1. business and industrial

MBIT Thesis
Mobile Virtual Network Operator
(MVNO)
Professor:
Author:
Dr. Gregory Yovanof
T. Bassayiannis
Date
08/12/2008
Table of Contents
1.
2.
Mobile Virtual Network Operator (MVNO) - Abstract ..........................................................................5
The MVNO ..........................................................................................................................................6
2.1
The Beginning of MVNOs ...........................................................................................................8
2.2
The Value-chain & Value Net ...................................................................................................12
2.3
The players ...............................................................................................................................15
2.4
Mobile Solutions .......................................................................................................................16
2.5
Characteristics of an MVNO .....................................................................................................16
2.6
A typical MVNO Business Model ..............................................................................................17
2.7
MVNO Defined From a Customer Perspective.........................................................................17
2.8
MVNE (MVNO Enabler)............................................................................................................19
2.9
MVNO & MVNE ........................................................................................................................20
2.10 Why MVNOs make sense.........................................................................................................20
2.11 Key driving factors enabling the MVNO opportunity .................................................................22
2.12 The MVNO opportunity .............................................................................................................22
2.13 MVNO opportunities increase with 3G rollout...........................................................................22
2.14 The overall MVNO business context ........................................................................................23
2.15 MVNOs Backgrounds (Legacy and Next generation MVNO Models) ......................................24
2.16 Where is the MVNO today ........................................................................................................26
2.17 Next generation MVNOs...........................................................................................................26
3. MVNOs: Identities and Distribution ...................................................................................................28
3.1
MVNOS Global Initiative ...........................................................................................................28
3.2
MVNO Global market share......................................................................................................31
3.3
The Future of MVNOs in the 3G Era ........................................................................................32
3.4
Global MVNO Distribution.........................................................................................................32
3.5
MVNO Global Market Forecast (2006-2012) ............................................................................33
3.5.1 The Customer Segments......................................................................................................33
3.5.2 The Revenue Model (an example) .......................................................................................34
3.5.3 MVNO business Models .......................................................................................................34
3.6 MVNO Adoption in Europe - 151 MVNOs.......................................................................................40
3.6.1 Fixed telephony MVNOs in Europe ......................................................................................40
3.6.2 MVNO/MNO European Market share ...................................................................................41
3.6.3 MVNOs in Europe: numerous initiatives, very few successes ..............................................41
3.7 MVNO Adoption in Greece .............................................................................................................42
3.7.1 The MVNOs in Greece .........................................................................................................42
3.7.2 Mobile Network Operators customer base (June 2008) .......................................................43
3.7.3 MVNO Figures ......................................................................................................................44
3.7.4 MNOs ARPU and AMOU......................................................................................................44
4. MVNO/ MNO/ MVNE Benefits and Drawbacks .................................................................................45
4.1
Advantages/ Benefits................................................................................................................45
4.2
Disadvantages/ Drawbacks ......................................................................................................46
4.2.1 MVNE trends ........................................................................................................................48
4.2.2 MVNE Uses in Europe..........................................................................................................48
4.2.3 MVNO-MVNE-MNO Functional Model .................................................................................49
4.2.4 Viability of Virtual Mobile Players..........................................................................................50
4.2.5 Sustainability.........................................................................................................................51
4.2.6 Brand identity in Mobile Services..........................................................................................51
4.2.7 Type of Companies attracted to the MVNO Model ...............................................................52
4.2.8 VALUE TO MNO...................................................................................................................53
4.2.9 VALUE TO MNO & MVNO ...................................................................................................53
MVNO
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4.2.10
VALUE TO MVNO ............................................................................................................53
4.2.11
Different approaches to mobile services...........................................................................54
4.2.12
Execution & Fulfilment ......................................................................................................56
4.2.13
Business Planning ............................................................................................................56
4.2.14
Business Design ...............................................................................................................57
4.2.15
Business Infrastructure .....................................................................................................57
4.2.16
Production Support ...........................................................................................................58
4.2.17
Conclusion ........................................................................................................................59
4.2.18
MNO Motivations (to host MVNOs)...................................................................................60
4.2.19
Host MNO Benefits ...........................................................................................................60
4.2.20
Host MNO Requirements..................................................................................................61
4.2.21
Host MNO Wholesale Business Potential (Example) .......................................................61
4.2.22
The MNO Perspective ......................................................................................................61
4.2.23
The MVNO Perspective ....................................................................................................62
4.2.24
MVNOs rationales.............................................................................................................64
4.2.25
MVNOs positioning ...........................................................................................................64
4.2.26
Key challenges faced by MVNOs .....................................................................................68
5. The MARKET structure & opportunities ............................................................................................70
5.3
MVNO market drivers ...............................................................................................................70
5.4
MVNO market structure ............................................................................................................70
5.5
Market size ...............................................................................................................................71
5.6
MVNE value..............................................................................................................................71
5.7
Aggregation business model benefits.......................................................................................71
5.8
Key Requirements ....................................................................................................................72
5.9
Competition is intensifying –mobile premiums decrease..........................................................72
5.10 Local scale is key to achieving EBITDA margin ambitions .......................................................74
5.11 Operators need to adjust ..........................................................................................................74
5.12 The challenger strategy must be tailored to the market environment.......................................75
5.13 Marketing strategies .................................................................................................................75
5.14 Timing .......................................................................................................................................76
5.15 Provider Selection criteria.........................................................................................................77
5.16 MVNO Services ........................................................................................................................77
6. MVNO BUSINESS SETUP ...............................................................................................................80
6.1
Setting-up Strategies ................................................................................................................80
6.2
Key Issues MVNO players are faced with ................................................................................80
6.3
Issues per player ......................................................................................................................81
6.4
Targets per player.....................................................................................................................82
6.5
Business Case Structure ..........................................................................................................82
6.6
MVNO Business Guide.............................................................................................................83
6.7
The MVNO Business: High Entry Barriers and Risks ...............................................................83
6.7.1 Barriers .................................................................................................................................83
6.7.2 Launch Risks ........................................................................................................................84
6.8
The future of MVNOs................................................................................................................85
6.9
Implementing an MVNO ...........................................................................................................86
6.10 Modeling MVNOs: The Big Picture ...........................................................................................90
6.11 Critical Success Factors ...........................................................................................................94
6.12 Closing remarks........................................................................................................................96
7. Conclusions.......................................................................................................................................97
7.1
Conclusions & Lessons to be learned ......................................................................................97
7.2 Conclusions regarding the future....................................................................................................98
7.3 Three improvement suggestions ....................................................................................................99
8. References......................................................................................................................................100
MVNO
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9. Annex 1 - Case Study – Western Europe Cellular revenues ..........................................................101
10.
Annex 2 - MVNO Experience ......................................................................................................107
Annex 3 - Glossary................................................................................................................................109
MVNO
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1. Mobile Virtual Network Operator (MVNO) - Abstract
This thesis addresses the phenomena of Mobile Virtual Network Operators (MVNO): often MVNO do not
come from the telecom sector but they rent the network of mobile operators to become fully mobile
operators on their own. So they compete directly not only with the other mobile operators but also with
their hosting mobile operator.
Hosting MVNOs, supporting them from both operational and commercial perspectives are new
challenges for the mobile operators: they have to set up a specific internal organization because they
used to be a vertically integrated industrial structure. All of this represents tremendous changes for
them.
The aim of the thesis is to research and analyze the current status of the MVNO industry, present
different views on implementation approaches, identify markets and market segments served, note
weaknesses and strong points, refer to successes and failures, research current legislation(s)/
regulatory aspects (that are an essential driver for the liberalization of network economies) and in
general show the industry’s evolution path over time. The key element is to see if the MVNO is able to
increase the efficiency and competitiveness of mobile markets in specific.
Additionally, starting from the Western European market, an effort will be made to specifically analyze
the case in the Greek MVNO market by providing some specific data such as type of service
(prepaid/postpaid), airtime replenishment volumes (prepaid case), brand awareness, market segments,
penetration/ adoption rates, etc).
Having gone through the MVNO insights at the end, a description of all the steps involved for an entity/
business, in becoming an MVNO from scratch (in the form of a generic guide) will be prepared. A stepby-step approach will be used for implementing a Mobile Virtual Network Operator (MVNO), stating
actions to be adopted and mistakes to be avoided. Given that most of the current implementations have
followed different/ diversified paths (depending on the market needs to be served each time as well as
the intended capital investment by the MVNO candidates), an effort will be made to come up with
guidelines (hopefully the most suitable ones, having learned from former/recent MVNO adoptions) for
aiding such future implementations.
Another important aspect is the modeling of a mobile network: the MVNOs will use some components
while other components are un-useful for them. Without such model, it is impossible to derive the right
costs and price to be charged to the MVNO in order to have a win-win industrial model for both the
MVNO and its hosting operator.
MVNO
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2. The MVNO
There is a lot of definitions for MVNOs in the sector but a sound definition of virtual operators would consist in
saying they are actors not totally integrated who lack at least a part of the asset at the basis of the network..
Applied to mobiles, this means they do not own the radio access.
However they supply to the market a complete mobile service and they own partially or totally their customers.
They rent at least the radio access to their hosting operator but nothing prevents them to rent more than that to the
operator as some elements of the service provided to the end user (billing, contact center, …). They also complete
the radio access by their own assets like a transport network or some switching infrastructure.
However MVNO today are most of the time simple resellers of mobile services that the hosting operator operates
technically.
Scarcity of spectrum has allowed only 3 to 5 mobile operators with a full infrastructure per country via a licensing
process. However it appeared quickly this number was insufficient to have a fully efficient (and competitive) market
despite the existence of 3 to 5 competing networks.
National Regulatory Authorities (NRA) has seen MVNO as a (too) quick remedy at least for the access mobile
market. This new kind of actors was deemed to bring more competition (which is not an objective in itself) that
would boost innovation and economic welfare.
Today NRAs consider other remedies like spectrum trading as a means to enable more innovation in wireless
sector.
However MVNO remain an efficient means to break the vertical integration of MNO that is considered by some
authors as one of the root cause for a player not to innovate any more; the MVNO comes indeed between the
MNO and the end user.
Other authors consider on the contrary that vertical integration allows economies of scale and scope that amortizes
more easily investment. It is an incentive to take more commercial and financial risks. MVNOs too use 3rd parties
for their own innovation so that this argument may not sound completely true.
The multiplication of wireless technologies, the emergence of UMA and IMS will demand new players active on
multiple networks without having the opportunity to own all of them. They will become de facto virtual operators on
other’s assets to operate their services seamlessly across networks and technologies. Such virtual operators will
be innovation-driven.
Another more accepted obstacle to innovation in network economies are the guaranteed incomes that mobile
operators can expect due to their oligopoly situation. The mobile sector is indeed a kind of oligopoly with
guaranteed income. MVNO can break this situation as the guaranteed income is based on the difference between
the costs of the network (assets), the revenues and the limited number of players. An MVNO does not own a
network and is not stuck to this logic.
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There are different kinds of MVNOs
Classic Service Provider (reseller of the GSM operator offers)
Resellers merely resell subscription to end users. In most cases, resellers are completely dependent on
MNOs for every aspect of service provision, billing and customer care. However, end users will not be
able to make a distinction between resellers, other form of MVNOs and MNOs as resellers have direct
relationship with end users. MVNOs that operate as resellers are likely to require an ASP licence.
Enhanced resellers are primarily distributors who resell services provided by MNOs. As with enhanced
service providers, enhanced resellers rely on MNOs for access to the radio network and network
facilities. The key feature that distinguishes enhanced resellers from enhanced service providers is that
enhanced resellers do not have their own SIM cards. While they may still be able to offer their own
branded packages, they will not be able to distinguish their services by their MNC. Enhanced resellers
are likely to carry out customer care and billing in house.
Enhanced resellers may require NSP individual licence if they provide bandwidth services, cellular
mobile services or mobile application services and an ASP licence for providing public cellular services.
ESP: Enhanced Service Provider (Hybrid MVNO)
Procures their own SIM cards and controls a few network elements. So, enhanced service providers are
those who do not own or provide network facilities but have the ability to secure its own numbering
range, operate its own HLR and offer its own SIM cards with its own mobile network code. They are
dependent on MNOs for network facilities, as well access to radio network. These service providers are
still able to maintain some independence from MNOs as they are able to differentiate their products.
Enhanced service providers may require NSP individual licence if they own or provide bandwidth
services, cellular mobile services or mobile application services and an ASP licence to provide public
cellular services to end users.
Full MVNO
Owns everything (including HLR) except the radio network equipments. A full MVNO is one that owns or
provides network facilities and network services such as towers, mobile switching centres, home
location registers (“HLR”) and cellular mobile services. A key feature that distinguishes a full MVNO
from other business models is its ability to operate independently of the MNOs. Full MVNOs are able to
secure their own numbering ranges, offer its own SIM card and have full flexibility on the design of the
services and tariff structures.
So, full MVNOs are likely to require a network facilities provider (“NFP”) individual licence and a network
service provider (“NSP”) individual licence for the network facilities and network services that they own
or provide. In addition, full MVNOs will require an application service provider (“ASP”) licence in order to
provide public cellular services to end users.
Additionally, MVNOs are considered as independent service providers willing to access the mobile
operator’s radio network in order to develop and sell product and services competing directly with the
mobile operators. This type of access could be regarded as unbundling of the radio subsystem in the
mobile telecommunications network, and will to some extent be analogous to local loop unbundling
(LLU).
MVNO
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2.1
The Beginning of MVNOs
It all started in 2000 in Denmark with what was then a small start-up called Telmore. Using the mobile
network of the former state operator TDC, Telmore launched an MVNO business solely online.
Customers bought SIM cards only (solely on-line), using phones they already owned. They prepaid a
single per-minute rate regardless of what time of day they made a call or whether they called a mobile or
fixed line. "In the beginning, it went slowly, but gradually it increased mainly by word of mouth. Within
three years, Telmore had attracted 10 percent of the mobile market. Perhaps more importantly, within a
10-month span, the price of a prepaid minute in Denmark had dropped by 50 percent.
MVNOs though will only really have an impact if the incumbents lose their nerve on price and try to
follow them down. If they can hold their nerve and not panic and accept some leakage, the market can
accommodate a few extra niche players.
Along those lines, however pioneering, this first online SIM-based concept was a niche concept and
targeted only a small share of the market.
This first MVNO model however has paved the way for others to follow.
Pictorially the different kinds of MVNOs can be seen below:
Radio
access
Switches &
other network
elements
Services
& content
CRM
&
Billing
Marketing
&
branding
Distribution
Host MNO
Reseller
Host MNO
Enhanced Service Provider
Host MNO
Full MVNO
NOTE: GSM operators are referred to as « MNO – Mobile Network Operators »
Therefore in short each of the business models practically means that:
Reseller:
Enhanced Reseller:
Service Provider:
Enhanced Service Provider:
MVNO:
Complete MVNO:
MVNO
Buys bulk airtime from the MNO and resells to target
segments
Offer their own branded packages but they will not be
able to distinguish their services by their MNC.
Enhanced resellers are likely to carry out customer
care and billing in house.
Provides services over the mobile platform
Combines the reseller and the service provider business
models
Owns portion of the mobile network with or without
SIM cards depending on choice of mobile technology of
the MNO
Has more control of the mobile network and enables mult
operator agreements
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Depending on the extent of involvement/ adoption in the value chain, some other way of looking at the
business models involved can be seen below.
‘Thin’ MVNOs will normally source their own billing and customer care services. They will establish their
own tariffs, customer care mechanisms, and provide their customers with basic voice/text services,
usually with simple Internet access and some premium content services. They won’t be able to provide
custom facilities like voicemail, advanced messaging (MMS or SMS) services, or offer advanced
Internet, email services separately from those the host MNO can support.
‘Thick’ MVNOs, in addition to their own billing and customer care, will frequently run some of their own
network services, typically SMS or MMS, voicemail, overseas-call routing, and WAP gateways. This
allows these virtual operators to provide advanced services such as VoIP, routing for overseas calls,
more sophisticated email products or custom-built handsets.
The figure below shows a typical MVNO infrastructure showing (in green) what a ‘thin’ one might provide
and the additional features (in blue) that a ‘thick’ MVNO could offer
MVNO
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Infrastructure Matrix
Offered primarily to nontelecom companies or telecom
companies wanting to diversify
without significant investments
Offered to companies with some
experience in telecommunications
who can take over some of the
responsibility for providing key
services
Network Rollout
The mobile network roll-out follows three MVNO Lifecycle clear stages.
MVNO
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Strategy Development, offer packaging, (through all the technology and support needed) to service the
target market and start generating revenue.
