Who will dominate‾ Service provider or MVNO‾

The mobile market is facing radical changes in the coming years. These changes will among, other things, see the arrival of segmented, virtual, mobile operators and branded resellers. New mobile operators will have to choose between establishing themselves as a branded reseller or going further and setting up as an MVNO.
The different mobile models have advantages and disadvantages, which need to be weighed up carefully, although they will vary for each mobile provider.
MVNOs have more revenue options and flexibility than service providers or branded resellers, however more costs are associated with an MVNO.
An MVNO can make money on incoming and outgoing calls if it negotiates the appropriate termination agreements with either network operators or other MVNOs. In contrast, service providers do not usually receive monies from incoming calls, as the network operator keeps that revenue. Income from incoming calls is often overlooked, but can be the key to creating a sound business for a mobile provider. MVNOs can also receive revenue from the roaming agreements they negotiate, which again creates interesting possibilities for an international mobile provider or for a mobile provider to differentiate itself through innovative roaming tariffs.
An MVNO can also gain substantial business advantages through centralised international operations by using its own systems such as its own HLR (Home Location Register), IN (intelligent network) and MSC (Mobile Switching Centre) and of course its customers' SIM cards. All of which make its operations independent of the network operator for everything except transport, which means it can switch to another network operator for better terms. The biggest obstacle to this is that in some countries the law limits how HLR can be centralised.
The downsides are that the costs associated with setting up an MVNO are relative high, as the MVNO has to pay a start up fee to the network provider. Also, the systems and infrastructure to enable independent operation costs around €13 million, which is an insurmountable barrier for many, who instead opt to become service providers or branded resellers. Nor is it always possible to negotiate sufficiently favourable roaming and termination agreements. Although in many European countries the network operators are obliged by regulation to offer MVNOs "˜reasonable terms', network owners can still make it very difficult for MVNOs to obtain terms that would support a sustainable business.

Much hangs on any given network operator's attitude towards having MVNOs as customers: MVNOs pose considerable risk for the network owner both as competitors and industrial-scale customers who might decide to take their business elsewhere.

If the MVNO manages to set itself up as an "˜equal' partner with the network operator, this will mean higher cost for certain calls and services, which service providers or branded resellers do not have to pay. For example, an MVNO will pay for two legs of a call when its own customers speak to each other, while a service provider only has to pay for one. In some instance, when a middle station is used, the MVNO might have to pay for three legs of a call, hence the service provider is potentially able to offer cheaper end-user products than the MVNO, making it riskier for the MVNO to offer fixed price tariffs.


In many ways, the next phase in mobile will be dominated by smaller mobile providers, who are likely to be more innovative and will segment markets to deliver a refined end-user experience to meet particular needs. These mobile providers will more likely to use mobile virtual network enablers (MVNEs - that is companies that will handle billing, network element provisioning, administration and so on - also known as mobile network enablers - MNEs) to shorten the time-to-market and reduce set-up costs.

Strands Consult's report, How to Succeed In The Second Generation MVNO Market, analyses these conditions and questions whether smaller mobile markets can support an MVNO operation. The investment and the drift costs have to be compatible with the revenue potential and advantages on offer to an MVNO compared to a service provider or branded reseller.