34 5.1 Telecommunications Mobile Virtual Network Operators (Mvnos) of Late, the Indian Telecom Sector Is in the Midst of Further

5. INFORMATION AND COMMUNICATION TECHNOLOGY

5.1 Telecommunications

Mobile Virtual Network Operators (MVNOs) *

Of late, the Indian telecom sector is in the midst of further reforms. After the policy for launching of 3G services, the government has moved a step ahead by allowing the MVNO model, thereby increasing competition and improving services for the consumers. The introduction of MVNO is seen as advancement towards efficient use of existing telecom infrastructure. As a result, mobile tariffs in the world’s cheapest Indian telecom market are set to fall further. The cellular subscribers will benefit as well from a range of sophisticated services as the entry of MVNOs is set to further increase competition in the world’s fastest growing Indian mobile market.

In August 2008, TRAI has cleared the entry of MVNOs in the telecom sector and has recommended their introduction as ‘distinct service providers with its own licensing and regulatory framework’. The proposal to allow MVNOs was initially delayed as the communications ministry was unable to release the guidelines for MVNOs, since the Department of Telecom (DoT) and Telecom Regulatory Authority of India (TRAI) had not found consensus on key issues. However, after taking into account the comments received from stakeholders during the public consultation process, international experience and internal study, TRAI has finally formulated its recommendations.

According to TRAI recommendations, the agreement between Mobile Network Operator (MNO) and MVNO would be driven by market forces and would be free to choose its business model. However, the agreement with MNO has to be submitted before issuance of licence to DoT by the MVNO.

In May 2009, the Telecom Commission (TC), the highest decision making body of the communications ministry has cleared the proposal to allow MVNOs to launch operations in India. The TC, while clearing the proposal, has stated that MVNOs cannot go for multiple parenting in India i.e. an MVNO can tie-up with only one MNO in an area for their services. On

* Please see Box V.1.

34 the other hand, an existing operator can tie-up with any number of MVNOs. However, to operate as an MVNO, a separate licence would be required. The commission has announced that MVNOs would be given licences for a 20-year period.

Table 5.1: TRAI’s Recommendations for MVNO No. Major Recommendations 1 MVNO to be issued a license under Indian Telegraph Act 2 Eligibility Criteria : Any Indian Company having a networth of Rs 10 crore for Metro/ Category A, Rs 5 crore for Category B and Rs 3 crore for Category C service area, paid up capital of 10% of prescribed networth and satisfying licence conditions such as FDI, substantial equity etc., eligible to apply for MVNO licence. 3 MVNO to get parented to an MNO in a service area. 4 The license service area of MVNO to be same as that of parent MNO. 5 No limit on number of MVNOs attached to an MNO. 6 Entry fees for MVNOs – 10% of MNOs subject to a maximum of Rs 5 crore for Metro/ Category A, Rs 3 crore for Category B and Rs 1 crore for Category C service areas. 7 Annual licence fees same as that of MNO of the service area. 8 No Roll out Obligations for MVNO. 9 FDI limit 74% (same as MNO). 10 Restrictions on mergers and acquisition on similar lines as MNOs Source: TRAI (www.trai.gov.in)

The government will soon issue a formal notification along with guidelines for MVNOs to operate in India. Once accepted by the DoT, the licensed telecom service provider can resell their spectrum to MVNOs, who would then provide direct services to consumers, like Virgin Mobile does now under a different set up. At present, Virgin Mobile, the world’s largest MVNO, is already offering mobile services in India through a marketing tie-up with Tata Group Company and is expecting to convert itself into an MVNO once the policy is approved.

Certainly, the move to allow MVNO model would lead to many more players entering the telecom space, leading to greater competition, lower tariffs and deeper tele-density. It is expected that the new telecom companies, who were granted licences last year, may partner with MVNOs, as it would bring them additional revenues and facilitate them to expand their services speedily across the country.

35 Box V.1: Mobile Virtual Network Operator (MVNO ) MVNO is a company which provides cellular services to its own customers, but does not have its own licensed frequency allocation of radio spectrum, nor does it have the entire infrastructure required to provide mobile telephone services, such as mobile switching centers (MSCs) and radio access network. MVNOs’ business model involves buying airtime from existing Mobile Network Operator (MNO) that own telecom infrastructure and selling it to consumers under their own brand. World-over, the MVNO’s relationship with the MNO vary among countries depending on the telecom regulatory norms. In general, MVNOs work independently of the MNO and are allowed to set their own pricing structures, subject to the rates agreed with the MNO. The first MVNO was created by Tele2 in Denmark, and subsequently rolled out in several European markets. However, the first commercially successful MVNO was Virgin Mobile launched in the UK in 1999 and now has over 4 million customers. As of February 2009, there are over 400 active MVNOs operated by over 360 companies. Countries including Germany, France, The Netherlands, Denmark, Finland, UK, Belgium, Australia, Japan and US have the most MVNOs. Companies, such as the UK-based Virgin Mobile, British Telecom and Japan’s KDDI, have based their telecom strategy on MVNO model. Other countries, such as Russia, Portugal, Spain, Italy, India, Chile and Austria are just beginning to launch MVNO business models.

