The business environment for mobile virtual network operators (MVNOs) is breaking new ground.
Competition in some countries, most notably France, has increased tremendously as new entrants offer cut-price voice and SMS tariffs that threaten the core business models of some of the less commercially astute MVNOs.
Free Mobile disrupts France
Strand Consult recently summed up the French situation by noting that Iliad's Free Mobile has adopted an identical strategy to that already being used by a number of very successful MVNOs across Europe: a SIM-only service with no handset subsidies, no expensive distribution, only two price plans and a lean customer service operation.
The launch of Free Mobile has provoked the existing mobile operators to hurriedly reshape their price plans, with French MVNOs having to quickly mimic this knee-jerk reaction. Free Mobile has been aggressively targeting French customers with its offer of €19.99 a month for unlimited texts and calls, 3 GB of data and unlimited Wi-Fi access, and the operator has caused its larger French competitors to cut some of their prices as well.
Free Mobile has upended the French market.
Commenting on the upheaval within the French mobile market, Jacques Bonifay, CEO of Transatel, a French-based MVNO and MVNA/E, says that every operator and MVNO is being impacted by Free Mobile.
"But the size of the problem caused by the launch of Free Mobile depends on your market focus and marketing position," said Bonifay, who is also the president of Alternative Mobile: the French MVNO Association. "If the MVNO is focusing on low-price consumers, then Free is a big problem. If the focus is on the prepaid ethnic or SME market, then it's OK."
Bonifay added that, because of Free's pricing strategy, Transatel is in the process of renegotiating airtime deals with mobile operators so it can offer better terms to its MVNO customers. While he said this unexpected disruption is a French-only phenomenon, he does accept that the global trend towards lower prices will mean smaller margins for all, with European MVNOs being among the hardest hit.
MVNOs try to survive
Meanwhile, Ovum analyst Carrie Pawsey said that the sales strategy of many German MVNOs is based on offering the lowest price. This fragile situation has evolved after E-Plus, the country's third largest operator, adopted a very aggressive approach to selling wholesale airtime that has triggered the launch of numerous pricing-cutting MVNOs.
But this focus on price, claims Pawsey, is a "short term strategy and leads to market instability. The life of an MVNO is quite short--they're either acquired by the mobile operator or they fail."
The ability of MVNOs to survive, according to Dario Talmesio, principal analyst at Informa Telecoms & Media, is dependent on them being lean, focused and quick to market. "But price pressure means some don't survive--the MVNO mortality rate is around 25 per cent disappearing less than 12 months after launch."
Talmesio maintains that MVNOs that have become hugely successful by targeting ethnic communities are also now experiencing new levels of price pressure, and some casualties among the smaller firms should be expected.
While the MVNO community adjusts to pricing upheaval caused by Free Mobile and the like, a new and exciting opportunity is making its entry--connecting portable devices to mobile data network.
While some might argue that the connected devices sector is not an MVNO business, Transatel's Bonifay believes that data can become a key driver for MVNO growth. "The arrival of LTE will bring with it the possibility for new data services that will enable the MVNOs to differentiate themselves. LTE is good for MVNOs because it'll open new doors for them."
But the business model for the connected devices market that operators and MVNOs want to replicate is that already underway with Amazon's Kindle.
Vodafone, which supplies the SIM cards to Amazon for the Kindle, said that providing the wholesale data to support the download of new ebooks is an MVNO business, albeit of a completely different style.
MVNOs want to replicate the Amazon Kindle business model.
Libby Pritchard, Vodafone's head of corporate communications, said: "We class the Kindle business as an MVNO because it's a white label deal. We supply wholesale data to Amazon and they pay us for whatever data is used by each Kindle device when downloading an ebook."
"This Kindle data traffic is incremental business that we wouldn't normally have," added Pritchard.
UK operator Three has admitted that it's watching the data MVNO model with high interest.
"Focusing on the consumer electronics (CE) market is a very logical path to go down," said Lynda Burton, Three's wholesale chief. "The CE device can be preconfigured with mobile data already included, and we're keen to see how this market unfolds."
The company has already supplied SIMs for use with Google's Chromebook and one of Dell's latest laptops, and is looking to stimulate similar adoption by other CE vendors.
However, Three could find itself competing with Everything Everywhere given that the much larger operator claims that the MVNO sector is becoming a fertile sector to grow its M2M business.
The push for data
"We're targeting the connected device model on health, automotive and logistics with partners on a global basis," says Marc Overton, vice president of wholesale and M2M for Everything Everywhere.
According to Overton, the larger CE vendors are enthusiastic about becoming involved with M2M, but he admits that finding the right business model for the connected device market is something that still needs to be worked out.
This viewpoint is echoed by Arkadi Panitch, the CEO and founder of Effortel, one of Europe's more progressive MVNO/Es. "The Kindle model--where Amazon has used mobile data to improve or enhance the service--is exactly the model we're looking to identify," says Panitch. "What we want is to find synergy between a non-telecoms player and a mobile provider and build this into a unique and interesting MVNO proposition."
In an effort to identify a winning MVNO data model, Panitch says one of his MVNOs is currently testing numerous business propositions--but admits none have been successful so far.
What Panitch is clear about is attempting to compete with the operators on data. "We're not interested in the proposition of being a dumb provider of data services--our mobile data is cheaper than theirs, etc.," he said. "It'll be consumer behaviour that will bring about the change in data connectivity. There will be a social revolution in the coming years when we'll expect everything to be permanently connected."