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Why Ola, Paytm, Future Group & others shouldn’t apply for a VNO license in India


The policy that the Indian government has released on Virtual Network Operators, which allow any company to tie up with telecom operators to provide their own Internet and Mobile services, is essentially dead-on-arrival. This is because the policy, based on TRAI’s pro-telecom-operator recommendations, places significant restrictions on the virtual network operator. The issue is that the guidelines limit the VNO’s to the role of a mere reseller:

The guidelines allow telecom operators to tie up with as many VNOs as they want, but VNOs are forced to stick to one telecom operator for one service, according to the Department of Telecom guidelines. This is not very different from the 2008 situation. The numbering is also from one unique parent operator, and not the one issued by the VNO independently.

Why this is a problem? With the current policy, if a Snapdeal wants become a VNO, it can tie up with different telecom operators to provide each of phone calling, data and international calling: they can create a package where they can give data from an Airtel, phone calling from Idea Cellular and VAS from Tata Docomo. However, it can’t tie up with multiple operators for the same service: give data from Airtel where Airtel has the network, from Idea and Vodafone, where their network is better.

A VNO needs flexibility in telecom operator partnerships for many reasons:

  • Firstly, it needs to have better bargaining powers with a telecom operator, to ensure viability and have the ability to switch from one operator to the other for the same service, or offset their costs by buying data or calls in bulk from multiple providers, without the customer knowing about what is happening on the procurement side.
  • Secondly, it isn’t the VNO’s customer: the numbering scheme is allocated by a telecom operator to the VNO, and thus there is dependency on that telecom operator for routing calls. Telecom operators have always focused on owning the customer. What if a VNO which they’ve partnered with starts taking customers away from them? What if a VNO has higher ARPU than them? If a telecom operator wants to increase the baseline bulk rates the VNO is being given, can the VNO move all its customers to another telecom operator? This isn’t clear.
  • Thirdly, one service one telco means a VNO is stuck with its infra: The VNO has little control over core infrastructure but is dependent on the telecom operator to deliver on it. What if Airtel’s infrastructure is such that calls keep dropping (which is the current scenario), and the VNO wants to shift its users to Vodafone? Instead, a truly independent VNO would have its own numbering scheme and the telecom operator it ties up with would be a mere routing mechanism: if their host telecom operator has a network that is providing a bad quality of service, they can just switch to another host telecom operator.

Why is this policy disappointing?

Because it does what most of TRAI’s recommendations to DoT do (when it doesn’t relate to spectrum pricing): they favour telecom operators instead of giving flexibility that will help drive adoption.

Before MVNOs were allowed, two pseudo MVNOs existed as “Franchise Agreements”: Tata Teleservices launched T24 (with Future Group) and Virgin Mobile, around the time (or just before) when price wars among telecom operators began in India. Some challenges then:

  • Virgin Mobile launched just before the 2G scam related spectrum auctions, which brought in new telecom operators into the market, and led to a drop in prices. Even with price conscious customers, Virgin Mobile’s push for saving customers money didn’t quite work out.
  • Virgin Mobile was also a CDMA operator, and thus customers were restricted to CDMA handsets, whereas most users who wanted to save money began using multiple SIM cards and multiple plans on GSM.
  • The pseudo MVNOs were also restricted to merely rebranding and pricing differently services from the same telecom operator they had tied up with, because they weren’t truly MVNOs, and couldn’t ride on the infrastructure of multiple telecom operators.

Things have changed now:

  • Pricing of calling services is on its way up, and this is conjecture, but competition will possibly decline in terms of number of operators. By this time next year, we could be left with Airtel, Idea, Vodafone, MTNL+BSNL, Jio+RCOM and maybe Tata (or whoever buys it). Given that competition will be lower than when there were 12 operators, some telecom operators won’t be averse to the idea of more players in the market, selling their unutilized capacity.
  • MTNL and BSNL have excess capacity (and not as good infra); and there has been a significant reduction in competition in telecom, with consolidation in the market expected.
  • Data consumption is on its way up, and there is scope for a full fledged data-only mobile operator, which doesn’t allocate bandwidth to calling, and uses only VoIP.
  • Companies like Paytm and Ola want to also get into the access game, and a VNO license would have been ideal for them to launch Internet services.

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© 2008-2021 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