MTNL has short listed UK based Virgin Mobile for managing its 3G operations on a franchisee model reports Business Lines; according to the report, the other bidder, B K Modi backed Spice Group, are no longer in contention due to lack of experience  in providing 3G services. One of the conditions that MTNL had set for a 3G franchisee agreement is that “The prospective 3G franchisee, its Global parent company or its JV Company should have experience of providing 3G services to at least 1 million 3G customers in one or more countries. ” Virgin Mobile runs 3G services as an MVNO in the US.

Note that the applicant should not be a licensed telecom services provider in Delhi or Mumbai, nor take such a license during the term of the agreement (10 years), so no Indian carrier could have applied.

Though MTNL had launched 3G services almost a year ago, it has, according to its CMD R.S.P. Sinha, been able to acquire only 160,000 3G subscribers. At present, only the two government owned carriers – MTNL and BSNL – have been allocated 3G spectrum. Virgin Mobile has a similar franchise agreement with Tata Teleservices which allows Virgin to market CDMA services under its own brand name in India, and the MTNL deal is its opportunity to enter the GSM 3G space. However, Tata Teleservices (TTSL) MD Anil Sardana had claimed earlier that they have exclusive rights over the Virgin brand in India and Virgin will tie-up with other operators after their consent. So it remains to be seen how Tata Teleservices reacts to the deal, and whether or not the deal will really go through.

Terms Of The 3G Franchisee Agreement

MTNL released a tender document seeking franchisees for its 3G services earlier this year. It will be an exclusive contract valid for 10 years with a clause where MTNL can bring in additional franchisee if certain conditions are not fulfilled at the end of three years.

Eligibility: Apart from the conditions mentioned earlier (3G experience, not a telecom licensee in India), the applicant was also asked to provide a proposal outlining the above and also plans on sales force to be employed for 3G customer acquisition, sales and distribution channel with at least 5000 outlets in each city, live demo facilities, Content Management Software (CMS) platforms etc.

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Infrastructure & Capacity: The franchisee could use its own infrastructure and Data Center, or could use MTNLs premises for co-locating its 3G equipment at a quarterly charge. MTNL will ensure maximum average cumulative 3G capacity (right) is reserved for the franchisee for the first 3 years. The spectrum capacity would be reserved after 3 years will be reviewed every year. Marketing and customer care support system is to be set up within 3 months of signing the agreement

The sad part: if the franchisee does rather well, and its requirements of capacity are higher, then it would have to commit to MTNL that it would generate an ARPU of Rs. 500 per month per user for the total capacity required by the end of the year. That’s ridiculously high in a market of sub-Rs.300 ARPU.

Revenue Share Model: The shareable revenue will be the net amount after deduction of 3G license fees, spectrum fee, IUC, Carriage charges, service tax and other taxes and levies paid by MTNL. The one time charges of license & spectrum will be amortized over the period of license term.

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Spectrum fee will be worked out on the basis of equated annual instalment and the franchisee will pay part of this annual amortized amount in proportion to the capacity allotted or used by them, whichever is higher. The franchisee will not be allowed to make separate arrangements for long distance (national and international) carriage for calls because all calls will be routed through MTNL.

The franchisee will have to give an assurance to generate minimum sales revenue for each year from the date of launch. If there is a shortfall then the company will have to pay 10% of shortfall amount. If the franchisee exceeds the target then MTNL will pay an incentive of 5% of the additional net revenue generated

Content & Marketing: Thankfully, given MTNLs track record with branding and marketing, the franchisee will be given the freedom to promote its product independently or in consultation with MTNL. The franchisee will also ahve the freedom to define implement service offering, fix tariffs and collect revenue to generate desired ARPU and MTNL will be informed of all the changes because it will file the Tariffs to TRAI and roaming facility will be provided with BSNL. The franchisee will have the facility for bundling of specific handsets and other 3G products with contents to premium customers and the company will decide on the collection of charge after approval from MTNL

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