

Salient Features of the UL VNO regime

Salient features of the UL (VNO) regime as released by TRAI are as follows:

• A licensed VNO will be able to deliver any type of telecom services – including home telephony, broadband and OTT services like messaging, Voice over Internet Protocol (VoIP) under the new license regime.
• The grant of license has to be completed within 60 days. There will be no restriction on the number of VNOs license per service area. The license once granted shall be valid for 10 years subject to other conditions.
• An applicant can apply for VNO license for different categories of service such as All Services, Access Service, Internet Service Provider (ISP) service, NLD (National Long Distance), ILD (International Long Distance), PMRTS (Public Mobile Radio Trunking Service), GMPCS (Global Mobile Personal Communication by Satellite), VSAT CUG, INSAT MSS-R and resale of IPLC  (international private leased circuit) services.,
• Applicant must be an Indian company.
• One company can have only one VNO license but they can apply for more than one service subject to the fulfilment of other conditions
• Foreign direct investment holding in the company should be as per FDI policy announced by the government of India from time to time.
• VNOs that enter the network would do so based on arriving at a mutual agreement between an NSO and VNO
• VNOs shall be allowed to create their own service delivery platforms irrespective of customer service, billing and VAS
• No spectrum is assigned to the VNOs.
• Virtual Network Operators will be charged one time non-refundable entry fee for authorisation of each service and service area. The total amount of entry fee will be subject to a maximum of Rs 7.5 crore. In addition to entry fee an annual license fees and spectrum usage charge of 8 percent will be charged as per AGR.
• There should not be beneficial interests between one VNO and another NSO or one VNO and another VNO operating in same service area.

Questions for Analysis

• Analyze the business model of VNOs. How it is suitable for India?
• What could be the probable challenges faced for establishing VNOs?
• What can be possible implications on the market? Will VNOs emerge as rivals of NSOs? Or they work in tandem?
• Discuss the functions of Telecom Commission which had recommended the VNO model in the country.

Analyze the business model of VNOs. How it is suitable for India?

The central feature in VNO business model is “infrastructure sharing”. When the players are allowed to share the infrastructure already set by different network service providers, it addresses some of the major concerns faced by the Indian telecom industry. Thus, a quick analysis of the business model gives us three or four benefits as follows:

• Firstly, most NSOs have made very high investments in getting infrastructure ready and getting spectrum licenses. However, they have not been able to provide services due to commercial reasons such as not possible to reach out to distant service areas etc. The VNO model will allow them to optimize their resource by allowing new VNOs to use their infra and provide service to distant areas. This would give NSOs a recurring income.
• Secondly, VNO model is essentially a reseller model. This would give opportunity to new entrants, particularly small ones, and help to widen the scope of services to existing players. This new license regime means that even a cable operator is able to provide telecom services. This would fill the gap in last mile connectivity.
• Thirdly, since the model is based on infra sharing, it would effectively bring down the cost of service delivery. The ultimate advantage would go to the end customers, who would be able to enjoy the services at competitive prices.
• Fourthly, one of the biggest costs for a telecom operator in India has been customer acquisition. In a growing country, while the growth of telecom subscribers in metros and Tier-I cities has more or less saturated, Tier-II towns and circles have shown tremendous growth in mobile subscribers. This is the main area where an MVNO could make itself count.
• Also public sector operators like BSNL or MTNL can utilise the MVNOs increase their penetration. They have a large infrastructure in place but they lack marketing capabilities. So this could be their chance to penetrate more into the market and generate more revenues.

The above points make it clear that proliferation of VNOs would help the Government to address the connectivity concerns in rural areas and thus realising the ideal of one connected India. The Government plans to increase rural tele-density from current 39 to 70 by 2017 and 100 by 2020. This target was unachievable but latest license regime raises some hopes in this direction.

What could be the probable challenges faced for establishing VNOs?

An VNO policy could help in the long run for making Digital India into a reality by reaching to every nook and corner. However, it is not free from challenges in its path. According to the policy, the costs seems to be prohibitive. The entry fees of R7.5 crore being sought for a 10-year period, makes this as expensive as a full-blown telecom licence while globally, the rates for MVNOs are near negligible. Therefore, the government needs to be more realistic.

Besides this, the other challenges could be-

• Win back strategies from the existing MNOs.
• Service diversification.
• Price competition.
• Infrastructure and technology.
• Customer segmentation.

What can be possible implications on the market?  Will VNOs emerge as rivals of NSOs? Or they work in tandem?

VNOs will not act as rivals to NSOs. Since the business model revolves around reseller concept, NSOs would continue their dominance in respective markets. VNOs would work in tandem with NSOs and regulatory bodies will help in creating and sustaining a competitive environment.

Discuss the functions of Telecom Commission which had recommended the VNO model in the country.

The Telecom Commission was set up by the Government of India in 1989 to deal with various aspects of Telecommunications. It consists of a Chairman, four full time members, who are ex-officio Secretaries to the Government of India in the Department of Telecommunications and four part time members who are the Secretaries to the Government of India in the concerned Departments. The Secretary to the Government of India in the Department of  Telecommunications is the ex-officio Chairmen of the Telecom  Commission.

The Telecom Commission is responsible for:

• Formulating the policy of Department of Telecommunications for approval of the Government;
• Preparing the budget for the Department of Telecommunications for each financial year and getting it approved by the Government; &

Further, it is also responsible for implementation of Government’s policy in all matters concerning telecommunication.