Traditional billing systems do not meet the requirements of an MVNO
MVNO need
Low TCO
Easy introduction of new
services
Future-proof
growth into
mobile and
VAS
Opportunity for
outsourcing
MVNO
Motivation
Insufficiencies today
•
•
Solutions do not
scale down costefficiently
•
Incomplete solutions
•
Products build to be
run by large billing
departments
•
Cross-product
dependencies
•
Legacy products
lacks in architectural
flexibility
•
•
•
•
Fewer subscribers
to carry total cost
of billing
Limited billing
competence
Excellence in time
to market critical
The core business
and growth
opportunity
Focus on core
business with lean
organization
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2.2
The Value-chain & Value Net
The Value Chain
By looking at the value chain and considering the involved enablers (Technical, Emotional, spectrum,
physical, profit) it can be said that MVNOs fall between emotional and spectrum enables (between
service and network operators, or between ASPs, ISPs and Portals from one side and Mobile Network
Operators from the other)
The standard approach to the analysis of industry attractiveness is Michael Porter’s Five Forces
framework. The attractiveness of an industry, such as the telecommunication industry, depends on the
state of competition. Competition in an industry is rooted in the underlying economic structure of the
industry. The state of competition
in an industry depends on five basic competitive forces. The figure below gives a picture of the Porter’s
“Five Forces” framework: The power of the five forces – Suppliers, Buyers, Potential Entrants,
Substitutes and Rivalry among existing firms – depends on some major factors and characteristics listed
in the work of Porter.
In his book ”Competitive Advantage” [4] Michael Porter suggested analyzing the “cost leadership” and
“differentiation” strategies by means of the value chain model, which has become the standard approach
to these analyses. An effective competitive strategy according to this approach takes offensive or
defensive action in order to create a defendable position against the five competitive forces.
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Figure 1: Porter’s Five Forces
The Value Net
The Value Net can be seen as a generalization of the Five Forces framework. Complementors are
added as a new dimension. The Value Net emphasizes that the value to the customers can depend on a
package of complementary services and/or products. Logically, Complementors will influence the
attractiveness of an industry. Figure 2 gives a picture of the Value Net of a company.
Figure 2: The Value Net
A player is a complementor if customers value your product more when they have that player’s product
than when they have your product alone. A player is a competitor if customers value your product less
when they have that player’s product than when they have your product alone.
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Also, a value network can be seen as a web of relationships that generates economic value and other
benefits through complex dynamic exchanges between two or more individuals, groups or organizations.
Two primary types of value can be distinguished:
1. Tangible value exchanges - involve all exchanges of goods, services or revenue
2. Intangible value exchanges - include two primary subcategories: Knowledge and Benefits.
The value network is important part of the organisation design presented by Faber [Faber 2005].
To that extend, in an MVNO implementation an extended personalization concept is presented that
enables value networks of content providers, network providers, and service providers to offer
personalized services to mobile users in a way that suits their individual needs at a specific place and
time.
The fact that consumers would like to have only one billing relation will most likely consolidate the
number of actors. Therefore, a new value network with different types of interactions between
stakeholders will be needed in the new MVNO market. New networks will consist of many different
actors that have certain resources and capabilities, that when brought together, will create value for the
customers and at the same time, realise their own strategies and goals. The set of arrangements
between the different actors will include how profit, investment, cost, risk and revenue sharing are
arranged.
MVNO
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MVNO - A Service Centric Business Model
In the Service Centric Business Model a Network Provider offers seamless access on a number of core
and access networks. The Service Provider bundles this seamless access with a number of aggregated
services. This is the case exactly for all MVNO types.
Examples of models belonging to the Service centric category are the WEB 2.0 services:
- Model_1 (Flickr, Skype): The model is based on technical innovation, offering a compelling value
proposition. Value adding services are being offered as a premium for which the customer has to pay.
Network effects help to drive the adoption and value of the service. Technology is important as an
infrastructure tool, facilitating the business model.
- Model_2: (MySpace, YouTube): The business model is based on network effects created by a user
base and user interaction. A community is built around content like User Profiles for MySpace or
interesting Blogs as is the case for Gawker. Sometimes the SPs syndicate their content to 3rd parties
like Google or Yahoo.
2.3
The players
Along the value chain, the involved parties/ players include several types of providers ranging from
service, to content, to network etc, as well as operators.
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Content Provider
Mobile Application Providers
Mobile Marketing
System Integrators
Content
Internet Service Providers
Value
Addition
Delivery
Enterprises /
Mobile Subscriber
Internet-to-mobile service providers
Modem-based service providers
Short-Code Operators
MNOs
MVNOs (for Data Services)
2.4
Mobile Solutions
An overview of the ICT component when implementing different MVNO types is as follows:
2.5
Characteristics of an MVNO
• MVNOs are new breed of wireless network operators who may not own the wireless spectrum, or
wireless infrastructure but give a virtual appearance of owning a wireless network. These
operators lease the wireless capacity from traditional operators and then repackage it for a
specific vertical industry application.
• Main added value that MVNO provides is billing and customer care functions. In that sense
MVNOs own the customers.
• MVNOs generally provide both voice and data services to end users through a paid up
subscription agreement.
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• To become an MVNO, one should cobble together a partnership that consists of a connectivity of
a regular Telco, a customer base, and a sales channel. Most important, they need unique and
compelling data services.
• An MVNO usually provides: Brand, Marketing, Portal, Rights management, billing platform,
Customer base
2.6
A typical MVNO Business Model
At its most basic level, an MVNO is a standalone entity. It buys access from a host carrier—often perminute or per-megabyte—and resells it under its own brand and marketing. MVNOs typically have a
strategic intent focused on a recognized brand, with existing points of distribution and an already
installed base of customers. That doesn't mean upstarts wanting to become MVNOs can't succeed, as
evidenced by Virgin or Boost—neither of which were pre-existing brands in the mobile space at their
inception. Success for those companies depended on delivering high-quality service, rather than just a
brand. The term ‘MVNO' has become a catch-all for any consumer reseller, so there can be seen a
variety of business models. But a classic MVNO minimizes capEx and keeps expenses as successbased as possible. That means leveraging outsourcing solutions for billing, customer care and content
delivery. Considering the typical retail and network elements involved in an MVNO, there is a range of
MVNO classifications/ types between Service Providers (SP) and full MNOs. Different functions can be
carried out by the MVNO or MNO. Some may be carried out by a Mobile Virtual Network Operator
Enabler (MVNE) which may simplify the MVNO provisioning for either the MVNO or the MNO. MVNEs
develop systems and processes to help facilitate MVNOs, such as handset distribution, channel
management or billing.
2.7
MVNO Defined From a Customer Perspective
To Fully understand the MVNO, and moreover Next Generation MVNOs, we have to look outside the
legacy network led definitions of an MVNO, as an MVNO is a customer driven, and therefore business
driven business model. From a customer perspective both the MNO and the MVNO are their "Network
Provider". That is in Greece for example Frog is seen to its customer as their network provider, not the
host MNO (Cosmote), just as Cosmote is seen as a network provider.
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Source: Christian Borman -2006
Customer experience
The customer’s perspective is a simple four-stage process:
Buy -> Use -> Pay -> Care
BUY a SIM card, handset, or starter pack
USE for calling, SMS, or other services
PAY recharge or other payment method
CARE get advice with questions or problems
There are different ways of handling each stage: from the internet through to stores, other point of sale,
invoices, care centres, the handset itself.
MVNO
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2.8
MVNE (MVNO Enabler)
Most MVNOs will lack the experience of dealing with handset manufacturers and establishing upstream
and downstream systems for service creation, billing, customer care and data centres, hence the
creation of the MVNE. So a special case of the MVNO model is the MVNE. An MVNE provides the
technical architecture and may enter into a wholesale agreement with a host MNO, to enable mobile
service provision. However, the MVNE does not directly provide services to mobile users. Instead, it acts
as an enabler for any number of MVNOs; an MNO can also become an MVNE in order for it to directly
support MVNO Resellers and Service Operators. In other words, MVNE is a service company delivering
tools & services to companies wishing to market their services over a mobile network, and thus
becoming MVNOs. Those companies are referred to as “MVNO candidates”.
Marketing functions are handled by the MVNO candidate: brand, distribution channels, customer base.
The set-up, operation and evolution of the MVNO service is handled by the MVNE.
An MVNE does not have a relationship with end-user customers. Instead, an MVNE provides
infrastructure (will interface with carriers to deflect the risk and costs) and services to enable MVNOs to
offer services and have a relationship with end-user customers.
MVNEs form the backbone of an MVNO’s business of wireless Network Services providing help in broad
areas of product development and marketing. These outsourced services include: Data Services,
Content Management, Customer Relationship Management, Profile Management, Service Provisioning,
Work Fulfilment, Billing, Invoice and Settlement, Revenue and Service Continuity Assurance etc. In
other words, MVNEs collect usage data and handle rating and billing functions, and may go so far as to
handle provisioning, order management, service assurance, fulfilment, content management and
settlement.
An MVNE offers infrastructure and related services ranging from network element provisioning,
administration and operations to OSS/BSS support. MVNEs often provide the “middle-ground” between
MVNOs that do not want to have any control over network elements and those that want complete
control.
Some MVNOs want to completely rely on the underlying wireless network infrastructure of the host
mobile network operator whereas other MVNOs want to own and/or control their own network elements.
MVNE’s provide the middle-ground in the sense that they can provide options to MVNOs for what they
bring in-house versus what they rely on the host carrier. For example, a MVNE can provide HLR,
SMSC, MMSC, as well as more advanced network elements such as GGSN, OSS/BSS, and other
systems.
The operating scope of MVNEs mirrors that of MVNOs, such that:
• Full MVNEs operate a core mobile telecommunication infrastructure, building the capability and
capacity to enable wholesale services from MNOs. This type of MVNE parallels the Full MVNO by
implementing the same technical architecture and host MNO wholesale agreements, but with partner
companies creating the end-user services and interacting with the customer. The Full MVNE is the
intermediary between the host MNO and a Reseller or Service Operator.
• Limited MVNEs operate elements of the service delivery infrastructure, in much the same way as a
Service Operator, but leave the mobile service provision to partner companies. The Limited MVNE is
also the intermediary between the host MNO and a Reseller or Service Operator, but cannot offer the
service innovation that a Full MVNE can provide.
MVNO
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Providers supply components of the service delivery infrastructure to Resellers and Service Providers,
but usually do not enter into a wholesale agreement with a host MNO.
The MVNE is emerging because most MNOs have systems and approaches optimized to serve the
mass market. This often makes it difficult for them to efficiently support third-party suppliers that address
niche market segments with services that differ from the host MNO portfolio. MVNEs seek to fill this gap
by providing the flexibility to support diverse services provided by a number of segment-specific thirdparties.
Leveraging an MVNE brings the MNO the benefit of significant wholesale traffic volumes from multiple
third-party service providers. The MVNE offers third-party providers economies of scale, access to new
service platforms, flexible service deployment and the operational simplicity of a hosting service.
The technical issues of setting up an MVNE are similar to those faced by an MVNO. They both need to
support elements of the core network and service delivery platform infrastructure. The difference is in the
customer interface, where the MVNE is selling B2B.
2.9
MVNO & MVNE
Some companies are mistakenly considering themselves as MVNOs, when they are really wireless
resellers.
Then
there
are
instances
where
MVNO
and
MVNE
overlap.
At one side of the spectrum, some MVNOs focus on the low end, where voice is the primary product.
These MVNOs tend to differentiate by brand and customer experience, such as Virgin Mobile.
Sometimes there's a little data flavour, but it's largely a brand play. These companies tend to be largely
prepaid. On the other side are the high-end players looking at postpaid services involving data and
content.
2.10 Why MVNOs make sense
The mobile virtual network operator (MVNO) market is a crossroads for telecom, entertainment and
other industries. The idea that a mobile phone can lead to a customer's wallet and loyalty has a range of
companies interested in the opportunity.
MVNOs are more about customers, community and content than they are technology. As a result their
offerings need to be focused on specific audiences with a strong customer care component. Whether an
MVNO business model is sensible and acceptable to the marketplace is no longer a question. In fact,
those MVNOs that succeed will do so largely because their network operator partners have incentive to
help them. It's arguable that the major mobile network operators could be opposed to helping MVNOs
succeed. On the contrary, the ideal MVNO actually complements and extend the network operator's
offering.
One of the major issues operators consider with any market segment is risk. Financial markets are tough
on operators if ARPU drops, so they cannot take on certain customer bases as a result. The issue is, the
large operators are actively chasing markets within their risk threshold, but their networks still need
minutes from somewhere else. So, some reasons why MVNOs make sense may be:
• Many of the growth markets in mobile are riskier segments like the youth market, the credit
challenged and those who dislike most operators' billing methods for minute overages.
MVNO
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• Another reason MVNOs make sense for operators is their focus on personalization. The large mobile
operators generally offer one-size fits- all packages. Much of the market is satisfied with a generic
plan, but a growing number of subscribers want something more personal. As an example, Sprint's
MVNO partner, Virgin Mobile USA LLC, allowed it to effectively de-risk entrance into the pre-paid youth
market, as they had a brand and shared in the cost.
• Another reason MVNOs make sense for operators is that they provide an opportunity to gain strength
through relationships with larger, non-telecom companies interested in MVNOs - like Virgin, The Walt
Disney Co. and other media properties. These companies attract or bring with them more content, their
own brand loyalty and, ultimately, more money to invest in building future mobile network and
application infrastructure.
• Building an MVNO will take an enormous amount of cash, to be spent on advertising, partnerships,
wholesale network and content services, customer care support and various kinds of software. All that
cost is an undesirable burden to an MNO (specifically for targeting niche markets), however at the
same time is a key driver for the MVNO’s need to become known, access customers, control data,
billing and customer interactions.
• The MVNOs that prove successful seem likely to win for three primary reasons.
o First, successful MVNOs will target segmented audiences that don't threaten their
network partners' retail businesses, but promise to add minutes to their networks.
o Second, they will not underestimate billing and customer care, nor will be so virtual they
fail to maximize their customer relationships.
o Third, they will use content, in addition to platforms like television, radio and the Internet
to create compelling communities of interest that will, in turn, encourage usage and brand
loyalty.
• Key success factors for MVNOs
The successful development of an MVNO requires the mastery of six key success factors:
-
-
Possessing a strong brand and being able to transpose it to new markets
Disposing of a wide distribution network adapted to the target customers
Disposing of a known and addressable existing client basis
Bringing to the market innovate offers in terms of price and/or content/services
Being customer and service quality oriented
Disposing of sufficient financial capacity to establish a long-term presence on the market
Must create the right mix of products and services
Support it with the correct infrastructure.
Partnerships forged with network operators, and vice versa: Thus selection criteria must be
devised by the MNO, to ensure MVNO-focused partnerships are complementary to their
business in terms of distribution.
Affordable prices and straightforward tariffs structures are the cornerstone of all offerings.
Multi-brand concept–tailored to suit the relevant target group.
Focus on core services–products and services with well-established demand.
Success Examples
MVNO
Failure Examples
Page 21 of 110
2.11 Key driving factors enabling the MVNO opportunity
• Western Europe mobile market is reaching saturation since:
o in the Nordic countries are already saturated at 90%
o the introduction of pre-paid subscriptions has had a large impact
• Deregulation opens the mobile markets to competition as:
o there is no need for own spectrum licenses or radio networks
o there are Regulator-controlled interconnection prices
• The focus in revenues is expected to shift from basic services to more content-based value-added
services. So:
o There will be Convergence, evolution towards IP over everything
o New entrants may have excellence in content-creation
o Increasing shift from voice to data services is being observed
2.12 The MVNO opportunity
2.13 MVNO opportunities increase with 3G rollout
3G offers MVNOs an exciting opportunity to offer users a rich multimedia experience. While many of the
MVNOs today are offering low-cost pricing (voice and SMS), 3G will allow them to focus offerings
equally on data.
Some of the opportunities identified for potential MVNOs include:
-- Focus on offering convergence
-- Focus on a pan-European offering allowing for low-price calling while roaming abroad
-- Focus on 3G and in particular data such as mobile music or mobile sports
-- Focus an offering for enterprises, whether based on voice or data, that could potentially be broadened
to include roaming as well
MVNO
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For any new MVNO, it is important to focus on niche markets and get to market sooner rather than later.
This will certainly provide the company with a competitive advantage and allow it to build its brand and
raise awareness in the marketplace.
So the market for MVNOs opens up the space for established and new players such as billing and
customer care companies to sell into. Billing and customer care is just one opportunity, and there are
also opportunities for IT companies and those that specialize in data. This in turn will allow MVNOs to
personalize their data offerings, which can increase usage and reduce churn.
The insight Opportunities for MVNOs in Western Europe, analyzes developments in some key Western
European countries and major companies. It also addresses opportunities for new companies looking to
enter this space.
