Telecom panel paves way for virtual network operators

The government has decided to allow virtual network operators to set up shop in India, giving consumers more choices for voice and data services, while telecom companies will have additional options to monetise unused airwaves.

Virtual network operators (VNOs) provide mobile services without owning spectrum or mobile infrastructure. Typically, a VNO buys bulk talk time and bandwidth from a telecom operator and resells it to users under its own brands.

The Telecom Commission on Monday approved a new category of unified licence for virtual network operators, with an entry fee of Rs7.5 crore for those who want to offer all services. For others, the fee would range from Rs15 lakh for national-level internet services to Rs1.25 crore for a long-distance telecom licence. The permits would be valid for 10 years.

Separately, the commission questioned the Telecom Regulatory Authority of India's pricing formula for 4G airwaves in the 700 MHz band and its suggestion to sell all available spectrum in the band. Trai, which had recommended record high prices for the efficient 4G bandwidth, needs to respond with clarifications in 15 days.

After Trai responds, the commission - the top decision-making body in the telecom department - will take a final call.

The industry had panned the suggested price of Rs11,485 crore for 1 MHz as too expensive. Most telcos also oppose auctioning the band now, citing lack of an ecosystem to provide the service.

The commission, however, accepted Trai's recommendations on VNOs in full. "A VNO will be able to enter into arrangements with multiple service operators and vice versa," a senior government official said.

Mobile VNOs provide differentiated services to customers by targeting niche market segments such as retail, business, roaming, etc. This helps avoid direct competition with telcos and also generates additional revenues for both virtual network operators and spectrum owners.

Often their services cost lower than those from major wireless companies, which could prove to be a boon for consumers. Also, it could benefit customer-facing sectors such as ecommerce, retail and even banks, which could directly gain access to crucial customer insights and behaviour patterns by becoming VNOs themselves.

Telcos, especially the weaker ones, would have more options to monetise unutilised airwaves, besides trading and sharing, by getting a VNO partner. Others such as Telenor India could expand their presence by riding on someone else's network in areas where they don't have a footprint.

A report by Grand View Research had pegged the global mobile VNO market at $73.20 billion by 2020, helped by increasing mobile subscribers and demand for data services.

Key global players include Virgin Mobile, Tracfone, Tesco, Lebara Mobile, Lyca Mobile, TalkMob, Giffgaff and Poste Mobile.

Rajan Mathews, director-general of GSM lobby body Cellular Operators Association of India, said top telcos such as Bharti Airtel, Vodafone India and Idea Cellular don't have excess capacity to take on VNOs, and their brands are very strong. The move, however, could help the likes of state-run Bharat Sanchar Nigam Ltd and Mahanagar Telecom Nigam Ltd, which have sizeable excess or idle capacity on their networks. These telcos could well turn to VNOs with strong branding and marketing skills to boost utilisation levels.

The commission's decision needs the telecom minister's approval, which is expected in the next few weeks, an official said. This would finally clear a policy which has been debated in the country for over eight years.

To ensure that revenue to the government doesn't get leaked, VNOs must pay licence fee and spectrum usage charge at the same rates as paid by telecom operators. Telcos pay a portion of their adjusted gross revenue as these fees.

Local cable operators and multi-service providers, which may want to offer broadband services, can do so by obtaining a VNO licence.

VNOs would not be required to provide performance bank guarantees. They will also not be subjected to rollout conditions as they do not own any network. Customer verification and number activation shall be the responsibility of the VNOs for their customers.