MVNO Demystified
A mobile virtual network operator (MVNO) is a company that provides mobile phone service but does not have its own licensed frequency allocation of radio spectrum, nor does it necessarily have the entire infrastructure required to provide mobile telephone service. As per the MVNO directory 2009, there are 366 active MVNOs and there are another 89 potential MVNOs. The concept of MVNOs was coined by Sir Richard Branson of Virgin Mobile in UK in 1999 and Virgin is still the largest MVNO with over 4 million subscribers in UK. There are currently over 50 MVNOs in US and Netherlands. However in almost every country, the share of subscriber base with MVNO is less than 10%
There are various forms of MVNOs depending on the value chain activities they cover. The figure below provides an overview of the various activities performed by different entities:
Image Copyright with Telecom Circle
The fourth entity depicted as MVNO in the above diagram is essentially the “Thick MVNO” and is the most prevalent form of MVNO. Key examples of Thick MVNO are Virgin, Lebara, Helio and while that of Mobile Virtual Network Enabler (MVNE) are Ztar, TMNG, Convergys and ASPIDER Solutions.
What does MVNO offer?
MVNOs normally try to leverage on one of the three strategic assets – Brand, Distribution or Existing Customer Base. The existing customer base can be non-mobile customer base that can be cross-leveraged for mobile services. There are MVNOs that try to offer better services for their customers, e.g. Rabo Bank launched its own MVNO to serve its banking customers better. Communities of interest can come together to form a community MVNO, e.g. fans of Manchester United or McLaren can potentially brand an MVNO to display their sporting affinity. Wal Mart can use its distribution reach and loyal customer base to venture into the MVNO space.
The key strategic asset that MVNO brings to the table also defines its positioning in the market place. The broad classification of MVNOs is as follows
Business MVNOs focus on catering to the mobile services needs of business houses, e.g. Abica in UK offers cost savings on business mobile, landline and broadband services
Discount MVNOs provide cheaper services to their customers and price is their key differentiation
Niche MVNOs focus on a specific niche of the market and charge a premium for the brand
Ad Funded MVNOs have a business model that is based on advertisements and offer to provide free mobile services to their customers return for viewership of the advertisements, e.g. Blyk in UK
Ethnic MVNOs targets ethnic communities or other communities of interest by offering significant value to their customers, e.g. Lebara in UK offers reduced tariffs to its ethnic customers for calling their home countries
Convergence MVNOs are set of MVNOs that leverage on convergence, e.g. BT Mobile in UK and Italy. BT Mobile encompasses not only GSM but all wireless telecoms technologies and leads the field in Fixed-Mobile convergence
Why do carriers (MNOs) find MVNOs attractive?
Operators look at MVNOs as an outsourcing partners to either reduce cost or increase productivity by reaching out to more customers profitably. No market is homogenous and consists of various segments which may not be equal in size. Operators may find it difficult to profitably target all the segments. MVNOs are a medium to implement a more specific marketing mix to suit the needs of the niche segments. MVNOs also help carriers reduce their costs as they take away a significant portion of operator costs like customer service delivery, billing, marketing, etc. MVNOs are able to offer these services at a lower cost by leveraging on their current assets. MVNOs may also help increase the revenues by way of reduced churn and increased ARPU.
Operators are particularly interested in MVNOs to better utilize their excess capacity. They can off load their excess capacity at marginal costing (at a discount to the normal tariffs) and can thus offer discounts to specific segments without having to offer it to its entire base.
Future of MVNOs
Despite the benefits that MVNOs can bring, the current share of subscribers in most of the markets they operate in is less than 10%. I am not sure if any MVNO is really making enough money to cover its expenses. The reason for this is that there is now a new entity in the form of MVNO that is trying to gain a pie of the value chain without increasing the value of the chain. This means that the margin needs to come from the carriers or through operating efficiencies. There is not enough inefficiency in the operator domain and hence the high margin opportunities are limited. The carriers are already under margin pressure and have a threat of getting marginalized and hence feel squeezed with the arrival of MVNOs.
An MVNO is only as strong as its ability to differentiate its services. An MVNO can differentiate itself through niche segments, its distribution depth and loyal customer base.
According to Whitey Bluestein, widely recognized as the creator of the first MVNO when he developed a virtual network operation for pre-WorldCom MCI in the mid 1990s,
There are three key areas that most new entrants simply have not thought out either tactically or strategically: distribution, customer churn and industry technology.