2.14 The overall MVNO business context
In 2G, network operators generate about 90% of the revenue by selling voice services and simple data
services to their subscribers. Traditional 2G Mobile Network Operators tend to keep end user ownership
instead of opening their radio access network to MVNOs. That situation is changing with the introduction
of broadband wireless services. MVNOs are the direct provider of services to their subscribers and not
merely an entity that puts its content on the services offered by carriers. Most of the consulting groups
predict a shift in the mobile value chain. Where Mobile Network Operators are generating about 90% of
their revenues in GSM by selling network capabilities to their subscribers, in UMTS 40% of the revenues
will come out of the broadband wireless data services (portal and content applications).
To remain competitive, Mobile Network Operators have to offer innovative services and deploy them
very rapidly on the market. MVNOs represent definitively one of the best solutions to their concern,
because alone, Mobile Network Operators would face far more difficulties in mastering the UMTS
challenge. Partnership with an MVNO is for them one of the most important success factor. Entering the
3G area, Mobile Network Operators will have to face challenges like managing their new network (new
technology), handling financial transactions (m-commerce) and gaining a lot of new partners (for
content, m-commerce, advertising, media partners, etc.). Therefore MVNOs with their respective
background can optimally solve some of Mobile Network Operators challenges in the frame of a win-win
agreement. Due to the investment related to UMTS technology and the price of UMTS licenses in some
European countries, Mobile Network Operators are facing pressure from financial institutes in order to
reduce their ROI period. According to the most optimistic business cases, their ROI period is not likely to
be shorter than 7 years. Mobile Network Operators envisage therefore increasing their revenues and
optimizing the usage of their network capacity by opening their network to MVNOs. As MVNO get
ownership of their subscribers they act much more as a full service provider than a content provider. As
such the MVNO actively contributes to the business development of Mobile Network Operators
(business complementary).
MVNO
Page 23 of 110
2.15 MVNOs Backgrounds (Legacy and Next generation MVNO Models)
MVNO backgrounds
MVNOs are attractive to companies with strong brands, which usually have not been used previously in
the cellular area. In particular, anyone that can offer innovative services and appeal to different
demographic sections to target niche sectors and tailor services should be attracted to this market.
The MNOs:
• usually have their roots in the fixed line business
• leverage on the existing network and ownership of spectrum licenses
The MVNOs:
• can emerge from a plethora of industries
• leverage on strong brands and extensive distribution networks
ISPs
Fixed network
operators
Internet
companies
Media
companies
MVNOs
Automotive
& M2M
Retailers
Financial
institutions
Niche &
Communities
MVNO
Page 24 of 110
Another pictorial way of seeing the MVNOs entrants’ background can be seen below.
Fixed network
operators
Consumer
Electronics
Media companies
MVNOs
Automotive
Retailers
Financial
institutions
Therefore MVNOs in particular may arise from:
o Traditional landline operators planning to add mobile services
o Mobile operators planning to enter into international markets
o Companies with strong brand names
o Companies who could not obtain 3G licences
o Companies from telecom, media and internet industries
Legacy and Next Generation MVNOs
MVNO
Page 25 of 110
2.16 Where is the MVNO today
An explosion of the MVNO activity is taking place in the mobile marketplace. Many players from multiple
industries are exploiting the MVNO model, to get revenues from the mobile market. While many MVNOs
have entered the mobile market on a “pure voice play”, their offerings are not very different than
traditional mobile operators. As the voice ARPU declines, MVNOs need to execute effective mobile data
strategies and create innovative ways to differentiate their services to high-margin multimedia, location
based and mobile commerce services.
An MVNO usually offers not only voice services but also value-added services or sometimes referred as
mobile value-added services, which are a combination of voice, data, graphics and video information.
Examples include mobile music, mobile TV, games, ring tones, multimedia messaging, mobile
commerce and location-based services.
While the initial business model of creating new revenue streams without actually having to be an expert
in the wireless industry still stands, today’s MVNOs are far from achieving a license to print money.
Three essential factors have emerged:
1. MVNOs must differentiate themselves with new value-added services orientated around
customer choice and a personalised customer experience. For example, Helio a US MVNO now
offers its customers GPS-enabled Google Maps, OTA music downloads and exclusive access to
MySpace Mobile at no charge.
2. Convergence has become the new driving force behind the Next-Generation of MVNOs. For
example, Virgin Media is now offering a quadruple play package, combining mobile and fixed line
telephone services, broadband and TV.
3. On paper MVNOs present operators with a way to realise revenue from spare capacity and
target niche markets that are peripheral to their core business.
However, supporting MVNOs brings with it burdens and risks for the operators. Qualifying the business
cases of potential MVNOs to a network provider can therefore be time-consuming and distracting
2.17 Next generation MVNOs
MVNO
Page 26 of 110
MVNO Next generation preface
Next Generation MVNOs in general do not necessarily invest in, nor duplicate exact elements of the host
MNO, nor will they be ad-hoc creations that require integration into the host MNO, but instead they will
all reside on a single platform that interfaces with the Host MNO and grows infrastructure around its
individual customer needs and requirements in order to never become a potential burden to its host
MNO.
Note the fact that the MVNO model now goes beyond the Radio Access & Transmission element, this is
to take into account the recent rise of convergence. These will therefore be unlicensed Radio Access &
Transmission elements, not licensed spectrum.
MVNO Next generation Concept
The "Next generation MVNO" concept refers to the creation of a global network with Europe wide
coverage, consisting from all GSM/UMTS network elements, except radio access, and centralized
service platform, connected by broadband network and binded with each countries incumbents through
interconnection agreements.
The “Next generation MVNO” concept as evolution of existing first generation MVNO business model,
based on completely different approaches: a transition away from price competition toward innovative
and higher-value services.
If initially MVNOs offer simple discounted prepaid voice and SMS services, does not have infrastructure
and act as host network resellers under their brand, on opposite next generation MVNOs is going to
have all GSM/UMTS network elements, except radio access, offer sophisticated voice and data services
and differentiate on services, innovations, data offerings and customer care.
MVNO
Page 27 of 110
3. MVNOs: Identities and Distribution
3.1
MVNOS Global Initiative
Description
The “MVNO Global” initiative is to create Pan-Europe global alternative GSM/UMTS mobile operator and
service enabler using full infrastructure Mobile Virtual Network Operator (MVNO) concept. Also to
introduce and complete consolidation by horizontal merger of existing MVNO’s, one from each country,
and rising funds to expand globally. The global footprint of operator should cover EU25 countries and
beyond, performing unified and centralized service platform.
“MVNO Global” strategy is to be build in EU’s “Lisbon Strategy” framework which strives to turn the EU
into the world's most dynamic and competitive economy till 2010.
“MVNO Global” mission is to promote and be the part of Single European Information Space offering
affordable and secure high bandwidth communications, rich and diverse content and digital services.
Since the “de jure” EU is single market, “de facto” we still have very defragmented mobile market with
considerable roaming and global services(112 and in vehicle emergency call service) implementation
problems.
The industry players
The target market is medium and high-end business and residential users, other MVNO’s and service
and content providers willing to start global operations on company’s technical platform.
MVNO
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MVNO Global footprint
At first stage of project analysis of EU15 countries mobile markets will be performed in order to identify
mobile market alternative key players and select those will be invited to negotiate aspects of fore coming
merging process. Throughout second stage all separate networks and service offerings will be upgraded
to developed standardized platform. In third stage other countries networks will be developed and
connected.
List of countries involved in project depending from implementation time frame:
MVNO
Page 29 of 110
Mobile internationalization EUROPE
Next Gen MVNO Transition process
Benefits for existing MVNOs (According to Global Initiative)
To create shareholder value over and above that of the sum of the companies; hence companies together are
more valuable than separate companies.
• This rationale is particularly alluring to existing MVNO’s and SP’s operating in tough mobile markets like
Denmark, Finland and Sweden.
• The companies should come together to benefit from economies of scale, thus reducing duplicate departments or
operations, lowering the costs of the company and increasing
profit.
• The companies in addition benefit from synergy: better use of complementary resources, centralized service
platform and value of global brand name.
MVNO
Page 30 of 110
Technical platform
•
•
•
•
•
•
FULL infrastructure MVNO model:
GMSC, HLR, SMSC, MMSC, WAP, etc;
Centralized customer care and billing applications;
Centralized and unified LBS;
SIM cards Java toolkit;
OTA platform implementation.
MVNO Global network topology
MVNO Global network should consist from GMSC equipment in each country connected
to each other by broadband connections. Each country’s GMSC is connected to other incumbent operators under
terms of interconnection agreements. Every GMSC should be connected to countries MNO: host mobile network
operator. Service platform and applications should be centralized, as much it is technically possible in order to
reduce CAPEX. Roaming agreements should be signed to rest of the worlds GSM networks. In each country
Global MVNO should have its own MNC and IMSI range.
3.2
MVNO
MVNO Global market share
Page 31 of 110
3.3 The Future of MVNOs in the 3G Era
2006 Market Map: European MVNO 3.0
Source: FirstPartner 2007
3.4 Global MVNO Distribution
North America - 63 MVNOs
Canada, Dutch Antilles, USA
Rest of the World - 41 MVNOs
Australia, Hong Kong, Israel, Japan, Malaysia, New Zealand, Réunion, Russia, Singapore, South Africa,
Taiwan, Ukraine (linked to Russia), Zanzibar
- Planned MVNOs - 53 (not regionalised)
The global market for MVNOs will reach 150 million subscribers by 2013, with 63 million of those
subscriptions coming from Western Europe. This will result in MVNOs accounting for a 3% market share
of the total mobile market by 2013.
MVNO
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3.5 MVNO Global Market Forecast (2006-2012)
The global MVNO market from 2007 is likely to be impacted due to technological factors, shifting end-user demand
trends and possible changes in the supply environment.
3.5.1 The Customer Segments
MVNO
Page 33 of 110
3.5.2
The Revenue Model (an example)
3.5.3
MVNO business Models
The sort of companies most likely to become a virtual operator could be:
- Companies with fixed network licences in several countries and its own international backbone.
Building on this would enable such companies to offer a degree of mobility to their fixed network
customers and reduce their cost base for calls made from and between countries in which they
operate. Also, this provides a basis to offer a common look and feel to their services. All those
fixed network operators that failed to win 3G licences then, if they weren’t currently strapped for
cash.
- Another likely profile would clearly be a well-known company wishing to capitalise on its brand
name and with a strong customer base
The most established business models are focusing on the support of services and customers
MVNO
Page 34 of 110
Source: FirstPartner
MVNO Business Case
- Lower operating margin and capex vs. MNOs
- Less time to cash flow breakeven
- MNOs gain access to customers that are difficult to target
- Content / brand owners can enhance & extend the wireless market
MVNO Risks
Unfavourable wholesale agreement & restrictions
Hostile pricing by MNOs - unlimited call tariffs & SMS bulk bundles
SIM locking
Difficulty in setting appropriate relationships with handset vendors
Traditional MVNOs
Rigid wholesale contracts
Lean staffing structure
Selected channels
Simple products
Very easy to understand tariff
SAC lower than MNO
Lower ARPU than MNO
MVNO
Page 35 of 110
Next Gen MVNOs
Flexible wholesale contracts
Dedicated customer care team
Augmented distribution capacity
Innovative content and service offerings
Flexible tariff
SAC similar to MNO
Higher ARPU than MNO
Fixed
Telephony
possible
MVNO
models
MVNO
Page 36 of 110
Source: AGCOM 2007 –MERRILL LYNCH 2007 ACCENTURE ANALYSIS (Nov. 2007)
Fixed Operators are the only ones with
experience in both voice and data services, while
for the rest is another opportunity
In MVNOs mature countries the ratio MVNO/MNO is approximately 5:7
MVNO
Page 37 of 110
For the above sample of European Countries (the most mature), full MVNOs possess 30% of the total.
Germany that has the higher MVNO penetration, the highest price reduction is observed (due to
competition).
MVNOs distribution per country and market segment
Europe presents different business models per country. Full MVNOs and Service Providers
constitute approximately 69% of the total MVNOs number.
Source: Accenture analysis (Nov 2007)
MVNO Subscriber Forecast
Western Europe: 13m subscribers in 2005, 47m by 2009
UK: 5.5m MVNO subscribers; 13% of UK mobile users, 9% UK mobile revenue
Source: FirstPartner
MVNO Market Trends
MVNO
Page 38 of 110
Source: FirstPartner
MVNOs do not pose a treat MNOs
- MNOs may sell their network extra bandwidth, thus increasing their market share through the MVNOs
(selling air-time in bulk).
- The MVNOs profit margins (by buying bulk) may aid financially both the MNOs network deployment
investments (UMTS, etc), as well as cover the subscriber acquisition cost (SAC).
Mobile Penetration in Europe and Greece
Source: SATPE
MVNO
Page 39 of 110
3.6 MVNO Adoption in Europe - 151 MVNOs
Portugal, Slovenia, Spain, Sweden, Switzerland, The Netherlands, UK Austria, Belgium, Denmark,
Estonia, Finland, France, Germany, Greece, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg,
Norway, Poland
MVNOs in Europe have reached different maturity levels and are concentrated in northern Europe
Source: Accenture analysis (Nov 2007)
3.6.1 Fixed telephony MVNOs in Europe
MVNO
Page 40 of 110
3.6.2 MVNO/MNO European Market share
Source: Accenture analysis (Nov 2007)
3.6.3 MVNOs in Europe: numerous initiatives, very few successes
MVNO
Page 41 of 110
3.7 MVNO Adoption in Greece
There are four Larger and a few small MVNOs.
3.7.1 The MVNOs in Greece
4 Larger
Powered by Cosmote
- Frog
- Ciao (needs of an ethnic group)
Powered by WIND
-Q
- MoMAD
Some Smaller
- AB mobile
- Olympiakos
- Carrefour
Frog Mobile
- Small description
The new prepaid mobile telephony offers very cheap rates, such as:
• very low rates from the first second
• very cheap SMS from the first message
• very cheap MMS from the first message
- Coverage (the best in the country)
- Services: SMS, MMS, CALL LINE IDENTIFICATION, MISSED CALL NOTIFICATION, CALL LINE
IDENTIFICATION RESTRICTION, CALL DIVERT,
CALL BARRING, EMERGENCY SERVICES, ROAMING
MVNO
Page 42 of 110
Ciao
- Small description
This mobile offering targets certain ethnic group by providing:
• Very cheap rates towards all mobile and fixed destinations in Greece
• Cheaper rates for calls towards Greece, USA, Albania and Italy
• Cheaper rates for calls towards CIAO numbers
• very cheap SMS (same price for Greece and abroad)
- Coverage (the best in the country)
- Services: Cheap bundle of voice and SMS towards mobiles of a certain foreign network, SMS, MMS,
Roaming
Q
- Small description
The dynamic prepaid mobile telephony offers very cheap rates, such as
• per second charging (from the first second)
• very cheap national calls
• Cheap rates towards 25 European destinations
• very cheap SMS
• very cheap MMS
• no monthly fees
- Coverage (Country-wide coverage)
- Services: Basic mobile services, Roaming, SMS, e-mail, who-called, MMS, WAP, Value Added
Services, MyQ services
Mo-MAD
- Small description
A pioneering prepaid offering targeting
• Youth
• music lovers
offering unique services in the music and showbiz areas with
• very cheap SMS
• very cheap MMS
- Coverage (Country-wide coverage)
- Services: Ring Me now, MAD MMS news, Daily SMS, MO Portal, Voice Portals, Ringtones, Java
Games, Roaming, Music news, music charts, Happenings, MAD programme.
3.7.2 Mobile Network Operators customer base (June 2008)
Total
Connections
Cosmote 6.920.907
Vodafone 5.542.000
Wind
4.835.776
Hellas
Total
17.298.683
Market
Share (%)
40,00
32,04
New Connections
(Q2)
392.412
82.000
Market Share
(%)
53,67
11,22
27,96
256.638
35,11
731.050
Source: Companies Announcements
MVNO
Page 43 of 110
3.7.3 MVNO Figures
MVNOs
MVNO Type
Cosmote
FROG
CIAO
Low Cost
Community
Vodafone
OLYMPIAKOS
CARREFOUR
5.542.000
32,04
4.835.776
1.000.000
519.000
27,96
5.78
3%
Community
Low Cost
Wind Hellas
Q
MoMAD
AB
Total
Market Share on total
Subscriptions subscriptions (%)
6.920.907
40,00
692.000
4%
35.000
0,2%
Low Cost
Life Style
Low Cost
Σύνολο
17.298.683
3.7.4 MNOs ARPU and AMOU
Cosmote
Vodafone
Wind Hellas
ARPU
24,2 €
22 €
19,9 €
AMOU
183 Minutes
144 Minutes *
125,4 Minutes
Data refers to Q1 of 2008
* Figure results from data provided by Vodafone for the period April-June 2008, according to which the
total traffic in this network was 2,395 billion minutes and the customer base was 5,542 Million.
