Virgin Mobile’s entry into India through a tie-up with Tata Indicom has virtually kicked off the entry of mobile virtual network operators (MVNO) into the country.

MVNOs provide cellular services but do not own either the radio spectrum or the network/infrastructure that consists of switches, microwave backbone, towers and so on. Mostly, they buy bulk minutes from the spare capacity of existing cellular operators and offer their own tariffs and services under their own brand and marketing efforts.

MVNOs are not yet allowed to operate in India and therefore Tata-Virgin tie up kicked up dust the moment it was announced a few days ago. The reason: Virgin is arguably the most well known MVNO in the world. It was the first such operator to launch the services in UK in 1999. Since then, it has been eying the world’s fastest growing cellular market but could not get a foothold because of the policy constraints.

So, it has found a way around it. The Tata-Virgin tie-up has been presented to the government as a franchise arrangement where Tatas would pay Virgin for using its brand and Virgin, in turn, would work more as a dealer-cum-sub brand of Tata Indicom. The purpose: This sub-brand would fill in a big gap that Tata Indicom has had in its marketing efforts – the youthful image. Tatas lost out to the youth segment and lagged behind the likes of Bharti Airtel and Vodafone in tapping the crucial spendthrift segment.

Virgin has moved fast. Its ‘Think Hatke’ campaign-with site links to various services like ‘make em drool’, ‘cut the crap’ and ‘hot stuff’-amplifies that point.

Actually, the Tata-Virgin move goes beyond just one company’s move to fill in marketing gaps. It has the potential to affect the telecom policy. Department of Telecom (DoT) has indicated that it may not have any objections to the entry of MVNOs and that telecom regulatory authority Trai may put in place a set of recommendations that may get a policy nod.

Trai sources say meanwhile that it has yet to receive a formal communications from DoT to formulate guidelines for MVNOs. Besides, there are some who feel that time is still not ripe to ‘make airtime/spectrum resellers out of operators’, a move that may curb investments in telecom infrastructure. Others say that MVNOs may increase competition at the retail level but would remain marginal players.

“Broadly speaking, we feel that there are already a large number of cellular operators in the country providing enough competition that has made our tariffs lowest in the world, leaving small scope for duplicate margins,” says Bharti Airtel president Manoj Kohli. “Besides, all the major players are addressing youth and niche market segments. So, it would be interesting to see how the MVNOs will build a viable business case,” he adds.

That may well be the case but going by the response that Tata-Virgin’s ingenious arrangement has generated tells of a different trend. There are already reports that Reliance communications is planning to tie up with France Telecom’s Orange brand.

Not just that. It might be a good opportunity for smaller players who operate in 2-3 telecom circles in the country to either become MVNOs themselves or to aggressively grow through the sub-brands of established MVNOs, thus recovering their investments faster and expanding more quickly. One such small operator is considering such moves.

“We are very keen on MVNOs. We have been getting feelers in the past and now we are studying various models to give this business some shape,” says Group president, Operations, of Spice Corp Dilip Modi. Actually, similar statements showing interest in MVNO business have reportedly come from state-owned firms like BSNL and MTNL.

Pending a final policy and regulatory framework, it seems however that several companies will set on the franchise route so as not to miss the bus. So, what is it that makes MVNOs and sub-brand franchise arrangement so interesting?

To being with, MVNOs do not have their own infrastructure or spectrum and ride on buying bulk airtime from existing operators. It benefits both parties. While MVNOs get a piece of action in fast growing cellular markets without huge investments, existing operators gain from lower operational costs because services functions like billing, sales, customer care and marketing are done by the MVNOs to attract customers in niche areas and segments that are left out by the existing operators. Existing operators also gain in the form of low churn increased revenues through financial arrangements.

Consumers gain from being offered various new applications at lower than normal tariffs.

Various estimates show that there are around 350 planned or operational MVNOs worldwide, although with mixed results. For instance, Virgin has gathered four million customers in the UK and build a strong brand attracting young customers, industry experts here say that its MVNO ventures in Australia have not been so successful, and failed in Singapore.

Actually, MVNO strategies vary from market to market, and so do their offerings. Broadly, MVNOs work independently of the mobile operators and have their own applications and pricing structures.

Some of the popular strategies adopted by MVNOs include, call rate discounts, lifestyle offerings through various applications and building revenues from advertising to offer free voice, text and/or content.

Says PwC associate director Arpita Pal Agrawal, “from the customers’ perspective, if an MVNO makes a special offering for working-women, then why not?” As for the Indian cellular market, Agrawal says that there is enough competition with more to come and therefore a couple of MVNOs here or there won’t make a very big difference. But she was of the view that the timing and business case was something that was best left to the MVNOs entering the country.

Overall, it may be early days for India to start talking about full fledged MVNO services, but one thing is clear: all the major telecom companies have been energised by the entry of Virgin Mobile, although through an indirect route of franchise arrangement to begin with. And, going by the comments from stakeholders, it seems that India-which is looking at over 500 million cellular subscribers within a couple of years, about double the current numbers-will have enough room (or gaps) for MVNOs to help expand the market even more. How soon it pans out would depend upon policy makers and the regulator.