In many cases, the MVNOs do not have a clear technology roadmap and hence are not able to transition from 2G to 3G to 4G. Being asset light (read headcount), most of MVNOs have a limited ability to forecast future trends, pace of technology changes and hence miss out on opportunities. They have limited access to latest handsets in the operator driven markets unless they tie-up with the operators themselves for the handset deals.
Also Read: The future of Data Only MVNOs
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Too many MVNOs have veered from their intended “niche” markets and attempt to compete with the big carriers on their own turf, a serious and deadly mistake. Having been directly involved with the launch of two high-profile MVNOs, I watched in dismay as the leaders of the companies moved from well-defined and traditionally underserved markets to competing directly with the big 3 (ATT, Verizon, Sprint) on their turf. The “big brother” approach from the carrier providing the network access, who monitored activities in far more detail than expected, provided the carrier with no-cost marketing and engineering data which was then used to develop competing products – directly in competition with the MVNO. At Disney Mobile, the ideas were often brilliant but far costlier to develop than our meager budgets allowed. Too often, the product was deficient or a downright disaster. However, it provided carriers with great information on what not to do so they could offer similiar products without the cost of engineering and market research. An MVNO can succeed, but it must keep its aspirations in check and in line with the reality of the market. Carrier contracts must have very specific non-compete language that clearly identifies the limitations on products the carrier can introduce that compete with the MVNOs stated markets – a tough, if not impossible task considering the size and resources of the big carriers. They simply are not going to allow a small startup to draw revenue from their business model if a successful niche is found.
Mohit sahib,
You’ve done it again, remarkable and informative.
in my opinion:
There r some basic inter-dependencies that r very relevant and important:
1.role of the regulator;
2.VAS (almost the basic requirement) for such netwrks ;technically backed by IN;
3.internation/trans-continental influences related to finance & economy;
In the Pakistani context,in early 2000s;
We have seen a devouring of the incumbent carriers’ revenues (by one-third) as a result of a fixed-VNO b/c of coming to markets of competitors who used the incumbent’s network upon which they installed their own INs, as a result of deregulated environment
in the mobile context the growth has been record as new entrants have created a lot of opportunity that has been accompanied by infrastructure development of each mobile-operator,as a result there r virtually no MVNOs here,however due the recent world economic crisis and due to the regulator’s finticipated ban on new tower erections after 2010,MVNOs r likely to grow;
Clearly all developing markets have a set of such issues whether they r in Africa,Southeast Asia or eastern Europe
I think with VAS’s inseparable role(underlying IN networks) financial bodies need to back such MVNOs/fixed-VNOs; With the economic crises looming more & more companies would try to lessen their costs on infrastructure (esp. tower-erection: a major cost addition,back up generators)
In this context it should be sought that major G20 countries should come together to provide better frameworks and regulatory environment to lessen completion for a small chunk but a collaborative setup to benefit all players; i hope my answer isn’t too long
That’s interesting question when the traditional mobile operators are agreeing to the use the same network to save costs. Is this because they see themselves as service providers rather network operators? So are they transiting into MVNO’s themselves and will this squeeze out the current MNVO’s?
The reports of the MVNO’s death are greatly exaggerated.
In the UK, both Virgin and Tesco have been very successful in leveraging their well respected brands and wide customer bases, and,as importantly, keeping it stupid simple.
One of the keys to success, as in any business, is to manage the margins – squeeze the supplier and price at a profit. Of course size of base helps in that as that narrows the effects of the overheads and every MVNO must reach a critical mass, and marketing prowess and brand power are a must in getting there as quick as possible.
In the variable costs space, Customer Care can be a huge cost – so partnering with a good quality network with less ‘problems’ is a good start, keeping the tariffs/pricing/billing simple gives less opportunity for confusion and mistakes and is generally cheaper (Tesco have it nailed there I think), automation, web-care, integrating with existing (multi-channel) Care operations all help minimise that cost. The less that can go wrong, the lower the Care costs and the stickier the customer.
And totally agree with the comments about limiting ambition – keep it simple, plain, honest, and play the tortoise rather than the rabbit.
Will the networks reclaim the space? Do they want to? I don’t think so.
Do they have something to learn from the MVNOs? Perhaps they do…
The financial success of the MVNO is dependent in large part on their agreement with the host MNO.
As there are generally limited options for MNO Partners, MVNOs often perceive a significant imbalance in negotiating power, and thereby settle for unfavorable initial terms and conditions. They can tell themselves that they will re-negotiate once they have “proven themselves” and thereby have more negotiating power.