Source: Weekly Telecom Magazine (Companies Announcements)
MVNO
Page 44 of 110
4. MVNO/ MNO/ MVNE Benefits and Drawbacks
4.1 Advantages/ Benefits
For the MVNO model
ƒ
ƒ
Significantly reduced time-to-market for launching MVNO service
Accelerated ROI and reduced TCO for both MVNO and Wireless Carriers launching a branded
wireless service
ƒ Faster time-to-market with new products and services
ƒ Accelerated ability to launch new campaign and promotions
ƒ Fast-track release process designed to accelerate time-to-market for enhancements
ƒ Accelerated integration of additional partners and applications due to a highly flexible serviceoriented architecture
Host Operators have traditionally struggled in understanding what their customers want. High "chum"
rates (customers charging operators) is just one indication of a market where customers have little
loyalty to their operator. Host Operators have also generally proved poor at understanding what content
will attract new subscribers. Given the importance of such multimedia services to the future of the
cellular market, using established companies as MVNO may be a profitable way of exploiting the
knowledge of others. An MVNO can, therefore, exploit factors such as a superior brand, customer
service functions or content to attract new customers who would not necessarily be attracted to the
existing Host Operator. The model can be used by cellular operators seeking to expand their geographic
reach as well as by brands which are sufficiently strong to leverage consumer loyalty across markets
(e.g., the UK supermarket chain Sainsbury’s has become an MVNO offering a branded cellular service
to its customers). The concept also appeals to operators with fixed capacity as offering the opportunity to
offer a combined fixed and cellular service with one tariff and one bill and discounted rates to customers
who subscribe to both services.
For the MNO
For Host Operators, MVNOs offer the possibility that traffic on their network will be increased as they
offer capacity on a wholesale basis. Given the importance of recouping high investment costs this is an
increasingly important consideration. MVNOs offer a way of addressing areas of the market which would
not be reached by Host Operators as well as providing innovative services, branding and marketing
expertise.
For the MVNE
The benefit that the MVNE can provide to the MVNO is deferral of capital expenditures and/or cost
reductions while allowing the MVNO to focus on the customer relationships rather than operations. At
the same time, the MVNO is afforded the opportunity to customize its offerings arguably further than an
MVNO that is totally reliant on the host mobile network operator. Everything considered equal, the host
operator is satisfied to sell unused capacity, but is not interested helping the MVNO differentiates itself,
which could cannibalize host carrier customers. With an MVNE, an MVNO could literally use the host
mobile network for only radio and switching infrastructure, outsourcing everything else to the MVNE.
According to Pyramid Research, there are three main categories of MVNEs, according to their MVNO
solutions:
MVNO
Page 45 of 110
• Aggregator MVNEs: these offer consulting and integration services and have bundled all of the
back-office network components through alliances. These promote their ability to quickly provide orderto-cash solutions to MVNOs.
• Aggregator MVNEs with their own platforms: this includes aggregators which have developed
one or more back-office solutions internally, and have complemented them with partnerships to
provide end-to-end enablement services.
• Specialised Enablers: these offer only parts of the back-office network such as messaging
platforms, data platforms and billing solutions. They are not solely focused on the MVNO market.
The voice-centric, operationally "light" MVNOs of today have generally worked with an aggregator
MVNE that managed the limited back-end operations on behalf of the MVNO. The new breed high-end,
strong brand MVNO is transforming the dynamics of the MVNE market. Besides leveraging their own
existing assets, they choose to won more of their platforms, particularly their logistics, distribution and
customer care systems. They still work with MVNEs, but they tend to opt for specialised ones with bestof-breed solutions and a strong reputation.
4.2 Disadvantages/ Drawbacks
For the MVNO model
Despite the positive features outlined above, there are a number of recurring issues which have led
many to conclude that this model has significant flaws.
- The most significant problem is the basic conflict which Host Operators face, that by permitting access
to their network they are permitting the creation of a competitor which will lead to a reduction in their
subscriber base.
- There are also clear and understandable security concerns regarding giving an outsider access to the
operator’s most important and expensive asset, its core network.
- MVNOs themselves face significant problems in constructing a coherent business case. Some have
found that providing even a "virtual" network is prohibitive.
- Costs of equipment are high and may make the project uneconomical given that volume discounts may
not be available to new entrants.
- MVNOs must also develop intelligent billing systems which can accurately charge subscribers and also
split complex financial transactions between the MVNO itself, the Host Operator and any third-party
content provider.
- The greater degree to which the MVNO relies on the Host Operator for these services the lesser the
possibility for service differentiation to diminish as the MVNO increasingly resembles the operator whose
network it uses.
For the MNO
- There is the fear that permitting MVNO "first mover" advantage in the provision of lucrative data
services will mean the Host Operator will become a "dumb pipe" starved of these extra revenues.
- MVNOs, as a largely unregulated area of the market, will have all the benefits of being an operator
without any balancing licensing obligations.
It is, therefore, a critical prerequisite to success that the Host Operator is convinced that the selling
power of the MVNO name can be used to increase the number of customers on the Host Operator’s
network by attracting new subscribers that the Host Operator would not have been likely to attract or by
churning customers away from other networks.
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For the MVNE
- The MVNO feels that they are dependent on an external party
- In case of disagreement in the future, in-sourcing of operations by the MVNO may cost dearly
Advantages and disadvantages of Discount MVNO revealed in the value chain
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4.2.1
MVNE trends
Europe vs. US
• In Europe MVNEs initially provided turnkey solutions
o The “middlemen” -between MNO and MVNO–
o Providing airtime as well as billing, customer care, application hosting, provisioning etc
• However, many companies have since adopted the MVNE solution
o Resulting in fragmented market
o Many MVNEs no longer have airtime agreements with the MNOs -MVNO left to organise
this themselves
o Only providing part of the solution, making MNO/ MVNO integration more difficult
o MVNO having to deal with many partners, MNO having to integrate with all of them!
• The US the market is about MNO and MVNE relationships
o MVNEs in the United States provide at a minimum the basic connectivity and
infrastructure that allows an MVNO to launch a service
o The MVNE lets the MVNO to concentrate on their core competency –marketing to a
targeted customer segment
o MVNE services range from the barebones cookie-cutter model to an elaborate menu of
countless options
• Less fragmentation = smoother integration
o MNO retains control of network integration
4.2.2
MVNE Uses in Europe
The degree to which an MVNO will outsource its operational activities depends on what its existing
revenue streams are. The MVNE solution appears very much to be ‘pick and mix’ with MVNOs being
able to choose the different elements depending on their own in-house capabilities.
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• Typically MVNE customers are brand owners with little or no telecoms
experience
• Wants to outsource rather than operate the MVNO in-house
• The MNO deals with the MVNE, who in turn runs most of the MVNO operation
• The key issue is the customer perception
• Customer only sees the MVNO brand, not the operational workings behind the
scenes
4.2.3
MVNO-MVNE-MNO Functional Model
MVNOs need to control back office costs without sacrificing quality. So regarding:
Cost: Start-up expense should be limited so funding can be used for brand development–Incremental
costs for capacity increases
Quality:
• Support systems should be scalable without lengthy delays to avoid service issues
• Consistent user experience during the upgrade process should be available
• Long-term high volume capability should be ensured
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Reference:
4.2.4
Viability of Virtual Mobile Players
Overview
The mobile virtual network operator (MVNO) model has gained popularity over the past years; more
ventures have followed in Virgin’s path (the model’s pioneer), with the MVNO model going through a
number of iterations. Today, concerns about overcapacity and potential consolidation are emerging, in
both the MVNO and MVNE spaces.
MVNOs financial attractiveness
Based on an analysis by www.wimax-industry.com it was found that the MVNO model is a lot less
financially attractive than the hype would suggest. MVNOs have to improve one or more of the following
wireless operating metrics in order to make money: CPGA (cost per gross acquisition), CCPU (cash cost
per user), ARPU, and churn. Available MVNO data certainly provides enough fodder to question the
MVNO model, at least in its initial iterations. Virgin Mobile UK is profitable (more of an exception than a
rule) but the company has been in operation since 1999. It is believed that most other MVNOs are at the
loss-making to slightly above break-even level.
The future of MVNEs
The future of the aggregator MVNE hinges on the development of small, niche MVNOs. If the MVNO
segment moves towards a fragmented marketplace with dozens of players serving small niche
segments, MVNEs will benefit of such an expansion. If, by contrast, the MVNO space is dominated by a
small number of large, Virgin-like players, the future of the aggregator MVNE becomes somewhat
doubtful.
MVNO service revenue has been expanding in line with the growth of virtual operator subscriber bases,
but is arguable whether this is enough to sustain the MVNO business model.
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4.2.5
Sustainability
Sustainability of the MVNO business models will depend on where the company setting up the MVNO
business, originates from, given that the companies are grouped into three types:
a) Companies originating from outside the Information and Communication Technology (ICT) Industry;
b) Companies originating from inside the traditional telecommunication industry; and
c) Companies originating from inside the ICT industry, but not as a telecommunication network operator.
The three groups are called Retailer, Expander and Integrator respectively.
4.2.6
Brand identity in Mobile Services
For a brand to have any value it must mean something to the customer and to do so it needs to be
exclusive. This is not compatible with trying to own all areas, sectors and parts of the market with just
one brand, as most mobile operators do today. Because of this, most mobile operators' brands are all
over this matrix. Note that successful MVNOs, like Virgin Mobile started as a challenger and are now
becoming brand leaders, whilst minimising any association with the "follower" values.
Regarding the Greek MVNO market, the brand identity type classification may look as follows:
Follower
1) Frog Mobile as:
o they are housed by an MNO (operational from the past)
o Compete on price
o They don’t have a competitive advantage
o They don’t have a clear product differentiation
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o
2) Q Prepay
o
o
Brand is not distinguishable from competition
Lives on the legacy of Q-Telecom
Competes on price or promotion
3) AB Prepay
o Not premium competitive advantage
o Not clearly defined customer base
o Unclear product differentiation
4) Carrefour Prepay
o Not premium competitive advantage
o Not clearly defined customer base
o Unclear product differentiation
Challenger
1) Ciao mobile as:
o targets a gap in the market (needs of a specific ethnic group)
o strategy focused on customer needs
2) Mo-MAD
o Targets a gap in the market (music funs mobile services needs)
o Identifiable brand (MTV)
o Well defined customer base
3) Olympiakos Prepay
o Targets a gap in the market (football funs mobile services needs)
o Identifiable brand (Olympiakos)
o Well defined customer base
4.2.7
Type of Companies attracted to the MVNO Model
MVNOs are attractive to companies with strong brands, which usually have not been used previously in
the cellular area. In particular, anyone that can offer innovative services and appeal to different
demographic sections to target niche sectors and tailor services should be attracted to this market.
Some corporations already active in other areas of the telecoms sector are attracted to the model. In the
United Kingdom, some established fixed line and broadband network operators are using the concept to
offer customers bundled cellular services. European cellular companies that were unsuccessful in
acquiring 3G licences and require a pan-European network are attracted to the concept as a costeffective way of filling gaps in coverage. An example of this was seen in Sweden where the incumbent
2G operator Telia concluded an agreement in January 2001 with Swedish 3G Swedish licence holder
Tele2 AB in order to access this new market.
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4.2.8
VALUE TO MNO
Complexity reduction
- « Plug & play » interconnection
- Outsourcing of MVNO business and technical operational management
- MNO focus on its core branded offer
Screen opportunities
- Business development
- MVNO candidate education
Refinement of project to adapt MNO objectives
- Market segment
- Distribution channels
- Specific traffic usage
- Differentiated services
4.2.9
VALUE TO MNO & MVNO
- Easy start
- Economies of scale
- Time-to-market
- Innovation & differentiated services
- Field trial with light integration work for MNO
- Risk reduction
4.2.10
VALUE TO MVNO
Operational MVNE Platform and team
- Critical mass in expertise & skills
- Agreements with GSM operators
- On the shelves technologies and services
Financial advantages
- Mutualisation of investment between MVNOs customers
- Lower upfront and operating costs and investments
Multi-country access
MVNE positioning
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4.2.11
Different approaches to mobile services
The Full MVNO model suits businesses that aim to engage fully in the telecommunications industry, to
offer leading edge services and to create and capture new markets.
“MVNO” is a potentially confusing term, as it conventionally covers a range of different business
approaches to providing mobile services. There are three emerging and commonly accepted operating
models: the Reseller, the Service Operator and the Full MVNO, as illustrated in Figure 1. The growth in
MVNOs has also created the opportunity for MVNEs, to act as an interface between a Reseller or
Service Operator and a host MNO.
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Choosing the right approach
The choice of MVNO operating model is complex. The benefits, shown in Figure 2, need to be weighed
against the issues of operator acceptance and infrastructure complexity.
Generally, the various MVNO operating models fit with the MVNO business models as follows:
•
The Reseller model suits an organization that can leverage its existing distribution channels to sell
mobile services, but has little need to innovate in the services it provides or differentiate itself from
other players. Typically this means no-frills voice and messaging services.
• The Service Operator model suits those organizations that wish to gain control over the services
they provide, both in terms of pricing and service innovation.
This means the Service Operator model suits players that seek to address specific customer segments,
by differentiating themselves from other players in those segments through innovation in pricing or
service content or both.
• The Full MVNO suits players aiming to achieve additional differentiation from Service
Operators and MNOs, by offering leading edge products and services, and also achieve a high degree
of independence at the outset.
However, the Full MVNO model may be the best approach for some players who would otherwise select
the Reseller or Service Operator models and introduce differentiating services into their offering at a
later date. This is because the control provided by the Full MVNO model may offer better short term and
long term opportunities.
For example, an MVNO may want to introduce an innovative bundle of video call, push-to-talk and other
value added services, with campaign pricing to kick-start the take-up of services. Acting as a Reseller or
Service Operator would often mean persuading the host MNO to plan, source, procure and implement
the underlying solutions. This would mean implementing service offerings within the host MNOs
infrastructure but with differentiated billing. Such projects can easily take more than a year, negating the
clear advantage of flexibility, responsiveness and speed.
However, by adopting the Full MVNO model, the MVNO would have full control of services decisions,
delivery models (for example hosted services) and the project’s timelines. The Full MVNO would be in
full control to ensure timely introduction of services, business models, pricing and promotion to the
market.
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As a Full MVNO, a service provider can adapt to market changes and obtain a competitive edge, in a
way that a Reseller or Service Operator would not achieve. Another key advantage of the Full MVNO
model for Resellers and Service Operators is the leverage they gain in negotiating wholesale rates,
because they own their customers and can switch networks.
Although this may be a potential barrier from the host MNOs perspective, it is balanced by significant
advantages to the host MNO. More customers may allow the host MNO to make more efficient use of its
Radio Access Network (RAN), through the additional wholesale volumes. The Full MVNO may also
reduce complexity in the MNOs wholesale interface, because the Full MVNO simply requires access to
the RAN and handles all other service aspects, including billing, customer support, provisioning, service
and delivery. This approach may also allow the host MNO to concentrate on developing its core brand
value, without diluting it with multiple service offerings.
There is a gradual evolution towards the Full MVNO model by both existing and new third-party mobile
service providers. In addition to the advantages of the Full MVNO model already discussed, the gradual
expansion towards a service oriented model focusing on service differentiation and segmentation is
being driven by:
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
Market saturation
Increased end-user and network competition
A focus on customer differentiation and customer loyalty
3G service opportunities and new wireless access technologies
The separation of access and services
Regulatory pressure
The value of service bundles in strengthening competitiveness and dealing with competitive
elements
As a result, Full MVNOs are likely to play an increasingly important role in providing mobile services
across several markets.
4.2.12
Execution & Fulfilment
Launching an MVNO or MVNE involves many of the practices and processes required to implement any
new business: business planning, confirming the viability of the plan, designing business and technology
systems, implementing the business, and then managing it for growth. However, there are a number of
decisions and processes that are unique to the MVNO and MVNE. This section provides an overview of
these items.
4.2.13
Business Planning
Good planning is essential for an MVNO or MVNE. Effective planning is built on a solid understanding of
the commercial or consumer mobile telecommunications market and is essential to determine both the
service offering and the appropriate operating model.
Planning the service offering
typically involves:
ƒ Definition of the target market
ƒ Selection of appropriate services and service charges for the target market
ƒ Ensuring, for an existing brand, that the products and services reflect the brand’s core values While
service offering goes a long way towards determining the appropriate MVNO model and the required
investment in infrastructure, the level of knowledge and experience within the telecommunications
industry must also be considered. Issues such as service delivery and Quality of Service, assurance,
interconnection management, number portability management and regulatory requirements help to
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determine how much of the Full MVNO model should be adopted. While these issues need to be
considered by a prospective MVNO they are clearly fundamental for an MVNE.