Supervisory Measures

Centralised Monitoring System

The government is investing Rs 450 crore to establish a central autonomous agency that will monitor all communication traffic to tighten the country’s security and surveillance set-up, and make sure no early warning of terrorist attacks is lost in the medley of agencies currently tracking them. The agency, to be called ‘Centralised Lawful Interception and Monitoring System’, will monitor transmission through wireless and fixed lines, satellite, internet, e-mails and voice over internet protocol calls.

Unique Identification Number

The government has given go-ahead to GSM operators to provide a new unique identification number to over 16-million China made mobile handsets in the country. Users of these handsets, which do not have the 15-digit International Mobile Equipment Identity (IMEI) number, will have to shell out about Rs 180 to obtain the number. The DoT had earlier asked telecom operators to bar services to phones without IMEI number, citing security reasons. By and large, a number of locally assembled phones and handsets imported from China do not have IMEI numbers that allow security agencies to trace the location of the phone user.

36 In fact, DoT had proposed to bar all mobile phones without IMEI number after investigations into last year’s bomb blasts revealed that cellular phones used by terrorists did not bear valid IMEI numbers. But now with the new software, developed by GSM operator’s body Cellular Operator’s Association of India (COAI) and Mobile Standards Alliance of India, users of such handsets can obtain genuine IMEI numbers and continue to receive telecom services. In order to provide the IMEI number, the COAI is setting up 1,600 centres across the country. At present, around 10 centres in Delhi are offering these services. According to industry estimates, Chinese handsets account for about 4%-6% or 16-20 million handsets.

Gross Telecom Subscribers

Data published by TRAI exhibits that during the month of May 2009, gross subscriber base consisting of fixed and mobile users have touched 452.91 million, displaying a rise of 43% over the corresponding period a year ago. There has been an addition of 11.44 million subscribers by the end of May 2009 as compared to 11.75 million connections added in April 2009 . This improvement in subscription level has led the telecom sector to attain an overall tele- density (the number of telephone subscribers per 100 people) of around 38.8 in May 2009 as against 37.9 a month earlier.

Table 5.2: Growth of Fixed Phones, Mobile Phones and Broadband Connections (in million) Monthly Monthly % Growth Additions Additions Category Apr-08 May-08 Apr-09 May-09 During During May During May 2008-2009 2008 May 2009 Mobile 269.3 277.92 8.62 403.66 415.25 11.59 49.4 Fixed 39.21 39.05 -0.16 37.81 37.66 -0.15 -3.6 Total 308.51 316.97 8.46 441.47 452.91 11.44 42.9 Broadband 4.01 4.15 0.11 6.28 6.4 0.12 54.2 Connections Source: TRAI (www.trai.gov.in)

37 Mobile Subscribers

Mobile subscribers [(GSM, CDMA & WLL (F)] * have bulged in number 49% to 415.25 million over the period of the previous year. There has been an additional subscription of 11.59 million subscribers during May 2009 alone, showing an improvement of 8.62 million over that recorded in May 2008, but lower from 11.90 million added in April 2009.

Fixed-Line Subscribers

While there has been an increase in the addition of wireless subscribers, the number of fixed- line users has continued to dwindle with the subscribers’ base declining to 37.66 million in May from 37.81 in April. In the fixed-line segment, a total of 0.15 million subscribers have discontinued their services during May.

Internet Services and Broadband Growth

The broadband subscriber base by the end of May 2009 has registered a rise of 54% to 6.4 million as against 4.15 million subscribed a year earlier. There has been an addition of 0.12 million broadband connections over the period of one month.

Other Highlights

BSNL launches voice and video

State-owned telecom operator, BSNL has announced a soft launch of voice and video services on its broadband network in Gujarat for the first time in the country in order to increase its market share in the broadband services market. The project covers a wide spectrum of telecom services including video telephony, video surveillance and integrated mobile advertising. BSNL has tied up with Ahmedabad-based Sai Infosystems (SIS) for video telephony and has signed an agreement with Delhi-based RiVACOM Pvt. Ltd for video surveillance. Both,

* GSM – Global System for Mobile Communication, CDMA – Code Division Multiple Access and WLL(F) – Wireless Local Loop (Fixed).

38 SIS and RiVACOM will be providing the software solutions and equipment for video telephony and video surveillance services, respectively.

