India’s MTNL has shortlisted Virgin Mobile as the sole candidate to become its 3G franchise partner, effectively clearing the way for the UK-based MVNO to rollout 3G services on behalf of the state-owned operator. The only other bidder for the business – BK Modi’s Spice Group – was rejected on the grounds that it did not have a track record in 3G. In an interview with India’s Business Line, R.S.P Sinha, MTNL’s chairman and managing director, said, “We are in discussion with Virgin. They have the necessary experience in offering 3G services in the international market through the franchisee route. Spice did not have the required experience.” MTNL floated a global tender in July to find an international partner-operator to sell its 3G services under a franchise deal after disappointing early uptake for its 3G services. MTNL operates in Delhi and Mumbai, two of India’s largest cities, but only managed to attract 1,000 3G users in the first six months. However, this has reportedly grown to around 10,000. As a state-owned operator, MTNL was granted 3G spectrum ahead of next month’s private auction.

According to MTNL’s tender documents, its franchise partner will need to deliver INR300 million (US$6.1 million) in revenue from 3G services in the first year in each of the two telecom service areas (Delhi and Mumbai). These targets will rise to INR1.2 billion in year two and INR2.4 billion in year three. If the franchisee fails to meet the targets, MTNL will charge a penalty equal to 10 percent of the shortfall amount. “We wanted only serious players to become our partners. Therefore we set conditions that can be met only by experienced global players,” Mr Sinha said. Once the deal in finalised, it will become the second such deal in India for Virgin Mobile, which already has a partnership in place with Tata Teleservices to market CDMA-based mobile services.