At the end of this process the business should know what to offer customers and the infrastructure that
is needed. In addition, it is prudent to make a decision about how the infrastructure will be managed,
entirely in-house, in-house but using a managed service, out-sourced but owned by the business, or
purchased as a service from an MVNE.
Targeted pricing plan steps
1. First describe each offer, its targeted segments, and list current competitive benchmarks from
major carriers/competitors (both MNOs and MVNOs).
2. Add justification for the offer by identifying a unique value proposition for the targeted segment.
3. Next, estimate the potential market size for the offer.
4. Finally, calculate gross and net subscriber life-time value.
Gross life-time value should take into account only the value of the offer, while net life-time value
discounts the value lost due to cannibalization of existing plans. In the case of offers that are add-ons to
existing plans, it is simply the incremental value of the offer. Also conduct a sensitivity analysis of net
life-time value (LTV) to different price points, cannibalization levels, and retention gains.
4.2.14
Business Design
Once the business plan has been validated and the go-ahead approved, the supporting business and
technology systems can be designed and the detailed implementation can be created.
4.2.15
Business Infrastructure
The business infrastructure that any MVNO or MVNE will need to design includes:
ƒ
Host MNO selection – A host MNO must be located and contracts drawn up to cover commercial
and technical aspects. Ongoing management of this relationship is vital.
ƒ Core business systems – As well as standard accounting and operational business systems, an
MVNO or MVNE will need to manage customer facing logistics, including retail outlets, handset
provision and servicing, management of the customer lifecycle, and the marketing of new services
and offerings.
ƒ Value added services – A service-focused MVNO will need to select service platforms and end-toend solutions for creating a differentiated portfolio of end-user services. A Services portfolio may
consist of SMS and MMS services, as well as richer communications services such as Push-to-talk
Over Cellular (PoC) / push-to-X, Instant Messaging, Email, Mobile Blogging, Location Based
Services, Mobile TV, Streaming video, Presence and more.
ƒ Content services – Where end-user services involve content delivery, sources for this content and
download platforms must be found. This may involve engineering existing content for mobile,
sourcing existing content from a developer or content aggregator, or locating a developer or designer
to create bespoke content. It may also include systems to manage downloads and billing.
ƒ Mobile phones – Suppliers of mobile phones will need to be found, either direct from the
manufacturer or using an established distributor.
ƒ Technical Infrastructure
The technical infrastructure must be identified, including:
ƒ
ƒ
Core network systems
Service delivery platforms
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ƒ
ƒ
ƒ
ƒ
Customer relationship management Systems (CRM)
Billing systems
Customer care systems
Network management
These systems must be interfaced with the host MNOs infrastructure, other networks and service
operators, as well as common support systems, such as a number portability platform, legal interception,
interconnection with other networks and roaming arrangements.
Implementation
Once the business and technical infrastructure has been defined, an implementation plan can be
devised and executed. The critical activities will include:
ƒ Service specification and testing
ƒ Interface development and testing
ƒ Hardware and software procurement and installation
ƒ Hardware and software integration
ƒ System, integration, interoperability, interconnection and performance testing
ƒ Data conversion from existing systems
ƒ Delivery system content population
ƒ Live deployment and switch-over
4.2.16
Production Support
Production support includes day-today operational activities such as:
ƒ
ƒ
ƒ
Hardware maintenance, including both physical maintenance and repair, as well as firmware and
software maintenance
Performance monitoring, to ensure that the appropriate quality of service is being provided
Load balancing and other activities to maintain quality of service and optimize use of the
infrastructure. In addition, processes and procedures are required to monitor marketplace
performance to ensure existing services remain competitive and new ones are developed. These
activities might include:
• Competitive analysis, maintaining intelligence on market competitors
• New technology analysis, maintaining intelligence on emerging technologies
• New content acquisition, maintaining a fresh catalogue for content based services
• New services definition and deployment, identifying and implementing new services for
the target market
• Service retirement, retiring old services and ensuring customer migration to new services
Finding the right business partner can be the key to success for an MVNO or MVNE. Nokia Siemens
Networks is in a unique position to offer support. As a supplier to more than 600 mobile, fixed and hybrid
customers in 150 countries, Nokia Siemens Networks’ world-leading experience in all areas of the
mobile industry offers a low risk approach. The key Nokia Siemens Networks products and services
include:
•
•
•
•
•
•
Mobile services, innovative and proven solutions for value added services
Infrastructure hardware, for service delivery platforms and core network infrastructure
Managed Services, for on-site management of infrastructure components
Mobility Hosting, for full off-site hosted service of applications and infrastructure
Convergent online charging, billing and care, flexible and pre-integrated solutions with advanced and
rich connectivity to support interfaces to all networks for MNO and MVNO voice and data services
Consulting services, for business and technical planning, design and implementation
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•
Terminal, device and mobile computing configuration management Nokia Siemens Networks’
experience in helping businesses deliver successful mobile products and services to consumers
worldwide allows it to:
• Enable fast time to market –
Nokia Siemens Networks and its strong, proven partners ease the operational challenges and provide
quick deployment Remove complexity – Marketleading offerings and experience across mobile software
platforms, infrastructure, billing, systems integration and solutions, coupled with familiarity with all the
components within the MVNO/ MVNE operation, allow Nokia Siemens Networks to ensure the delivery
of optimum solutions
• Reduce risk – Nokia Siemens
Networks’ years of industry experience means much lower risk. The ability to call on business and
technical expertise from any discipline within the infrastructure domain helps to avoid roadblocks. Low
OPEX and CAPEX services improve the MVNO’s ability to properly manage its business case.
• Build success through strong collaboration – Nokia Siemens
Networks build long lasting collaboration with its customers and invests to ensure success for both
parties.
4.2.17
Conclusion
As traditional MNOs concentrate on optimizing their Radio Access Network usage and delivering mass
market systems, the scope for MVNOs and MVNEs is increasing. Ovum estimated in 2005 that by 2009
around 10% of all mobile subscribers could be served by an MVNO, with compound annual growth rates
of between 8% and 20%. While many businesses will be served well by implementing Reseller and
Service Operators MVNO models, the Full MVNO operating model offers compelling advantages,
regardless of the underlying service offering. With full ownership of the customer, the ability to terminate
calls, and close control over the service, a Full MVNO offers the greatest flexibility in going-to-market
and then sustaining long term growth.
To be successful as an MVNO, any player must create the right mix of products and services, and
support it with the correct infrastructure. In choosing an infrastructure partner, an MVNO or MVNE
needs to consider the depth and breadth of mobile telecommunications skills that their partner brings to
the venture.
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Future Outlook
B
u
s
i
n
e
s
s
P
o
t
e
n
ti
a
l
-
A2P2A is mass
application
Value
Seekers
Followers
Value added
services
Powerful competing
technologies
Early
Adopters
Real-time
processing
Touch-point
Integration
2004
2006
2008
2010
Reference: Mobile Economy
4.2.18
MNO Motivations (to host MVNOs)
There are three primary motivations for mobile operators to allow MVNOs on their networks. These are
generally:
- Segmentation-Driven Strategies – mobile operators often find it difficult to succeed in all customer
segments. MVNOs are a way to implement a more specific marketing mix, whether alone or with
partners and they can help attack specific, targeted segments.
- Network Utilisation-Driven Strategies – Many mobile operators have capacity, product and segment
needs – especially in new areas like 3G. An MVNO strategy can generate economies of scale for better
network utilisation.
- Product-Driven Strategies – MVNOs can help mobile operators target customers with specialised
service requirements and get to customer niches that mobile operators cannot get to.
MVNO models mean lower operational costs for mobile operators (billing, sales, customer service,
marketing), help fight churn, grow average revenue per user by providing new applications and tariff
plans and also can help with difficult issues like how to deal with fixed-mobile convergence by allowing
MVNOs to try out more experimental projects and applications. The opportunity for mobile operators to
take advantage of MVNOs generally outweighs the competitive threat
4.2.19
-
Host MNO Benefits
Sell unused 3G network capacity through more than 1 MVNO
Increase non-SMS Data ARPU
Wholesale more profitable than retail customers if MVNO marketing more cost-efficient
Enter All-over-IP market with zero risk for MNO brand and core Voice/SMS business
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-
Inexpensive international data roaming for M(V)NO subs thanks to Multi-IMSI solution
Preferred network for international OPEN visitors thanks to Multi-IMSI solution
4.2.20
-
Host MNO Requirements
Direct connectivity to OPEN MVNO/MVNE
All-over-IP incl. VoIP – all applications, open ports, no packet filtering
Revenue Sharing: MNO - 60% : MVNO/MVNE - 40%
Competitive data wholesale pricing
Target GB retail pricing: 10-15 Euro
MVNO/MVNE with HLR and own IMSI range in each country
No upfront interconnection payment
4.2.21
Host MNO Wholesale Business Potential (Example)
Even the biggest MNO in Germany could benefit from selling data capacity to OPEN
or other MVNOs if customer churn (in and out) was proportional to market share
4.2.22
The MNO Perspective
Reaching more segments, expanding share through non-traditional channels, extracting attractive
subscriber economics and stimulating mobile data take-up and usage are four major drivers behind the
push by Mobile Network Operators (MNOs) to embrace MVNOs.
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First, MVNOs provide operators with a means to directly reach out to specific segments (e.g. teenagers,
religion minorities, ethnic minorities, university students) with a unique and targeted value proposition.
Such segments do not receive much direct attention from MNOs’ typically mass-market product
development, marketing and distribution strategies.
Second, MVNOs may also provide MNOs with access to potential customers via non-traditional
channels such as cable operators and alternative retail stores. Cable providers have the potential to upsell the quadruple play with integrated services such as Wi-Fi coverage at home, unified messaging and
home surveillance through a mobile device.
Third, MVNOs’ utilization of non-traditional retail channels may contribute to attractive subscriber
economics. As seen in Figure 1 (page 4), in some cases the wholesale and retail subscriber lifetime
values of segmented offers are not very different from each other. While retail generally guarantees a
superior lifetime value, the MNO runs a good chance of doing better with wholesale in the long-run, if the
MVNO partnership lets it acquire more net customers (after cannibalization) than it would have captured
independently.
Finally, services tailored to niche segments may hold the key to the still-elusive goal of making mobile
data more “sticky” with consumers. MVNOs can usually do a better job than MNOs in stimulating usage
of mobile data because they can offer focused mobile data content and applications to target customer
segments.
4.2.23
The MVNO Perspective
New growth opportunities, benefits to core businesses, applicability of existing relevant assets and
attractive economics are among the factors encouraging private labels to consider MVNOs.
First, wireless continues to be a very strong growth business.
Second, for some companies, MVNOs are an opportunity to boost core businesses by stimulating brand
loyalty and enabling cross-marketing for other products and services.
Third, investors may also view MVNOs as complementing their other businesses by adding value to
existing offers and leveraging existing assets.
Finally, an MVNO that combines a clear target segment and focused offer with a unique value
proposition can yield attractive subscriber economics.
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Example from the US
MNO Retail vs. Wholesale Value and MVNO Value for Different Customer Segments
Sample HNO Evaluation Criteria for potential MVNOs:
o Large own customer base
o Strong distribution network
o Strong market position
o Low tariff intentions
o Niche market segment
o Economic strength
o Mobile competence
o International reciprocity
o Georgaphic submarkets
o Intial Public offering
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4.2.24
MVNOs rationales
There are 4 rationales for the launch of an MVNO offer
4.2.25
MVNOs positioning
Different range of MVNO’s exist from the light offer provider to the full MVNO:
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The enhanced service provider model is the most prevalent in Europe because it allows focusing on the
product offering and the client relationship:
Four main differentiation strategies have generally been adopted by European MVNOs:
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Most MVNO communicate on low prices and value for money:
- Price/ minute comparison (2004)
- Communication examples (2004)
- MVNOs seldom lower their prices by more than 10 to 15% compared to MNOs, although some
markets have fallen into aggressive price wars.
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Evolution prepaid prices from the introduction of MVNOs
Mobile operators' key challenges (Source: OECD, Wireless Intelligence, 2008)
In this very competitive market environment, operators are facing many challenges that can have a
direct impact on profitability. Amongst the key competitive factors that can stimulate revenues are:
•
•
•
•
•
•
Prices: changing price elasticity can provide the right balance between volumes (voice and
data) and price erosion as sudden price drops can lead to a drop in revenue. Rationalising the
portfolio of voice and data services with such price competition has led to widespread large
bundled deals, fixed-mobile substitution and innovative tariffs such as flat rates.
Network coverage: expanding high-speed network coverage nationwide can accelerate the
adoption of mobile broadband and other high-speed data services. In highly penetrated
markets, some operators have set up shared network ownership arrangements to reduce their
cost structure.
Loyalty schemes: targeted promotions and loyalty programmes are playing an important role
in managing churn and also in migrating users from prepay to contract.
Quality of service: QOS is playing an important role in customer retention.
Value Added Services: as voice revenues remain under pressure, data usage is showing
strong organic growth and also acts as a key differentiator amongst operators. Partnerships
with content providers, mobile advertising services and PC to mobile convergence can lead to
fast adoption of VAS that will stimulate non-voice revenues.
MVNOs: maintaining market share through market segmentation where MNVO development
is key.
In addition, main operator groups can stimulate revenues by leveraging international economies of
scale and synergies with their operations in other markets, including emerging markets. Considering
the level of maturity in the region, consolidation in Western Europe is another topic that can also be
expected to have an impact on revenue growth.
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4.2.26
Key challenges faced by MVNOs
- MVNO must display a light cost structure to deal with operators price per minutes
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5. The MARKET structure & opportunities
5.3 MVNO market drivers
•
•
•
•
Segmentation
Regulations
Competitive intensity
Heavy 3G investments
5.4 MVNO market structure
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5.5 Market size
Ovum estimated in 2005 that by 2009 around 10% of all mobile subscribers could
be served by an MVNO, with compound annual growth rates of between 8% and
20%.
While many businesses will be served well by implementing Reseller and Service
Operators MVNO models, the Full MVNO operating model offers compelling
advantages, regardless of the underlying service offering. With full ownership of
the customer, the ability to terminate calls, and close control over the service, a
Full MVNO offers the greatest flexibility in going-to-market and then sustaining
long term growth.
5.6 MVNE value
5.7 Aggregation business model benefits
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5.8
Key Requirements
ƒ
Deep understanding of the of MVNO market and MNOs concerns and strategy to gain trust
ƒ
Value added services delivering capability
ƒ SIM Cards
ƒ Voice mails
ƒ Convergent services
ƒ Mediation
ƒ Billing (postpaid + Prepaid) + CRM
ƒ
Account management and marketing support capabilities
ƒ Small MVNOs not always easy o deal with
ƒ Small MVNOs need marketing supports
5.9
Competition is intensifying –mobile premiums decrease
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5.10 Local scale is key to achieving EBITDA margin ambitions
5.11 Operators need to adjust
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5.12 The challenger strategy must be tailored to the market
environment
5.13 Marketing strategies
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Discount or Low-Cost MVNOs: provide cut-price call rates to market segments.
Lifestyle MVNOs: like Helio focus on specific niche market demographics.
Advertising-funded MVNOs like Blyk or MOSH Mobile build revenues from advertising to give a set
amount of free voice, text and content to their subscribers.
Community MVNOs like Turkuaz-Mobile in Germany, Ay Yildiz in Holland or CIAO in Greece
One specific sector of MVNO operations focuses on international, or roaming Mobile Virtual Network
Operators (rMVNO). These are distinct from domestic MVNO agreements and are intended to
provide transparency of international tariffs
Looking at the Market Strategies from a different view, we have the following:
Three possible models
‰ Low cost garage provider
‰ Co-branding with well-known product in any line of business (i.e. Clothes, cars, planes
etc.)
‰ Economies of scale – born global strategy:
• Multiple countries
• High end technical solution
• Best quality product from day one
What is the company’s risk profile?
‰ Low risk: Low cost provider (low investment)
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‰ Medium low: Average IT solution without co-branding
‰ Medium high: Average IT solution with co-branding
‰ High: Born Global without co-branding
WEB self-service is the Key
Using 100% self service platform integrated with the operator
‰ Has all MVNO needed functions and processes for GSM
‰ User friendly
‰ Standard platform that is further developed
5.14 Timing
The market for online is a slow moving thing
Crossing the chasm paradigm
Innovators and early adaptors
Belgium is only just starting
Regulation is in place
Customers are getting used to online
No or low churn
PRICE is important and then easy to use and simplicity
Offline distribution cases show that the majority sticks to what is familiar
DK shows that it will change over time
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5.15 Provider Selection criteria
5.16 MVNO Services
For now MVNO services have been limited, but analysts from EMC Research have predicted that as
wireless services grow, so will the availability of niche MVNO applications. For instance, in the future a
cell phone user may be able to subscribe to a network operator plus multiple MVNOs for specific data
services over the same phone. One MVNO could provide sports news, another weather and traffic and
still another could provide instant messaging capabilities.