5.2 Information Technology

IT and BPO Companies Moving to Tier-II &Tier-III Cities

Of late, the Tier-II and Tier-III cities are emerging as the favourite destinations for the IT and IT-enabled services (ITeS) companies as they offer a cost benefit of over 30%, compared to prime cities like Bangalore, Hyderabad, Chennai, Mumbai and Delhi. The Tier-II cities now account for 25-30% of total IT and ITeS exports from India. Recently, some of the Tier-II cities have witnessed phenomenal growth in software exports. For instance, the aggregate exports of software and ITeS from Chandigarh and its neighboring townships – Mohali and Panchkula have increased to Rs 1,051 crore in 2008-09 against Rs 806 crore in 2007-08, as per data provided by Software Technology Parks of India (STPI). Of the total exports of Rs 1,051 crore, the exports from SEZs of Chandigarh increased to Rs 318 crore in 2008-09, posting a growth of 127% in one year of its operation. Infosys Technologies retained the position of top IT exporter from this region as its total exports, including SEZ, was Rs 565 crore against Rs 343 crore a year-ago.

Likewise, in the last 2-3 years, a number of Business Process Outsourcing (BPO) units are setting up new call centres in Tier-II and Tier-III cities to save on real estate costs and stem attrition rates. The attrition rate in major IT clusters is very high. This is forcing the BPO companies to look at tertiary cities to tap the manpower.

Spanco Ltd., India’s biggest domestic BPO services provider, is planning to set up call centres in Tier-III cities such as Indore and Dehradun to get closer to the relevant workforce and contain employee costs. The company is also setting up a call centre at Thane. At present, Spanco manages call centre work for telecom firms such as RCom, Vodafone and Citicorp among others and is looking for a share of the Rs 6,000 crore IT contract from BSNL. In 2007, Bharat BPO Services Ltd, a part of consortium led by Spanco (then Spanco Telesystems & Solutions Ltd), bagged the contract to manage Indian Railways call centre for 10 years. In 2008, the firm won a contract from Maharashtra government to prepare 180 million computerised ration cards. Currently, the company employs 5,000 people.

39 Acquisitions and New Deals

Aegis, the BPO arm of the Essar Group, is acquiring South Africa-based firm Call Centre Nucleus (CCN) for about Rs 90 crore (ZAR 150 million). This is in line with the group’s intention to expand its business in the African continent. Aegis BPO has acquired 12 firms worldwide in the last three years. Latest to come into its fold is an Australian BPO service provider, UCMS Group, which it bought for AUD 45 million this year. In October last year, Aegis BPO has acquired Nasdaq-listed off-shoring firm PeopleSupport for close to Rs 1,057 crore. This has enabled the company to add the Philippines to its list of delivery locations.

Nasdaq-listed EXL Services has acquired the operations of European logistics provider Schneider Logistics in the Czech Republic. The facility currently provides transaction processing services to Schneider and its clients in Europe and the US. The company’s 200 employees will be transferred to EXL as part of the transaction. Analysts peg the transaction value at about $3-5 million (Rs 15-24.5 crore).

IBM has bagged 10-year outsourcing deal worth over Rs 80 crore from the Gujarat Co- operative Milk Marketing Federation (GCMMF). The company will be providing information technology solution to GCMMF and its milk units to support their growth plans. Under the terms, IBM will manage and operate the IT environment of GCMMF by setting up a technology platform based on Enterprise Resource Planning (ERP) system and a data-centre backed by Disaster Recovery Centre. As a result, the co-operative will be able to improve its supply chain, achieve stronger growth and strengthen customer focus.

India’s biggest tech firms TCS, Infosys and Wipro, apart from business software vendor SAP and IFS Defence are currently pursuing contracts worth Rs 2,000 crore from the country’s defence forces, the Indian Air Force (IAF) and the Army, who are seeking to modernise their processes. Two of the biggest IT projects currently underway at Indian Army and IAF are computerisation of inventory control project (CICP) and integrated materials management online system (IMMOS), respectively.

40 Other Highlights

‘Project Arrow’ was launched by the Department of Post last year, as part of its efforts to provide world-class service to customers. The project is now being extended to 500 more post offices, under phase III to upgrade and modernise these post offices across the country with an investment of Rs 65 crore. The project aims to create post offices as a vibrant organisation equipped with IT-enabled services and better infrastructure in order to improve the quality of services like mail delivery and postal saving scheme.

Chinese computer manufacturer Lenova has launched seven new personal computers (PCs) and has announced plans to introduce 50 new products this year to strengthen its product portfolio. Priced between Rs 22,500 and Rs 1.04 lakh, the new product line-up caters to a broad segment of consumers. The company has a manufacturing facility in Puducherry with a capacity of 30-lakh units annually.

5.5 Summing Up

Recently, the government has cleared the proposal to allow MVNOs to launch operations in India. As per telecom analysts, the government’s move would lead to many more players entering the telecom space, leading to greater competition, lower tariffs and deeper tele-density.

In the last 2-3 years, the Tier-II and Tier-III cities have emerged as the favourite destinations for the IT and BPO companies as they offer a cost benefit of over 30%, compared to Tier-I cities like Bangalore, Hyderabad, Chennai, Mumbai and Delhi.

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