MVNOs on the move

After a rather patchy start confined to particular regions, mobile virtual network operators (MVNOs) are now literally queuing up to attack wireless markets across the planet. In the space of barely one week last December, for example, giant discount retailer Aldi unveiled a no-frills service in Germany, Virgin struck a deal with C Cell to launch Virgin Mobile South Africa in the first half of 2006, Spanish cable operator Telecable reportedly received an MVNO license from Spain's regulator, Baron cut over a service in the Netherlands using KPN's network, the world's largest convenience chain 7-Eleven introduced an out-of-the-box service throughout Canada, and the Philippine's PLDT/Smart Communications entered into a strategic partnership with MobileOne to provide MVNO services for Filipinos working in Singapore.

Norbert Sagnard, principal consultant with Sagnard Marketing Associates and chair of November's IIR conference 'MVNO Business & Partnering Strategies' held in Cannes, believes that MVNOs are '"&brkbar;the biggest opportunity of the decade in mobile telecoms.' And, according to estimates aired at the Cannes event, the global MVNO market size in 2010 could be anywhere from $10 billion to $30 billion. This is certainly not peanuts, even at the lower end.

Broad church

In reality the MVNO church is a very broad one. It extends from simply buying capacity wholesale and selling it retail at one end of the spectrum, to Virgin Mobile-style investment partnerships between the MVNO and the mobile network operator (MNO) at the other. Global management consulting firm DiamondCluster International has identified three main variants of the MVNO model: pure reseller, the hybrid reseller/MVNO and the pure MVNO. Basically what differentiates these is the level of the hosted company's input to, and control over, the finished product.

Pyramid Research slices the MVNO pie in a slightly different way, distinguishing between the MVNO's operational focus and its market focus. 'Today, most MVNOs are operationally light, voice-centric and consumer-oriented, and highly dependent on the host operator's network,' reports Pyramid Research senior analyst Ozgur Aytar.

'Over the next year, we will see the emergence of a new and more sophisticated breed of MVNOs that will be less 'virtual' than most, managing or partnering to control key elements of IP-based network infrastructure, such as advanced back-end billing systems, customized handsets, and application servers.'

On the market focus front, Pyramid Research groups current MVNOs into four types. These are: the voice-focused, price-driven mass market MVNOs (examples including Debitel, Fresh and Tracfone); the voice-focused, niche-focused MVNOs (China Motion, Primus Wireless and Transatel); the voice plus, brand-driven MVNOs (Virgin Mobile, Boost Mobile and M6 Mobile); and the data-focused, niche MVNOs (ESPN Mobile and SK Earthlink).

Hosts and hosted get closer

The demarcation between an MNO and an MVNO is also blurring. In one sense, some of the former are themselves becoming more 'virtual' - you might even style them 'VMNOs' - by dint of outsourcing the operation and management of their networks to infrastructure vendors.

'Over the past few years, we have seen some interesting developments with large-scale, 'big bang' outsourcing deals such as H3G in Italy and the UK, innovative 'pay-as-you-grow' partnerships such as Bharti in India and, increasingly, contracts through which MNOs turn to vendors for support with the launch of new, revenue-generating applications such as the deal between Western Wireless/Alltel in the US and Ericsson on MMS hosting, operations and management,' states Aytar.

 

Pyramid Research anticipates the outsourcing opportunity will continue to expand for a total mobile market opportunity in 2010 of $35 billion.

Meanwhile, wireless technology and business consultancy inCode predicts that this year will see the emergence of at least one MNO that takes a step back from its customer base to become a bit-pipe operator.

'In 2006 the first network operator will depart from conventional wisdom and ditch its retail brand on the premise that it's better to be a terrific wholesaler/access provider than a bad retailer,' calculates the company in a series of predictions for 2006. 'This operator may be backed by a private equity firm and will drive innovation in the market.'

In turn, argues inCode in another of its 2006 predictions, the appearance of facilities-based wireless wholesalers will foster the development of a new category of virtual operator - the converged virtual network operator (CVNO). 'The CVNO will look to the consumer like a marriage of Vonage and Virgin Mobile, combining characteristics of a Bring Your Own Broadband (BYOB) VoIP provider and an MVNO,' forecasts inCode.

'These new operators will attack the convergence space by offering VoIP, mobile voice and mobile data, combining services in new ways that will surprise the industry. In the future, these operators may also add broadband in the form of Wi-Fi hotspots and WiMAX when it becomes widely available.'

Mixed fortunes

Regardless of their particular degree of involvement with the underlying network, their service repertoire or their provenance, MVNOs have not to date made equal headway in all regional markets.