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In this way, each MVNO and the network operator could focus on their own niche markets and form
customized detailed services that would expand their customer reach and brand.
Voice
Usually free or next to nothing for on net/ flat rate off-net nationally
Messaging
Very cheap on-net/ Follow the competition for off-net
Data Calls
Cheaper than MNOs
Voice Mail
Cheaper than MNOs
International Calls
Cheaper to certain targeted destinations
Billing
National Calls: Per second
International Calls and Roaming: per minute
Refills/credit
Availability of a variety of refill cards is a must
Provider Types in Europe
The types of providers in Europe can be:
- Virtual Operators
- Internet Based Virtual Operators
- MVNE based MVNOs
- "International Calls &roaming" MVNOs
Ethnic MVNO propositions
According to research of Piran Partners, Ethnic minorities represent a source of new, high quality mobile
phone customers, much needed in a market so characterised by churn. Therefore, more and more
MVNO's develop propositions focussing on this segment. Piran Partners has compared these
propositions to other MVNO propositions and reveals that these MVNOs are on average more profitable
and deliver quicker results. In Holland, this market segment is represented by Lebara, Lyca, IDT,
Chippie, Ortel and Ay Yildiz.
European Ethnic Migrant Population
(There are 32 Million people in Diaspora in Europe)
Reference: Lycatel Mobile
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Companies to allow MVNO set up (by Sonopia)
Sonopia, a US based MVNO, allows companies a white-label concept whereby companies can launch
their own-branded mobile phone service. Sonopia will rent network space from Verizon Wireless and
give the client companies mobile phones, billing, and Web sites for their new subscribers. Sonopia
claims that customers can set up a new mobile service in roughly 15 minutes.
It is almost universally agreed that successful MVNO’s will have some combination of scale, branding,
and or a particular important niche. DATA MVNOs, some times referred to as Machine-to-Machine or
“M2M” MVNO’s facilitate communications between various machines with the help of a wireless network.
Applications supported by M2M MVNO’s are many and varied including telemetry, monitoring, remote
asset management, and more. In a world of expanded M2M communications, we believe that Data
MVNO’s will evolve from a successful niche business into a booming opportunity for vendors and service
providers alike.
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6. MVNO BUSINESS SETUP
The process starts with developing a strong business case and negotiating a viable wholesale
agreement. However, even with a strong business case, a potential MVNO (which usually lacks mobile
expertise) has a major challenge in designing the right entry strategy, and developing and executing the
launch plan. A very feasible MVNO can fail due to an undifferentiated market entry strategy or poor
launch execution.
6.1 Setting-up Strategies
Three strategies exist to setting up an MVNO:
- Build on a well known brand
- Establish a price-winning formula
- Bundle together premium content or other services
Of the three strategies mentioned above, bundling is probably the most attractive to many businesses,
but it is also the most risky as it has yet to be proven on a large scale. It is always dependent on the type
of implementation, however the bundling option seems to present significant importance.
Finally, the market segment for any of the options of strategy has to be selected very carefully.
The last strategy above for setting up a successful MVNO is the one that bundles together mobile with
other services. Typically these services (e.g. music, video, photos, etc) can be consumed on a mobile
device but there could also be other telecom services such as fixed-line calls or Internet access. Also
most of the bundling experiments in telecom world have been realized for media companies destined
primarily for wired/fixed Internet communication channels (e.g. ADSL) while most mobile operators sell
content over their networks over the last years, as well.
There is a feeling among many media companies that the large revenue percentage taken by MNOs is
unjustified. Some of these companies would like to move up their value chain by creating their own web
portals and a few are now being set up by their own MVNOs. They have however viewed cautiously by
many operators that see potential competition with a strong brand-based offering, particularly from the
more aggressive media organizations (e.g. Rupert Murdoch’s empire).
By bundling media content together with voice and data traffic, a media MVNO can avoid price
competition and gain significant customer loyalty without the need for extensive marketing of the
products.
In some cases, the content services may not even be owned by the media company that starts the
MVNO.
6.2 Key Issues MVNO players are faced with
•
•
•
•
•
Is the MVNO market sustainable?
Is FMC a long-term driver of the MVNO business - will FMC players develop or acquire their own
cellular infrastructure and what are the pros and cons of the respective approaches within the
MVNO environment?
Where are the next potential growth markets for MVNO growth?
What are the most developed MVNO markets and which will be in the future?
What MVNO approaches are sustainable long-term?
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•
•
•
•
•
•
•
•
•
How does an MVNO go about successfully launching in this evolving and challenging market?
What type of approach is most likely to succeed and what are the strategies to ensure their
success?
Is the MVNO market sustainable?
Is FMC a long-term driver of the MVNO business - will FMC players develop or acquire their own
cellular infrastructure and what are the pros and cons of the respective approaches within the
MVNO environment?
Where are the next potential growth markets for MVNO growth?
What are the most developed MVNO markets and which will be in the future?
What MVNO approaches are sustainable long-term?
How does an MVNO go about successfully launching in this evolving and challenging market?
What type of approach is most likely to succeed and what are the strategies to ensure their
success?
6.3 Issues per player
Operators
•
•
•
Evaluate and quantify opportunities in various strategic roles from service provider and partner to
competitor
Identify threats and ramifications of current market developments and understand their wider
strategic impact
Anticipate market as it moves forward and formulate strategies to tackle it
Potential MVNOs
•
•
•
•
Evaluate the opportunities and challenges
Analyse potential strategic approaches to implementation
Assess business models of specific industries including, brand owners, retailers, business
service providers, content providers and many more
Evaluate specific business approaches, including discount, niche, business, 3G only, community
orientated and many more
Device and component manufacturers
•
•
•
Understand the MVNO business proposition from the service provider perspective
Identify key players and scope for partnerships
Recognise evolving roles and opportunities in the MVNO service provisioning value chain
Vendors
•
•
•
Understand the MVNE value proposition and platform/software providers role within it
Identify opportunities for service provisioning and support
Formulate service provisioning strategies for clients based on best-case approaches
Consultants, analysts and venture capitalists
•
•
Provides unbiased, reasoned hard facts free from industry hype
Provide clients with clear business intelligence to support recommendations and investment
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6.4 Targets per player
Mobile operators: To quantify the long-term revenue potential of the wholesale market to support
decisions whether or not to work with MVNOs and MVNEs. The MVNO profitability calculations will help
benchmarking the MNO performance against MVNOs.
MVNOs: Need to develop a strategy using external help (a consulting firm) with objective long-term
analysis of the MVNO market. Also benchmarking of costs and profitability against industry averages
and other key players is definitely required. Finally, determination whether MVNEs will strengthen the
MVNO service and increase their profit (could be based on external analysis).
MVNEs: Need to understand the long-term market potential and MVNO perception of MVNEs. Also
determination of an optimal strategy to attract MVNOs (end-to-end solutions vs. specific expertise), is
needed. Finally assessing of key competitors and benchmarking of the MVNE positioning against them,
will help.
Vendors: Must assess the MVNE opportunity for a long-term strategic entry (partnerships or
acquisitions); Also determine if MVNEs are competitors or complementary, and if there is an opportunity
beyond application hosting. Finally, quantify the long-term equipment and service opportunity in the
MVNO space based on revenue, profitability, and subscriber forecasts.
Financial institutions: Need to assess the viability of MVNOs and MVNEs to support a decision on
whether to finance MVNOs and MVNEs. The MVNO profitability calculations (NPV, CPGA, CCPU, and
ARPU) will help financial institutions to benchmark such data against existing cases.
6.5 Business Case Structure
The traditional values of brand, functionality and quality will be more important for the MVNO than any
mobile technology. This is worth bearing in mind, since the benefits of mobile data services may vary
greatly by applications area and segment. The mobile market is changing from an environment
dominated by voice to one where mobile data services are equally as important. This is not an easy
transition, as it requires adaptation to new services concepts and new technologies. It also demands
cross-industry partnerships and new business models, accompanied by a re-organization of the value
chain.
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6.6 MVNO Business Guide
Few key questions for the business case include:
ƒ What are the effects or different pricing schemes?
ƒ Which mobile data services take more capacity?
ƒ What are the effects of revenues share arrangements?
ƒ Which mobile data services have the highest contribution?
ƒ How mobile data services and price plans complement each other?
ƒ How mobile data services and price plans capture from each other?
MVNOs who can proactively address thre questions and manage their revenues and investments in key
functional areas will be successful in this competitive market place. They will also maximize their return
on investment and share holder value.
6.7 The MVNO Business: High Entry Barriers and Risks
Despite the attractiveness of wireless, setting up an MVNO is a daunting task. The wireless business,
though potentially lucrative, possesses entry barriers and launch risks that are high enough to
discourage most outsiders from making the plunge alone. MVNOs must manage a wide array of
responsibilities and relationships, which increase in number and complexity as one moves up the
different steps of the wireless service delivery chain, from network leasing to channel development.
As seen in the figure below, an MVNO requires a network leasing agreement with one or more MNOs.
Next steps include the selection and integration of back-office systems and processes, and the selection
and integration of mobile data platforms. Design of an offer, including custom mobile content and user
interfaces, and the selection of handsets, follow. The final steps are brand and channel development.
Each of these steps is linked with potential obstacles and partnership dependencies that could derail an
MVNO’s launch plans.
6.7.1
Barriers
Lack of wireless skills and expertise, economies of scale and high peak funding are among the major
barriers to entry faced by potential MVNOs. Prospective MVNOs often have little
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relevant experience to guide them through the different steps of the wireless service delivery chain.
Even MVNOs that successfully combine internal resources and partnerships to navigate these
challenges and risks will still be disadvantaged to existing players due to economies of scale.
MVNOs need scale to negotiate favourable pricing terms on network leases with MNOs and handset
contracts with OEMs.
Once in the business, most MVNOs will face a few years in the red before they can break even. Launch
can be preceded by six to nine months of start-up costs, and post-launch subscriber acquisition costs
range from € 65 for a low-end pre-paid offer to over €360 for a high-end post-paid service (based on
MNOs current CAC –Customer Acquisition Cost).
These costs can delay an MVNO’s EBITDA breakeven and require considerable investment (in the
range of millions) in peak funding.
6.7.2
Launch Risks
Potential MVNOs also face a number of launch risks, including risks associated with the selection of
partners, and risks related to the execution of the launch.
The first class of risks belongs to the selection of the appropriate partners, and the negotiation of
partnership terms and conditions. An MVNO’s long-term prospects depend largely on whether the
selected MNO places strategic and not only financial value in the MVNO’s target segments and
proposed offer. If the MVNO can demonstrate strategic value to the MNO partner, the MVNO can
extract a more favorable deal that is not just based on volume of subscribers. In addition, MVNOs need
to partner with individual backoffice systems/process providers, MVNEs and mobile data platform
providers, as well as content providers and handset OEMs to profitably deliver a differentiated value
proposition to their target segments. Finally, MVNOs must identify and form relationships with the
relevant distribution partners
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in order to cost-effectively reach their target segments.
Execution of launch opens the field for a second class of risks. MVNOs managing their launch programs
have to execute, coordinate, keep track of and monitor progress and risks of hundreds of
interdependent milestones cross each level of the wireless service delivery chain. MVNOs that fail to
exhibit a strong execution and program management discipline in the launch phase could end up
suffering from long delays or developing a value proposition that is not differentiated enough to attract
customers in their target segments.
6.8 The future of MVNOs
MVNEs are increasingly relieving the pressure that MVNOs continue to experience as they seek to enter
markets quickly and effectively. Outsourcing the complex business of billing and customer care for
converged services to an MVNE creates real flexibility for the MVNO. Indeed the very best MVNEs are
those that have given their MVNO clients the opportunity to fine tune their service portfolio and be most
responsive to changing market conditions or new technologies.
MVNEs are becoming an integral part of a maturing converged communications industry. This already
includes network providers and the branded service businesses that have a direct relationship with a
customer. As these proliferate and seek competitive advantage, the role of the MVNE will grow.
Naturally, there is a rush of businesses positioning themselves as MVNEs, as well as brands evaluating
the MVNO model. The criteria for success in this MVNE field obviously must include assured
capabilities in running a network service business, however close collaboration between all players is
absolutely essential to success. Specialist skills, experience and systems are of little good unless the
MVNE has worked out how to share risks and responsibilities with its MVNO client and the other third
parties involved. An open relationship with clean demarcations is critical.
Managed carefully and integrated successfully, quite often requiring the support of an MVNE, NextGeneration MVNOs have certainly got the potential to cause even more excitement than they already
do.
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6.9
Implementing an MVNO
Understanding the MVNO
The MVNO is a business, not a network, and should never be driven by the network. The whole point of
wholesale is the resale of excess capacity, to create extra capacity is to completely misunderstand the
underlying concepts of Virtual and Wholesale model, and to completely underestimate the complexity,
expense and overheads required of running a mobile network. Those who fall quickest into this trap are
existing fixed or other operators. Wholesale mobile is vastly more complex than wholesale DSL, fixed or
other telecoms models running an MVNO is also vastly different from running an MNO. To successfully
pull of an MVNO you need to keep costs to a minimum, which means having staff that understand the
whole end-to-end process of delivering a mobile service and a call.
Mobile and therefore MVNO is vastly different from other wholesale and even other telecoms models, in
that and MNO or MVNO owns and/or manages the very complex and expensive customer equipment
(handset and SIM). in the DSL world this would be the equivalent of the DSL provider not only providing
a DSL line and a wireless modem/router, but also the first, second and third line support on behalf of the
manufacturer, as well as the authentication, passwords and the process of the user being able to use
anyone else's wireless modem router in the same way as they do at their own home or office. Mobile is
never to be underestimated, and the MVNO requires a very different skill set than managing a fixed
network, where you are only generally responsible for part of the end-user process, not all. It is also far
different from running an MNO; with an MVNO you need a small group of people who understand the
whole process and service, as the MVNO model cannot support delegation to masses of employees,
and the host MNO cannot support the MVNO delegating this to its staff.
Finally, this brings us on to the most important fact of understanding wholesale and the MVNO. the
model should bring value to both parties and be mutually profitable. A follow-on to the buzz-word "Brand
MVNO" loved by those who aimlessly follow trends from the back-seat, now seems to be the "low-cost
MVNO". The low-cost MVNO does not offer the host operator any value. an MNO can cut prices or
launch a budget service whenever it likes. The only way a low-cost MVNO can offer value to an MNO is
if the MVNO takes customers that are so low value that only the MVNO running a much leaner business
model could make money from them. This is obviously a finite market and one which could fin itself in
serious problems if and when the operators engage in a price war. Selling on cost also only acquires a
customer with cost as the only value, which paves the way for someone else prepared to offer an even
worse service even cheaper, and as Ruskin said, they are his lawful prey.
Mvno and the regulator
So far MVNOs have not been regulated in any country. The ITU has received several requests to study
the issue, specifically to provide input on whether government intervention is necessary to allow MVNOs
to offer services and applications at a lower price to consumers. This would help to ensure a more
efficient use of the spectrum but some incumbent providers argue that the market is already competitive
and intervention is not necessary.
There are arguments from both sides as to whether the MVNO model will bring otherwise unreachable
revenue or unwelcome competition to the MNOs. For instance, the GSM Association, which represents
more than 500 GSM operators and key mobile vendors around the world, is cautious about regulation
surrounding the MVNO model. It is keen to see legislation that helps companies provide and take
advantage of the financial potential of MVNOs, but it is equally keen that network operators should not
be legally required to open their networks to anyone wanting access. At the same time, some UMTS
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licence-holders, particularly in Germany, are fighting the regulatory authorities for the right to share their
spectrum.
The universally held view on regulation of the MVNO is that it should be defined by commercial
agreements and not regulatory intervention. Whilst this is wise on the one hand, on the other it has also
been an excuse for some regulators to wipe their hands of the MVNO and any regulatory issues it may
have. This is very unwise; as whilst the MVNO may reach a mutually beneficial commercial agreement
with one MNO, it is still essentially or potentially even a competitor with it, and most certainly a
competitor of the other MNOs it did not reach a commercial agreement with. To boot, this MVNO will
almost certainly have shared important commercial and strategic information with these competing
MNOs before reaching an agreement with its chosen host MNO. It goes without saying that the MVNO
requires regulatory assistance and support from these MNOs and indeed even other MVNOs.
Additionally there is the issue in the EC of an MVNO in one member state, like any other business within
one EC member state, having the right to freely move goods and services and even set-up in other EC
Member States... there are still large, practical barriers to this that need addressing and regulatory
support, beyond reaching commercial agreements with a host operator in each member state.
