India's MTNL Plans to Franchise Operation of 3G Services

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Mahanagar Telephone Nigam Ltd. (MTNL), a large Indian telecommunications services provider, has invited expressions of interest from Indian and foreign companies to run its 3G services on a franchise arrangement, according to a tender document on its Web site.

The move by MTNL reflects its failure to build a large customer base for 3G on its own, as it had problems in marketing and positioning the service, Kamlesh Bhatia, a principal research analyst at Gartner, said on Thursday.

MTNL and Bharat Sanchar Nigam Ltd. (BSNL) are both government-controlled companies that received 3G licenses and spectrum ahead of an auction of 3G licenses for private sector bidders. The auction has been postponed since January, and is now expected before the end of this year.

The auction was delayed over disagreement within the government over the number of slots to be auctioned and the floor price for the auction.

3G deployments in a number of countries including China have not been successful because the service has been priced high, without offering applications that would make users see value in the service, Bhatia said.

The first users of 3G services in India are likely to be enterprise customers, but MTNL has not positioned its services for this segment of the market, and in many cases the enterprise market already has ties with private sector service providers, according to Bhatia.

In a tender document on Tuesday, MTNL invited expressions of interest from Indian registered companies, wholly-owned Indian subsidiaries of foreign companies, and joint ventures, and Indian liaison offices of foreign companies. The bidder or its parent company or its joint venture company should have experience of providing end to end services to at least 1 million 3G customers in at least two countries, MTNL said.

The franchisee selected will be exclusive, and will offer services on a revenue sharing model, that could also include the partner using its own brand name, MTNL said. The agreement with the franchisee will be for ten years, with further extensions by mutual agreement, it added.

MTNL's terms may make operating the franchise very attractive for foreign operators. Under current Indian government rules, 3G license holders can hold up to 74 percent of the equity of a services company, with the balance held by an Indian partner.

A franchise arrangement could also provide an opportunity for private telecom providers to get into offering 3G services ahead of the auction of 3G licenses. "It would be a good testing ground for operators planning to offer 3G services in India, but they will have to invest a lot of money in building their brand and acceptance for the service," Bhatia said.

The franchisee has to have necessary resources and infrastructure to acquire, serve and retain customers, provide customer care, set up its own payment collection systems, create a sales and distribution network, and promote MTNL's brand or create its own brand for 3G services and products, MTNL said in the tender document.

The last date for companies to submit their response is September 4.

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