Rivals try to cut short Virgin's move into Indian mobile phone market

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The Independent Online

Sir Richard Branson was shot in the chest on a visit to India last weekend. Luckily for him, the bullet was stopped by a Virgin Mobile phone in his breast pocket. Harrowing stuff, if the violence hadn't taken place on a film set, and the heroic handset was not part of a typically theatrical promotional campaign fronted by the ubiquitous bearded one.

Yet just days after Sir Richard finally launched Virgin Mobile India, several rivals including Vodafone have teamed up to try to kill his plan to compete in one of the world's largest and fastest growing mobile markets. The Cellular Operators Association of India (COAI), an industry trade group, has objected to the new venture, arguing that the structure of his latest foray is illegal under Indian telecoms law and that it should be shut down. The companies have lodged a complaint with the Indian telecoms regulator.

Following the pattern employed in the UK, Virgin Mobile India has agreed to buy mobile spectrum from Tata Indicom rather than building up its own network. Under Indian law, the "Mobile Virtual Network Operator" model is prohibited. Tata would also have to get permission from the telecoms regulator before selling on spectrum to a third party, the COAI argues.

A spokesman for Vodafone said: "As part of the group, we are questioning the legality of going in the market that way. Indian rules state that MVNOs are not allowed. Full stop."

When Sir Richard laun-ched the venture last Sunday, he went out of his way to argue that Virgin Mobile was not an MVNO. Rather, it is a franchise agreement, helping Tata to extend its network, which has agreed to pay Virgin for customers that sign up under its brand. Both Virgin and Tata are free, they pointed out, to do similar deals with other companies. Sir Rich-ard told India's Economic Times that the tie-up was a "win-win for both the companies," adding: "Tata has got the network, we have got the brand."

The fierce reaction of Virgin's rivals is not surprising – the Indian market represents a vast opportunity for mobile operators. According to the COAI's latest numbers, only 178 million of the country's 1.1 billion-strong population had mobile phones operating on the dominant GSM standard by the end of January. Up from the 172 million customers on the books in December, the latest figures represented an increase of 6 million customers in just one month. It is a growth rate that is unthinkable in the developed world, and why the incumbents are so keen to keep new entrants out. Indeed, it is what led Vodafone to bid $11.1bn for a controlling stake in Essar last year. The gamble by chief executive Arun Sarin – he outbid a raft of rival bidders – has paid off handsomely for the world's largest mobile operator.

Vodafone and its COAI colleagues, including market leader Reliance and Bharti Airtel, have also argued that Virgin's plan runs counter to the Indian government's efforts to extend mobile networks to rural India. "Spectrum is very scarce, and the Government has made extending the network and filling in the spaces its priority," said the Vodafone spokesman. "Selling spectrum to another group, you've got to question whether that's appropriate."

Tata, a sector laggard with less than 10 per cent market share, runs on the less popular CDMA technology.