-
-
the MVNO market is still closed in several European countries
In other countries, carriers accept MVNOs but restrict that agreement to Reseller MVNOs, not the full
MVNO model
Full MVNOs have the ability to create services and innovate because they own certain core network
nodes such as the GMSC and HLR. These services include:
advanced roaming solutions that will drive roaming costs down
The Full MVNO can establish its own roaming agreements and this enhancement will be translated
to consumers
Global MVNOs can even leverage their footprint and create multiple MVNO agreements in multiple
countries
Effect on Consumers and the Way Forward: Regulation on international roaming tariffs will, in the
short term, push prices down; however, it will slow innovation and decrease the health and longevity of
the mobile market. Such regulation only focuses on prices and carriers. It is obligatory to consider the
processes affecting pricing, service innovation, and all mobile telephony players.
Regulation for opening the market to competition through full infrastructure MVNOs will definitively
reduce roaming and long distance tariffs and, at the same time, encourage innovation of new services,
benefiting subscriber productivity and increasing the health of the industry. In the long term, this strategy
will benefit all consumers and players in the market.
Traffic Management
International traffic should be managed to ensure that customers get the best possible combination of
quality and service:
- 24 x 7 monitoring helps ensure reliability
- High quality connections maintained by the routing and switching teams (own or the MNO’s)
- Low costs guaranteed through global carrier agreements
Thus international calls should be switched to international destinations via the optimal route
Core Network Elements
The core network should typically be made up of the following components:
- International gateway, based on the latest technology
- Several carriers interconnects (to choose from)
- Secure routers, gateways, tunnels & IP networks
- Intelligent networking ensuring reliability & quality
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-
24x7 Network Operations Centre
Mvno and the SIM
The SIM is the single most important part of the ownership of the customer. This is an often overlooked
element of the MVNO that the MVNO will often try to neglect in preference to just taking the MNO SIM
and rebranding it. This is not necessarily wise, as there are many ways to differentiate a service via the
SIM. The SIM buying model of the host MNO is often dictated by different parameters like and driven by
issues such as volume and even the fluctuating and expensive nature of silicon at the time most MNOs
set-up. Since then the market has moved on, with Java SIMS and Java toolkits being much more
suitable and flexible for the MVNO and even cards with embedded flash memory on the horizon.
MVNO and the handset
The handset and the SIM are the key to the success of mobile and are therefore key to the success of
the MVNO. The handset is becoming less and less the huge thorn in the side that it used to be, mainly
as the market is no longer dominated to such an extent by those manufacturers who also had a core
business in mobile operator infrastructure and maintenance, and the obvious conflicts that arise form the
situations that mobile operators form 99+% of these companies' business. However, things are changing
with more competition, more open operating systems, more intelligent handsets and finally the rise of
ODM and OEM handsets that will soon mean an MVNO can potentially design and launch its own
handset from a reference design.
Mvno and FMC
Fixed-mobile convergence opens up the MVNO market to the numerous potential MVNO models that
emerged previously but never reached their potential. Some of these include Telematics, machine to
machine (M2M) and even the vertical telecoms data and voice MVNOs that will shape the market in
coming years.
Mvno and IMS
IMS allows an MVNO or even MVNE to provide multiple, differentiated services on the same platform
and even the same phone. This model allows the same phone but a different service to be provided on
the same infrastructure, and most importantly allows customers to move between these differentiated
services. This would allow, for example, a school or university phone to also form the basis of another
MVNO targeting the "parent phone" or be passed on to become the "parent" phone or even follow the
customer to become a "work" or "lifestyle" phone. This can all be done remotely with IMS or even SIM
applications.
MVNO and the brand
A commonly held misconception of the MVNO is that it was all about the brand. Apart from not being
true, this concept was heavily promoted both by Mobile Network Operators of the reluctant variety,
maybe in order to discourage the evolution of the MVNO. Regarding Services, should mean more to
customers than just making calls. It is very important for customers to stay in touch & that’s why brand
values such as those listed are important in everything an MVNO does:
- Always give customers value for money
- Ensure all connections are of great quality
- Make products easy-to-use & prices easy to understand
- Give customers the convenience of direct-dial international mobile calling
- Make sure all relationships are built on trust
- Always be empathetic to the needs of diverse communities
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MVNO fraud exposure
MVNOs are more vulnerable than an MNO towards fraud since:
Due to limited head count (at least initially for cost-cutting reasons), there are few or no people
dedicated to fraud and revenue assurance
The MVNO may try risky business cases/ scenarios, while the expected revenues most of the times are
limited
In the case of the MVNO being engaged in post-paid market, again for economical reasons, credit
checking may not be strong enough
The above reasons may in turn bring about certain Implications for both the MVNO as well as for the
host operator:
The subscribers are indirectly MNO subscribers
Less revenue for the MVNO means less revenue for the MNO also
Depending on the collaboration agreement, dispute handling sometimes may be unclear, with the risk of
MNO losing the MVNO
Solutions and recommendations (For Fraud)
Regarding domestic fraud, a number of actions can be taken to counter this problem, such as:
• CDRs available more frequently
• Possibility to shut down a line on a 24x7 basis
• Fraud Management System tailored to the MVNOs needs
• Fraud Management reports
Regarding Roaming fraud (case where MVNO core business is offering the roaming service), the
implementation of the NRTRDE solution, via which:
• Send NRTRDE files to MVNOs (IMSI splitting feature)
• IMSI provisioning
• File Splitting and naming of new files created
• Distribution of file to respective Service Provider
• Reporting on splitting activity
• Fraud Management System tailored to the MVNOs needs
• Suspicious Dialed Digits (SDD)
• Pattern Matching
• Suspect Equipment
• High Usage
• Premium Rate Service
• Mobile Data Evaluation
Note: However NRTRDE is mandatory for MNOs, its implementation is expensive (300K €)
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6.10 Modeling MVNOs: The Big Picture
Areas to be dealt with are:
Contract management
Following issues are to be covered in the contract management phase:
Numbers, own number space or part of MNO space
SIM card production / logistics, how to be arranged
Network Infrastructure, Systems, location and interfaces
Billing, Invoicing, Reporting issues
Software programs and their administration
MVNO service package (basic / options)
MVNO activation / set-up project
All relevant items in the contract to be executed, e.g. deployment, site set-up,
both MVNO and HNO side.
Sales and technical support
Sales Outlets, SIM card logistics
Support, Customer Care / CRM
MVNO life-cycle management
Changes and modifications in MVNO portfolio
Agreement updates / extensions / phase-out
MVNO deregistration / transfer of customer base
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Provisioning
The provisioning module is one of the key areas that enables activation of users on the network and
management of network settings. So provisioning arranges the link between the telephone number to a
SIM (IMSI) and the activation of this combination on the network (IN/HLR). SIMs can be activated realtime or through customer care. For postpaid propositions, a credit check must be integrated into the
activation process. Provisioning should allow users to change certain important service settings.
Mediation, Rating & Billing
Mediation: is performed to create a general CDR format from different formats (for instance fixed and
mobile).
Rating: is performed in different steps. First, every CDR is pre-rated (to enable fraud detection). If all
CDRs pass the exception rules, they should be stored as non-rated and formatted until a bill-run is
performed. In this bill run the final rating of CDRs must be performed. Rating is based on the rate plan,
the subscriber bundles and the discount models.
Billing
After rating an invoice can be generated, using several threaded parallel bill cycles. After a bill is
generated, it should be send in regular paper format or by e-mail. Mediation, rating & billing is an
important process; as they enable MVNOs to make modifications to rate plans within short timelines,
enabling flexible propositions to the market.
Customer Care
Customer care features, should be easily integrated in existing call center environments. Such features
may include:
•
•
•
•
•
•
•
ticketing & progress management;
case & queue management;
detailed customer information including CDRs;
task management;
finance management;
customer automated e-mail interaction;
sales management & order tracking.
Using such features the MVNO Customer Care environment, is enabled to perform their own customer
care services (outsourcing of these services is always a possibility).
Self Care
The Self Care function (automated customer service) may decrease the amount of calls on the customer
care department. Such a function is usually easily integrated with existing websites and could
offer services such as the following:
•
•
•
•
•
change personal details / moving;
upgrade/change contract;
vew/download invoices;
request/track status of number porting;
request/track status of SIM swap;
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•
•
change services;
download settings through OTA.
Distribution & logistics
Connectivity providers often are concerned with distribution / logistics operations when products are sold
through customer care or online sales. Products like SIMs, handsets etc need to be transferred from the
warehouse to the end-customer and in some cases needs to be installed on-site (fixed).
The possibility to fully integrate the distribution of products in the BSS* environment should be
investigated. In this way, customers or customer care agents are always able to obtain real-time status
information about orders.
Business Support System (BSS)
A Business Support System (BSS) is a platform that a telephone operator, MVNO, MVNE or ISP uses to
run its business operations. BSS and OSS (operational support systems) platforms are linked in the
need to support various end to end services. Each area has its own data and service responsibilities.
The role of Business Support Systems in a service provider is to cover four main areas:
o Product Management
o Customer Management
o Revenue Management
E-Commerce
An e-commerce functionality that is fully integrated with online payments and distribution & logistics
should be sought. In the online shop not only physical products should be offered, but also service
products (for instance a paper bill), which could be paid using Credit card payments, Pay-Pal, Direct
Debit, etc. A credit check can be integrated into the payment process if necessary.
The shop can thus be integrated with distribution, self care, customer care and can be
seamlessly integrated with existing websites.
Revenue Assurance
Revenue assurance takes place on the field of collections, e-commerce and fraud detection.
Collections
Can be obtained through standard interfaces to third parties who can offer collections services.
Additionally, the possibility of offering SMS alerting or sending paper reminders may be adopted.
Fraud Detection
The basic fraud detection has to do with high usage. When usage amounts of postpaid customers
exceed a specific level, the system should inform certain users of the system. Additionally via interfaces:
to the OSS system that can trigger events (for instance e-mail) or to BSS reps in case of a fraud event.
Vouchering
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Vouchers are relevant for prepaid propositions or specific marketing events (discount codes). The
possibility to import voucher batches from a third party and distribute these to dealers and agents should
be available.
Dealer Support
The dealer support enables the connectivity provider to:
•
•
•
manage dealers;
manage volume discounts and bulk ordering levels per dealer;
perform order approval for dealer orders.
Dealers can use the dealer module to:
•
•
•
sell products and perform in store activation of products and contracts;
perform credit checks
place bulk orders
System Management
System management should provide information about running tasks, imports, services, users, loggings
etc. In configuration management (as a part of system management), settings should be changed for
prices, actions, interfaces etc.
Number Porting
The number porting is specifically required for MVNO's, fixed and VOIP suppliers. Using porting, the
connectivity provider can manage the porting process, creating an overview of all number porting
requests & status and the possibility to modify these.
It should be possible to outsource the number porting process to third parties, provided there are
standard interfaces to existing parties which offer these services.
Reporting
Reporting must offer real-time standard reports, which can be exported to various formats (HTML, Excel,
CSV, PDF or Word), creating the possibility to analyse the data. On request, additional user-specific
reports should also be possible to be generated.
Time to market
The actual implementation duration depends on:
•
•
•
number of interfaces
proposition (prepaid, Postpaid, hybrid or flat fee);
Availability of third parties and MVNO.
A typical implementation could become operational within a timeframe of 3-5 months.
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Pricing (When buying a ready solution – from an MVNE)
Pricing is usually based upon three components: license fee, implementation fee and support &
maintenance.
One time fee
- license fee, depending on modules purchased;
- setup & implementation;
- setup & implementation infrastructure (in case of own environment)
Yearly costs
- license fee (a percentage of the initial fee - could be around 15%);
- functional maintenance (during office hours or 24x7);
- technical maintenance (again during office hours or 24x7);
Maintenance fee is usually based on the number of subscribers in the base.
To become an MVNO, one should cobble together a partnership that consists of a connectivity of a
regular telco, a customer base, and a sales channel. Most important, they need unique and compelling
data services.
6.11 Critical Success Factors
Generic
•
•
•
•
•
Identify latent opportunities
Create innovative services
Flexibility to provide customer-centric solutions
Spread awareness of enterprise mobile messaging
Ease of use
1st generation MVNO
Despite their success so far, today MVNOs are not differentiating much from each other by (new) value added
services. For those that have enjoyed success for far, this has been based on all or most of the following:
- Having efficient distribution channels
- Enjoying marketing skills
- Owning a strong brand or focusing on niche markets
- Proposing innovative content
Operational requirements to develop an effective MVNO business
• Critical points for a successful launch
– Back office what can and should the MVNO do and what can MNO and MVNE handle
– Evaluating the cost of providing and managing the various aspects of back office operations and
infrastructure
– How can MVNO be smarter then MNO when it comes to cost and flexibility
– Is prepaid THE optimum solution for an MVNO, is the cost significant lower than postpaid.
• Minimum time to market and a flexible operation
-
MNO access especially the ”new” countries:
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-
o Time, services and set up is not always free of choice
Timeline: What is YOUR deadline, this have a serious impact on your choise of modell
Focus on simple robust start up products
Keep the number of interfaces to a minimimum to start with
• Back office what can and should MVNO do and what can MNO and MVNE handle
o Actual possibilities?
ƒ Legal
ƒ MNO
ƒ Competence
o Business case?
ƒ MNO – trafic margin
ƒ Cost for the different scenarious
ƒ Be aware of all the ”extra” cost from the MNO
o Can you find a flexible solution?
ƒ Enabler
ƒ Outsourcing partner
ƒ As little as possible at least from day 1
ƒ Only tasks that is business critical for your overall mission
ƒ Only tasks that make financial sense from day 1
• How can MVNO be smarter than MNO when it comes to cost
o
o
o
Evaluate what you must own and what you can rent - go on “pay as you go” to keep your
operational options open and your fixed opex and capex costs to a minimum
Keep your dependencies to complex system at a minimum
You do not need to control everything – but be in control
• Is prepaid THE optimum solution for an MVNO? Is the cost significant lower then postpaid?
o
Prepaid upsides:
– Better Cash flow
– “No” bad debt
– Pre-provisioned
– No or lower billing cost
– Transaction cost low
– Often first service deployed for MVNO from MNO
o
Prepaid downsides
– Worth of customer database lower
– Churn higher
– Residebntial ”only”
– Channel cost high
– Arpu lower (30-50%)
– Services available
• Roaming
• GPRS
• MMS
• Content
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•
•
•
•
•
No it is not the optimum solution but it is quick, releases cash
With your own IN you can keep quite flexible products
Roaming is coming
The cost will be lower but probably lower ARPU, higher churn and less “Value”
Postpaid is an option you shall consider from the business case side especially if you already
have postpaid/Direct debit customers
6.12 Closing remarks
New players are making their move: MVNOs are entering the wireless market because of its revenue
potential, the large pool of churn customers, emerging broadband wireless technologies and compelling
economics.
With the increasing number of MVNOs, concerns are growing about the dangers of excess competition
and price commoditization. These worries are unfounded. A new business model in the wireless industry
is emerging in which consumer spending on telecommunications and entertainment will merge, then
expand, to create a much larger and more profitable market. There will be casualties, but virtual
operators and network carriers have the best chance of survival. MVNOs will have the dual benefit of
making the market more efficient on the cost side and turbo charging the adoption of services on the
revenue side. While individual performance will vary, MVNOs will change the structure, economic flows
and culture of the wireless industry for years to come.
Once an MVNO has partnered with a network operator and acquires a certain number of customers, it
becomes difficult to move these subscribers, thereby locking the MVNO customer to the network.
Separating from the carrier is not impossible, but a painful exercise. This highlights the importance of
crafting a solid MVNO contract that includes margin protection to reduce business risk for the MVNO. If
not undertaken correctly, this contract can become the weal link in the MVNO model, while if done well,
it can power a strong value-creating business.
Carrier choice will vary by MVNO, with a decision based on variables such as network protocol, network
quality, wholesale price and MVNO operational-support capabilities. Each carrier will be strong in some
categories and weak in others. An intimate understanding of these elements is essential for MVNOs.
Aside from the carrier selection and deal negotiation, new MVNOs will need to craft an engaging value
proposition for their target customers, supported by a business case built on assumptions and based on
deep wireless expertise. This expertise is readily available from outside providers. The same is true fro
back end support structures (customer care, billing) where expertise is widely available, to help
determine the course of action to be taken. The key here is the decision to either do-it-yourself or
leverage through a third-party. Such decisions, to some degree, determine the risk-reward profile of the
venture.
