Unshackling the Virtual Network Operators

VNOs have remained an underutilised entity in India due to multiple reasons, but recent policy and industry moves may finally give them a leg up

Virtual network operators (VNOs) have been an exciting proposition in the telecom field for long. However, multiple hurdles such as potential conflict with infrastructure-owning telecom operators themselves, high entry fees and licensing costs and potential difficulties in finding new monetisable users have kept the adoption of VNOs in India at bay.

Why, though, are VNOs even needed? What do they exactly bring to the table, and why would telcos even need them? More importantly, what could they mean for consumers in India?

A VNO is like a fabless chip-maker: While it offers telecom services to users, it does not own the network spectrum or other infrastructure.

UNDERSTANDING VNOs

In the semiconductor industry, there is a clear bifurcation between companies that design chips and intellectual property in the field. While the likes of Taiwan Semiconductor Manufacturing Company (TSMC) are firms that make chips, it is the likes of AMD, Apple and Qualcomm (known as ‘fabless’ chip-makers) that create the fundamental designs, based on which TSMC and others make chips. There are, of course, companies such as Intel and Samsung, which both own chip-making factories and the IP for the chips.

In June 2016, the Department of Telecommunications decided to offer a Unified Licence (UL) to VNOs, to operate in India.

This analogy is crucial to understand how, and why, VNOs are important. A telecom operator typically owns the spectrum and infrastructure required to sustain a network and uses these to run its operations and offer services to customers. As a result, you see the likes of Bharti Airtel, Reliance Jio, and Vodafone Idea offering their telecom services to customers. But, to do so, they also need to own and operate their spectrum and infrastructure across all regions where they want to be present.

A VNO, in this regard, is like a fabless chip-maker: While it offers telecom services to users, it does not own the network spectrum or other infrastructure. Instead, it leases the latter from operators that do own the full stack and pays them a licence fee for it. Such a mechanism allows telcos to reach out to areas where they have not reached yet, and expand the scope and density of their service. In other words, this helps telecom operators utilise all their infrastructure capacity to the fullest, thereby maximising their revenue, while the virtual operators sustain by offering additional services at an extra cost.

ARE VNOs ALLOWED TO OPERATE IN INDIA?

Despite a rather slim market and limited adoption so far, VNOs are indeed allowed to operate in India. In June 2016, the Department of Telecommunications decided to offer a Unified Licence (UL) to VNOs, to operate in India. Any party interested in the segment could apply for a UL and is required to pay a one-time entry fee, a licence fee and spectrum usage charges (SUC) to operate as a VNO.

So far, state-run telecom operator Bharat Sanchar Nigam Limited (BSNL) has tied up with Singapore-based AdPay and Plintron to enable them to operate as VNOs, while in 2020, Exotel was also issued a licence.

WHY HAS THE SEGMENT BEEN SO LIMITED, THEN?

One of the biggest issues for the sector has been the licence fees. At present, ULs for VNOs come for Rs 7.5 crore as an entry fee, followed by Rs 50 lakh as a licence fee in each telecom circle, and SUC of 8% of the annual revenue of a VNO. Licence fees are also payable during renewal, which comes up every 10 years.

The other major issue plaguing the sector is network capacity. While state-run BSNL and MTNL have plenty of unused capacity in their network infrastructure, the three private operators, Bharti Airtel, Reliance Jio and Vodafone-Idea, have already overutilised the network infrastructure, thus leaving no room for further capital expenditure optimisation through VNOs.

IS THERE A SOLUTION IN SIGHT?

In an encouraging move earlier this year, the Telecom Regulatory Authority of India (TRAI) proposed revising the cost of licences and entry fees charged to VNOs for granting a UL. The new proposal has suggested reducing the entry fee by 50%, while the licence fee could be reduced by 75% and could also see its periodic renewal cost foregone.

One of the biggest issues for the sector has been the licence fees. But the TRAI has now proposed revising the cost of licences and entry fees.

There is also the impending rollout of satellite Internet capacity, which is currently awaiting spectrum allocation approval from the Ministry of Communications. Once satellite services begin, backhaul for telcos and capacity for enterprises will receive a boost. For VNOs, this could be a significant move. To cash in on this, the industry body Virtual Network Operators Association of India (VNOAI) announced having met the chairman of BSNL, to ramp up the latter’s existing associations with VNOs.

VNOs could benefit from running niche market services in sectors such as banking, e-commerce and retail. These niche services could prove to be particularly beneficial as B2B offerings, which can see companies in these sectors gain access to customer data and run analytics atop this data for better monetisation of services. This, in turn, could be a win for all. For BSNL, utilisation of unused spectrum could lead to an impressive revenue recovery. For VNOs, the biggest opportunity lies in creating and operating the additional services layer for nearly 1 billion subscribers in India, which represents a massive monetisation potential. Finally, for companies working with a VNO or operating by themselves, it will allow them unprecedented access to first-hand customer data.

Synchronisation of all these factors can throw the gates of adoption wide open for VNOs, who stand at a crucial juncture of expansion in the country.

By Vernika Awal

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