It may be that you need a certain level of penetration before the MVNO model becomes attractive, or even feasible. 'In mature markets with high mobile penetration and/or a slow growth rate, it is very difficult and expensive for the MNO to reach the small percentage of unserved subscribers' notes Cathy McMahon, executive director of product management for hosted solutions at software and services specialist Telcordia Technologies. 'In these areas the model is shifting toward an MVNO model as a means to grow subscribers without the associated costs of serving and marketing to the specific niche markets.'

This notwithstanding, Pyramid Research for one sees an MVNO opportunity in low-density, developing markets. 'MVNOs could serve as a key tool to extending network reach and increasing mobile penetration in such markets,' suggests Aytar. 'Various forms of MVNOs have already been implemented, from Nigeria's airtime resellers to the sub-branding of Poland's PTC and South Africa's Cell C or the youth-oriented marketing tie-up between MTV and Bharti in India.'

In some geographies the initial lack of enthusiasm for MVNOs may be a cultural thing. For parts of Asia, for example, there may be industry and/or consumer resistance to the idea of separating wireless network, service and customer ownership.

In locations where MVNOs have become an unremarkable way of servicing particular market segments, it may be that there is background regulatory encouragement of the model, or at least no undue opposition to it.

The attitude of MNOs and their fear of cannibalizing existing revenue streams is clearly an important factor in the development of an MVNO industry in a particular location. Sagnard notes that at the Cannes event there was some discussion about the MVNO threat to the established customer base of MNOs, but the consensus was that MVNOs represent an opportunity to market mobile services better, or to a wider audience in unsaturated markets.

 

'One strong recommendation to MNOs considering hosting MVNOs on their network was to map their existing services and tariffs before, so that gaps and holes could be identified in order to identify and select the right, complementary MVNO as a partner, as opposed to seeing it as a threat,' he says.

Nor is it unknown for an MNO to cut out the middleman and essentially set up its own MVNO - a case in point being the simyo service financed by E-Plus in Germany.

Availability of mobile number portability may also be an issue for both host and hosted, although its long-term impact may be overstated. For example, Matti Vikkula, CEO of Finnish MVNO group Saunalahti, observes that the number of ported GSM numbers in Finland declined significantly in Q4 2005, and was down to or below 2003 levels when portability was introduced.

Different directions beckoning

Vikkula also maintains that overall competition in the wireless market now has to be concerned with value-added services. Regardless of the fact that discounted voice and vanilla SMS tariffs still inform the investment decisions of some MVNO start-ups, and the purchasing decisions of many MVNO customers, low price is no longer the force that it was in the virtual arena.

'As mobile communication becomes more and more commoditized, operators cannot differentiate on price. Rather the MVNO competes by providing a differentiated, customized service offering,' agrees Telcordia's McMahon.

As well as greater differentiation and customization, experts are forecasting a radical shift of MVNO focus toward addressing vertical markets such as healthcare and transport, and targeting specialist applications such as enterprise mobility and machine-to-machine that currently are not well serviced by traditional cellular operators. Others will concentrate on 3G and content.

'Some new initiatives also look at becoming cross-borders MVNOs with a unique brand, with the aim of removing roaming charges, as part of their unique proposition' adds Sagnard.

Either way, though, MVNOs - and VMNOs for that matter - look to be well on the road to becoming a major force in the international wireless industry.

 

Side bar:

A dissenting view

Not everyone believes that the MVNO business is necessarily such a great one to be in right now in all markets. One dissenter is Bengt Nordstršm, chief strategy officer of the technology and strategy group EMEA, at inCode. According to Nordstršm, in Europe - arguably the crucible of the business model - the economics are often stacked against the MVNO.

'If you take Europe for a moment, there aren't that many markets where an MVNO can get a really fair deal to start a business' he contends. 'The pricing arrangement with the hosting operator is almost always a 'retail-minus' pricing arrangement. The wholesale prices are almost higher than the consumer prices.'

Nordstršm sees many European MVNOs as short-term independent businesses that are really set up to be sold on. 'Many MVNOs have been bought by the host operator,' he points out. 'It's been about exit-minded ventures, where someone is building up a customer base very quickly, lowering the prices in the market, and then being bought by the host operator.'

 

However, Nordstršm believes that the prospects for MVNOs overall will be materially improved when there's regulatory involvement and interest in the conditions under which they operate. He also calculates that some geographies constitute a more fertile soil than others for MVNOs to flourish. 'The US is one market as compared to Europe which is 20 to 30 different markets. So when you open up an MVNO in the US you have a much bigger chance of being successful because you can address a much bigger market,' he reasons.

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