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7. Conclusions
7.1 Conclusions & Lessons to be learned
To be Adopted
Try to turn the market from offline to Online
There is low cost setup implementation (in doing this)
Have a strong technical platform with no or minimal maintenance or service failure
Avoid fraud
Utilize Outsourcing as it works better than in-house
Partners DO contribute with their core knowledge
Make sure that Supply chain is 100% solid and work with NO errors
Arrange Risk sharing with MNO and/or MVNE
Focus primarily on sales
Make sure that Online marketing is available
Approaching Communities is easy
To be Avoided
It is hard to get into the market (existence of strong players)
Operators know how to compete
o Long binding periods
o Free minutes and SMS
Regulation is non-existent or slow and ineffective
Turning the market from offline to online is hard and takes time
E-payment is not user friendly and it takes time for the user to get familiar with it
The market is not as price sensitive as usually expected – even 30% lower prices is not
enough
Physical distribution is hard to beat online if you’re not patient
o Is needed
Viral marketing is misused by everybody in the Telcomarket
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
Launching a low-cost proposition using an established brand is a key element for being prepared
to the increasing level of aggressiveness and price pressure
Brand compatibility makes the difference, especially when it is possible to combine best-price
image with quality reputation
Being the first makes also the difference
Being the cheapest makes also the difference
Mobile telephony offer is a good opportunity for extending a fashioned product line of a retailer
MVNO or not MVNO is not the question : the best partnership must be the goal
Considering a strong partnership rather than just one singular revenue sharing model opens door
for other future interesting co-operations…
Standard MVNOs Tips
ƒ MVNOs should focus on branding and growing their business NOT the back office.
ƒ MVNOs should partner with an MVNE
ƒ With an end-to-end solution
ƒ With experience
ƒ With features and functionality that add subs to drive profit
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ƒ
ƒ
ƒ
With on-demand scalability
With the ability to deliver speed-to-market
The right MVNE can deliver profitability to both the MVNO and the host operator.
Data MVNOs Tips
• Data Content MVNOs need all the same things as MNOs and other MVNOs, PLUS
– Distinct and unique content
– Highly topical content (rapidly changing)
– Depend on their MVNE
• MNOs need Data Content MVNOs
– Drive more traffic
– Control loss to alternate networks
– But MNOs are poorly positioned to serve Content MVNOs
• Challenges for Content MVNOs high
– Content MVNOs need MVNEs to handle the “details”
– MNOs need to open networks
Beware
• end-users have already experienced the deregulation activities in declining prices and simplified
pricing schemes
• many MVNOs have entered the market to learn the business and prepare themselves for the
emerging, more content and data-based 3G market, but in several cases that was fatal
7.2 Conclusions regarding the future
Referring to telecoms, It is because telecommunications are by essence a network economy that the
market is inefficient from a competition point of view, as:
There is a guaranteed income due to the monopoly or oligopoly that popped up because the 3 or 4 GSM
national licenses were not awarded at the same time.
The GSM operators are vertically integrated and so can behave independently from upstream and
downstream, even in a non collusive way
As within most network economies, the limiting factor for a fully efficient market is the owning of a rare
resource not easy to replicate (the local loop in fix telephony, the spectrum in mobile telephony).
The limited spectrum allows - per country - only 3 or 4 operators with a radio access network; if the first
entrant can exploit the spectrum ahead of its competitors, the market shares it acquires during that
period create this guaranteed income typical in an oligopoly market.
The MVNO brings a solution as it forces the mobile operators to unbundle its vertical integration and
multiply the number of players. As such they are a remedy at least for the access/origination market.
Also, the termination and the roaming market could benefit from MVNO as a remedy. The MVNO model
can in fact apply to any network economy with a technological context and with assets not easily
replicable.
The MVNOs of today are customers centric. However, it is expected that the emergence of new (agile)
wireless techniques will create new kinds of mobile operators not relying on GSM or UMTS. These new
operators will need the GSM network to complete their coverage and so will need to become MVNO.
These new operators operating a different radio access networks will eventually become MVNO
between each other. IMS has as an objective to create services that are irrespective of the underlying
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radio access network. When IMS will be standard, the need to run a service on several networks will
become natural and the service provider will have to become a MVNO.
7.3 Three improvement suggestions
1. Implement MVNOs with fixed interconnection cost and the network capacity bought
virtually from nowhere
− MVNOS implement the cost leader strategy
− significantly lower capital (approx. 20% of MNOs costs) and operational expenditures
− fixed interconnection prices determined by the game operator
− restricted set of services a MVNO can offer
2. Introduce means for negotiation, the network capacity is bought from actual players
− network capacity is bought for a certain period of time
− switching costs for a MVNO due to investments to the network infrastructure (e.g. VAS
servers, billing and charging systems, integration costs)
− wholesale pricing options for MNOs who decide to sell excess capacity
3. Give the players a possibility to act as MVNOs with different strategies
− service leaders must select a service mix they intend to offer
− requires for modelling financial flows based on service demands per customer group and
actual costs to produce a certain service
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8. References
o
Personal Interviews with Mobile Operators Higher Management
o
Deloitte Surveys (www.deloitte.com)
o
Business plan Pro
o
EUROSTAT
o
http://www.statistics.gr
o
http://www.mobilevirtualnetwork.co.uk/
o
http://www.ovum.co.uk/
o
http://www.siia.net/
o
www.3gnewsroom.com
o
www.analysysmason.com/
o
www.mobilevirtualnetwork.co.uk/
o
http://www.wimax-industry.com
o
http://www.kpmg.com.au/
o
http://www.atkearney.com/
o
http://www.thebesengroup.com
o
http://www.tescomobile.co.uk
o
http://www.atosorigin.com/
o
http://www.3G.co.uk
o
http://www.eurocomms.com/
o
http://www.gsmworld.com/
o
http://www.mobilein.com/
o
http://www.mvnodirectory.com/
o
http://www.pyr.com/
o
http://www.transatel.com/
o
http:// www.effortel.com/
o
http://www.takashimobile.com/
9.
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Annex 1 - Case Study – Western Europe Cellular revenues
Total Revenues generated by mobile operators in Western Europe reached EUR155.1 billion in 2007,
3.32% growth from 2006. In EU15 countries, cellular revenues represent 1.5% of Gross Domestic
Product. Our key finding is that in most countries, mobile revenues have been growing faster than
GDP which demonstrates that the telecom sector has proven to be resilient to the general economic
downturn. In 2008, we expect to see a similar relatively healthy growth in mobile revenues.
Non-voice revenues appear to be driving growth as voice revenues remain under strong pressure. As
market penetration continues to rise, mobile operators are turning their strategies to increasing
revenue share and focusing on customer retention.
Western Europe recently passed the 500 million cellular connections mark and the most highly
penetrated region in the World (120% on average). Greece and Italy have registered penetration
rates above 150% in early 2008. Most countries are now home to 3-4 mobile operators, and in a time
of general economic slowdown, competition is getting tougher.
In Western Europe, the top 5 operator groups (Vodafone, Orange, T-Mobile, Telefonica O2 and TIM)
generated revenues of 106.6 billion Euros, or 69% of the total revenues for the region. In markets
such as Germany, Italy, Belgium, Switzerland and Austria, cellular revenues have decreased year on
year, partly due to: new European roaming regulations, domestic regulations (Bersani Decree in
Italy), weakened ARPU, and decline in effective voice price per minute.
Operators are now focusing on revenue stimulation and fighting churn through key competitive
factors such as: price elasticity, network coverage, loyalty policy, quality of services, value added
services and market segmentation which includes MVNO development.
Western European mobile operator revenue
Western Europe cellular market has reached a level of maturity that is intensifying the level of
competition amongst mobile operators. Total revenues in the region reached 155.1 billion Euros in
2007, which equates to a 3.32% growth year on year. Keeping the right balance between CAPEX and
profitability is sure to be a key challenge for service providers that operate in the region.
Figure 1: Western Europe Mobile Operators Total Revenues vs. Penetration Rate
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Source: Wireless Intelligence, 2008
The seasonality in revenue figures has remained unchanged since 2006: 24% in Q1, 24.8% in Q2,
25.7% in Q3 and 25.5% in Q4. This shows that the second half of the year is the period when
operators generate the highest revenues. Q3 holds the summer holiday season and is the
battleground of prepay campaigns whilst Q4 is characterized by strong activity during the
winter/Christmas holiday season. Whilst there is nothing new in this, those two quarters have always
ruled the market dynamics, what has changed is that operators are now primarily focusing on
customer retention instead of customer acquisition. By default, it also means that market leaders are
turning their strategies to increasing revenue share instead of customer share.
In terms of the dominance of major operator groups in the region, Vodafone, Orange, TIM, Telefonica
O2 and T-Mobile’s operations in Western Europe altogether reached 106.6 billion Euros last year,
representing nearly 70% of the total revenues in the region. The remaining 30% is left to local
operators and smaller groups such as Telenor, KPN, or 3.
Figures 2 and 3 show the top 10 fastest and slowest growing operators in terms of total revenue
growth in 2007 along with their average quarterly connections growth. It is interesting to note that a
few markets have rapidly changed over the last two to three years mainly due to high penetration
rates and new regulatory initiatives.
For instance, Germany and Italy are showing signs of a high level of maturity that may lead to a
plateau of development throughout 2009. T-Mobile Deutschland (2.7% revenue growth) and
Vodafone Germany (7.1%) have reported negative growth in their total revenues from 2006 to 2007
although their connections base grew by an average of 2% last year. This is partly due to pressure on
voice pricing, weakened ARPU and the implementation of cuts in termination rates. Although both
operators reported an increase in their installed base, they were unable to offset the consequences of
price pressure. O2 Germany, in contrast, has reported a higher revenue growth (15.9%) over the
same period.
In Italy, the same rules apply for Vodafone and TIM. Both operators have reported a decline in total
revenues of 5% and 2.3% respectively between 2006 and 2007. The decline is also justified by the
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implementation of the Bersani Decree which requires operators to eliminate top-up charges from all
the rate plans and all top-up channels. As the Italian market is home to 90% prepaid users, the
Bersani Decree had a substantial impact on revenues generated by operators since its
implementation
in
March
2007.
Figure 2: Top 10 fastest growing operators: Revenue growth vs. average quarterly connections
growth, 2007
Source: Wireless Intelligence, 2008
Figure 3: Top 10 slowest growing operators: Revenue growth vs. average quarterly connections
growth, 2007
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Source: Wireless Intelligence, 2008
Data usage drives revenue growth
Recurring revenues have been estimated at 90% of the total revenues in Q4 last year. Voice revenues
represent 78% of the recurring revenues and non-voice revenues hold the remaining 22%. Non-voice
revenues show substantial growth of 18% from Q4 2006 to Q4 2007, demonstrating the take off of data
usage. Voice revenues are under clear pressure in most markets as efforts from operators to stimulate
voice usage have led to a decline in effective price per minute.
Despite the competitive environment in Italy, Vodafone and TIM have registered strong growth in nonvoice revenues, with 25.8% and 22.2% growth respectively between Q4 2006 and Q4 2007. In Austria,
Mobilkom reported that non-voice revenues represented 30% of its total recurring revenues in Q4 2007
compared to 24.1% in Q4 2006. T-Mobile Austria non-voice revenues represent 22.6% of its recurring
revenues in Q4 last year against 15% in Q4 2006. In Portugal, the situation is similar with Optimus and
TMN reporting high growth in non-voice revenues over the same period with 25% and 40% growth
respectively (20% of their recurring revenues in Q4 2007).
Italy, Austria and Portugal all have high penetration rates (over 120%) and have seen a fast adoption of
high-speed services. WCDMA Family (WCDMA + WCDMA HSPA) connections already represent just
over 15% of the total connections of Mobilkom Austria, T-Mobile Austria, TMN, and TIM. Optimus is
already set at more than 30% and Vodafone Italy at 24%.
The adoption of mobile broadband along with good network coverage have been key to fast adoption of
data usage to drive an increase in non-voice revenues. It is interesting to note that data usage growth is
mainly driven by the sales of USB-dongles, and more recently HSPA-enabled laptops. Along with the
widespread of unlimited data plans (an average of 20 Euros per month in Western Europe), such offers
tend to dilute ARPU but generate incremental cellular connections and incremental revenues for
operators. Currently, mobile broadband services are only available to contract users but introducing
such services to the prepay market (around 60% of the total connections in the region) will generate
higher gains for operators and speed up the adoption of high-speed services.
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Mobile Revenues as a share of GDP
According to the OECD (Organisation for Economic Co-operation and Development), the average yearly
growth in GDP in 2007 was set at 2.6% in Western European markets (EU15 countries). Over the same
period, mobile revenues accounted for 1.5% of GDP.
Figure 4 shows mobile revenues as a share of GDP for the EU15 countries, and compares it to revenue
growth and GDP growth in 2007. It shows how disparate Western European countries are and the
difficulty in correlating cellular revenues growth and GDP growth. However, we came to the conclusion
that in most countries, mobile revenues are growing faster than GDP. We can identify some groups of
countries that seem to follow similar patterns and profiles:
Greece, Finland, Ireland, Spain and Netherlands: all 5 markets have reported a growth in mobile
revenues faster than GDP growth. In those markets, the average penetration is around 120% (a part
from Greece already at 165%) and GDP growth in 2007 is around 4%.
United Kingdom and Sweden: both markets have reported mobile revenues growth faster than GDP.
The average penetration is around 120%, GDP growth in 2007 is around 3%.
Portugal and Denmark: both markets have reported mobile revenues growth (around 6-7%) faster than
GDP growth. The average penetration is around 120%, GDP growth in 2007 is around 3%.
Germany, Belgium, Switzerland and Austria: average penetration is around 110%, GDP growth in 2007
is around 3%, but all four markets have reported a decline in mobile revenues in 2007.
France and Italy: two exceptions.
France is showing a market penetration below the 100% mark (82%) and GDP growth below the 3%
average in 2007. Although it is reporting a 3.1% growth in mobile revenues last year, the market is
lagging behind in terms of high-speed network coverage.
Italy is highly penetrated (153%) and is reporting the slowest GDP growth amongst those countries
(1.4%) in 2007. Its decline in mobile revenues is mainly due to implementation of new European and
domestic regulations as well as price pressure amongst operators.
Figure 4: Mobile Revenues as share of GDP, 2007
Source: OECD, Wireless Intelligence, 2008. GDP figures have been extracted from the OECD online database on the
02/09/2008.
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10.
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Annex 2 - MVNO Experience
The highly competitive Nordic
•
•
•
•
•
The customers are harder to get then planned
The internal procedures and the amount of work needed is underestimated
Everything takes time and even though it is a ”light” solution many interactions has to be solved =
You have to work in parallell
Keep as much as possible simple and standard
Telogic track record is 28 days – from start to commercial launch
Conclusions
1. There is price flexibility also in the mobile communication sector
2. Brand diversity is new in the mobile communication sector–but a recipe for success in many
other lines of business.
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3. Customers are not prepared to pay for everything that is technically feasible
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Annex 3 - Glossary
3G
3rd generation mobile system
3GPP
3rd generation partnership program developing global specifications
BSC
Base Station Controller
BTS
Base Transceiver Station
Core Network
The systems that control traffic flowing to and from the RAN
CRM
Customer Relationship Management
CS
Circuit Switching
GPRS
General Packet Radio Service
GSM
Global System for Mobile Communications
HLR
Home Location Register
ICT
Information/Communication Technology
IMS
IP Multimedia Subsystem
IMSI
International Mobile Subscriber Identity
IN
Intelligent Network
IP
Internet Protocol
ISN
Intelligent Service Node
IT
Information Technology
MGW
Media Gateway
MMSC
Multimedia Messaging Service Center
MNC
Mobile Network Code
MNO
Mobile Network Operator (host)
MSC
Mobile services Switching Center
MSS
Mobile Switching Solution
MVNE
Mobile Virtual Network Enabler
MVNO
Mobile Virtual Network Operator
NGN
Next Generation Network
OSS
Operation and maintenance subsystem
OTA
Over-the-air technology
PLMN
Public Land Mobile Network
Service Delivery Platform A platform used to deliver non-voice services to a mobile customer
SGSN
Serving GPRS Support Node
SIM
Subscriber Identity Module
SMSC
Short Message Service Center
SS7
Signaling System no 7
UMA
Unlicensed Mobile Access
UMTS
Universal Mobile Telecommunications Services
VMSC
Visited Mobile services Switching Center
VAS
Value Added Services
VoIP
Voice over IP
VPN
Virtual Private Network
WAP
Wireless Access Protocol
Total revenue:
Total operator reported revenue, including all recurring and non-recurring
revenues.
Recurring revenue: Revenue generated by subscriber use of the network including voice,
messaging, data, interconnection and roaming but excluding revenue from
handset sales and connection fees, and any other revenue not generated
directly by network subscribers.
Non-recurring revenue: All revenue reported that is excluded from recurring revenue. Commonly
includes revenue from equipment.
Voice revenue: Recurring network revenue attributable to voice services.
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Non-voice revenue: Recurring network revenue attributable to non-voice services including
messaging, downloads, Internet browsing and other data services.
GDP: Gross Domestic Product, at constant prices. GDP data has been sourced from the OECD
online database on 02/09/2008.
EU15 countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Netherlands, Portugal, Spain, Sweden, Switzerland and United Kingdom.
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