AT&T and Virgin Media are said to be considering entering the Indian mobile market, arguably one of the world’s most difficult and competitive, after the government legalized MVNOs.
Most believe the two firms will enter the market as MVNOs, a strategy that gets them into the market faster, without the immediate need to build facilities and acquire spectrum.
What is not clear is the long-term approach. India’s mobile market is situational unusual at the moment. Intensely competitive, and facing market entry by a well-capitalized new rival (Reliance Jio), India’s government also is preparing to auction off an astounding amount of spectrum in 2016.
Some observers have argued there is little likelihood the current operators will be able to acquire all of the spectrum. A massive Indian spectrum auction in 2016 might prove problematic, for traditional and new reasons.
On one hand, the auction will release up to 2,000 MHz of spectrum, across a wide range of frequencies useful for communications purposes.
The problem is that some observers believe the service providers cannot possibly afford to buy all that spectrum, at suggested prices.
It is possible the proposed spectrum auction in India might result in quite a lot of the spectrum, even desirable spectrum, remaining unsold.
That would allow either Virgin Mobile or AT&T to purchase some spectrum, moving them towards a facilities-based strategy, at least in part.
One key question is what customer niches Virgin Mobile and AT&T might hope to attack. Highly penetrated markets, like Delhi, Mumbai, and Chennai might hold some latent market segments, some argue, as the “one size fits all” plans might in fact hide some demand for more specialized plans.
The low end of the market seems an unlikely niche, as the typical mobile account in India represents a challenging revenue target.
So either firm likely would prefer an urban strategy where the greatest number of high-revenue accounts are found.
In other markets, language or cultural affinity groups have proven to be important niches, for example. In some cases, multi-user plans have been a niche. In most markets, “lower cost” or “no credit check” or “prepaid” have been the key demand drivers.
One might argue the ability to compete based on “low cost” prepaid service is nearly non-existent in India. That is important since “low cost prepaid” has underpinned successful MVNO niches in other markets.
It seems unlikely that AT&T would consider a strategy attacking the low end of the market. In a market where the typical account represents spending on $2 a month, AT&T is unlikely to find competing at the low end attractive.
On the other hand, AT&T executives have in the past talked about low rates of 4G adoption even in Europe as a potential opportunity. It might be logical to expect a focus on smartphones and faster speeds, even if Reliance Jio is basing its attack precisely on those dimensions.
The potential availability of spectrum could shape the strategy, however.
Assuming all the offered spectrum is purchased, the proceeds will amount to about US$83 billion, increasing mobile service provider debt loads as much as 185 percent.
At such levels, the auctions would represent more than 25 percent of the country's national budget for the financial year 2016-17, and more than double the combined revenues generated (around $38 billion) by all telecom companies during the financial year 2014-15.
In fact, of the projected $85 billion in potential revenues, the sale of 700 MHz spectrum alone is estimated to represent around $64 billion.
That raises at least two possibilities. If not all the spectrum will be acquired by existing mobile operators, AT&T and Virgin Mobile will be able to acquire a spectrum position. Or, as also seems possible, some providers will essentially overspend on spectrum, squeezing cash flow and making them more willing partners.
Either way, entry conditions are favorable, even if the market itself is highly competitive.
It would not be unheard of for some spectrum to remain unsold whenever an auction is held.
Spectrum deemed useful both for coverage (700 MHz, 800 MHz, 900 MHz) and capacity (1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz) now are scheduled for sale.
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