MTNL Seeks 3G International Rescue

State-owned Mahanagar Telephone Nigam Ltd. (MTNL) -- which has fixed and mobile operations in two of India's main metro "circles," Mumbai and Delhi -- is seeking expressions of interest from companies wanting to run the Indian operator's 3G services.

The move follows recent speculation that MTNL was searching for an international partner to help kick-start its 3G services, which have attracted only 400 subscribers by the beginning of June, months after they were launched. (See IndiaWatch: Ramp-Ups & Roll-Outs.)

MTNL has issued a tender for each metro circle, and is inviting submissions from global or Indian companies that have experience with providing end-to-end services to at least 1 million 3G customers in at least two countries. That immediately shortens the list of possible bidders, as does the exclusion of any company that already operates in the two circles.

However, as joint ventures are allowed, the prospect list could include operators that don't meet these requirements by themselves, and could even include MVNOs (mobile virtual network operators).

The tenders are being run separately, meaning that participants can bid to run services in Mumbai, or Delhi, or both. MTNL expects the proposed franchisee arrangements to last 10 years, although there will be a review after three.

The contract will work on a revenue-share basis, with the winning bidder in each circle being the one that offers the highest percentage to MTNL, once the technical and business requirements are met.

For its part, MTNL is committing to provide average capacity levels of 100,000, 300,000, and 500,000 lines in the first, second, and third years respectively, and will be responsible for paying the associated license and spectrum fees.

The franchisee will be responsible for everything else, including SIM creation, customer acquisition, billing, and customer care. In addition, the list of conditions they must meet is extensive.

MTNL is looking for a major financial contribution from 3G, and franchisees will be required to deliver monthly ARPU (average revenue per user) rates of 500 Indian Rupees ($10.30). That's very high when compared to the national mobile services average of $5.37, and MTNL's mobile ARPU (contract and pre-paid combined) of $2.48, according to figures from Wireless Intelligence .

In addition, the winning bidder in each circle must meet annual targets for gross revenue from subscribers. These have been set by MTNL as follows:

Table 1: Annual Gross Revenue Targets
Indian Rupees US $
Year 1 300 million 6.17 million
Year 2 1.2 billion 24.69 million
Year 3 2.4 billion 49.36 million

To put this in context, MTNL's revenue from cellular services in 2008-9 was INR8.46 billion ($174 million), according to the company's unaudited figures.

In addition, MTNL is looking to benefit and learn from the service-creation capabilities of its partner. Amongst the list of experience requirements in the tender are tie-ups with technology, and, notably, content partners. There is a clear expectation in the tender for the franchisee to bring ready-made successful 3G services to the party.

Any successful bidder will also face the task of working with the public-sector utility (PSU) setup. This includes quarterly meetings with MTNL to agree on pricing and service strategy, making this a very different relationship to that of a traditional MVNO, where the likes of Virgin Mobile Telecoms Ltd. make such decisions themselves.

In fact, the setup being offered appears to be a hybrid of MVNO and service provider or reseller, with the franchisee having the responsibilities of an MVNO, but MTNL retaining a level of control over the activities of its partner.

However, one line of the tender that may appeal to Virgin is that MTNL is open to bids from those wishing to create their own branding and marketing, as well as those from companies wishing to promote the MTNL brand.

The tender closes on Sept. 4, when the bids will be opened. Services are required to be up and running within three months of the contract being awarded. Of those companies which have been connected with possible bids, Virgin and AT&T Inc. (NYSE: T) were unable to respond to Light Reading Asia's inquiries at the time of publication, while a spokesman at BT Group plc (NYSE: BT; London: BTA) would only say that it never comments on rumor and speculation.

— Catherine Haslam, Asia Editor, Light Reading

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