`The Telecom Regulatory Authority of India (TRAI) has recommended the entry of Mobile Virtual Network Operators (MVNOs) in the Indian mobile services market. Although very few mobile operators currently have surplus capacity to lease to MVNOs, CRISIL Research believes that the Indian mobile services market is moving towards one that will be conducive for the entry of MVNOs.

CRISIL Research expects some mobile operators to have significant excess capacity available on their networks after the new 2G licensees begin operations and the rollout of 3G networks. The availability of excess capacity, lack of service differentiation across operators, and implementation of Mobile Number Portability would make the market conducive for MVNO entry over the medium-term.

According to Mr. Manoj Mohta, Head, CRISIL Research, “Although the market is growing rapidly, we do not believe there is space for so many operators. Some operators feeling the pinch of declining ARPUs (Average Revenue Per User) and high competition would look at aligning with MVNOs to increase their network utilisation and alleviate financial pressures.”

Elaborating on the number of MVNOs that are likely to enter the market if the government approves TRAI's recommendation, Mr. Mohta stated, “It would vary across circles, depending upon the size of the potential market, number of operators present, and quantum of 3G spectrum auctioned. For example, in circles such as Mumbai and Delhi where only 2-3 blocks of 3G spectrum are slated to be auctioned, the likelihood of MVNOs entering is low if large existing operators manage to bag the 3G spectrum auctioned. On the other hand, if any of the new licensees get 3G spectrum, the possibility of MVNOs entering would be higher.”

The potential size of the MVNO market, CRISIL Research believes, would depend significantly on the nature of mobile operators that manage to obtain 3G spectrum. If the new licensees bag a large chunk of available spectrum, the size of opportunity for MVNOs is expected to be large. On the other hand, if large existing operators obtain 3G spectrum, the opportunity for MVNOs would be commensurately lower.