Unfortunately, MVNOs coming back to the negotiating table often find themselves “locked in” to their MNO Partner due to the technical and practical complexities of switching to another MNO.
They can either struggle on, making slim or negative margins, or (as happens all too often) opt to sell out their subscriber base to the MNO. Either way, this represents a win for the MNO, who has greatly reduced their costs of acquisition and retention for the MVNOs subscriber base.
Lesson 1: MVNOs have to get their initial MNO Partnership Agreement right at the outset from both a commercial and technical viewpoint.
Lesson 2: MVNOs have to design their infrastructure with the assumption that they will be switching MNOs at some stage down the track.
Mohit,
Interesting analysis, good work on posting this, and I hope it gets some good coverage. I could probably suggest a few more “rows” for the table you have drawn, and also observe that service providers and resellers are really very close to MVNOs. The differentiation there (apart from regulation), is normally one of with whom the customer believes they are dealing with for telecoms. In the UK, I believe that consumers are much more likely to think Tesco is renting someone else’s network, than Virgin Mobile (even before the merger with NTL). Virgin, in most markets they operate, goes to considerable effort to stand on its own, and even to challenge its host network in certain areas. They also take great pride in the hard work of their teams that gives them better “network quality” ratings from customers than many MNOs including host – this has happened in UK, Canada and India.
As to the future of MVNOs, one can either get scale – Virgin Mobile USA had $1.3bn of revenues in 2008, or focus on a niche with a low cost operation – viz Lycamobile or KPN. You also need real support from the MNO, the operator has to understand the role of the MVNO in the market, and be active in fostering your success. Interestingly there is still only one “mvno” in Africa, maybe the opportunity is to segment and increase the sophistication of marketing to this huge population as new adds growth slows?
Charles
Thinking of an MVNO as a company who only sells mobile phone service is a perspective from several years ago. The MVNOs of the future (and the present too really) will be tied more to non-handset mobile devices like netbooks, MIDs, and mobile consumer electronics devices. Many of these MVNOs will be the companies who sell the devices and/or services that require mobile broadband service as Internet access.
Existing examples:
- Amazon’s Whispernet MVNO for the Kindle mobile e-readers
- Companies like Jasper Wireless who support M2M modules as a global operator with Layer 2 access to various mobile operators’ networks
Future example:
- Dell is becoming an MVNO in Japan for its laptops and netbooks that include a limited amount of service that can be topped off on Dell’s website
- Portable game devices with subscription-based online gaming services
These future MVNOs / business models are something that many analysts here at ABI Research have been looking at for the past 4 or 5 years from different perspectives (mobile operator, device, services, etc.).
Phil Solis – Principal Analyst at ABI Research
http://www.abiresearch.com
The MVNO will play a major role in shaping up the way Big Guys work. I still see that companies with their own infrastructure has poor quality of services. The way they handle customer case is usually annoying. The customer’s won’t mind paying few cents (end even dollars) more if they can get a guaranteed and personalized services. Since MVNO doesn’t have to focus on maintaining the infrastructure, they have more energy and money to spend on improving their service quality and operational costs through personalized and well designed price plans. Recently we have implemented a telecome solution for a major Australian MVNO. By using Oracle BPM we have designed system in such a way that adding new plan and defining new business rules has become a trivial task for the business. Thus they can focus on customer and related events which can make the customers even happier.
Although, I am sounding positive. The MVNO must realize that they are dependent on the biggies for their infrastructure. They must not get into the game of low price war.
Another thing that I have noticed is the lack of effective and easier payment mode. Voucher Management System (VMS) is becoming popular day-by-day. But it is still being linked with prepaid services. That is where we have developed our own VMS to help the MVNOs provide more value added services, discounts, bonus, etc to the loyal customers.
Nice topic again and nice style of writing you have, makes it easy to read. Have done some research into MVNO myself. Have talked to MNO’s (and worked for them in various countries and continents), MVNO’s and MVNE’s. Have also just finished reading ‘The Long Tail’. I think you are missing one critical success factor regarding MVNO strategy and that is niche market they want to target. Even with a subscriber base of as small as a few tens of thousands, an MVNO can be commercially viable, provided you target the right niche market (big enough, rich enough and loyal enough). Even in a crowded market place as The Netherlands, there are still niche communities with market potential; SoHo, young families, subset of migrant workers, etc. It is just a matter of how you dice the cake and hit the sweet spot; whatever floats their boat and is not interesting/possible/viable for other (bigger) operators….
I loved the article and agree it is very informatibe. Your comments are very valid and I would like to see more analysis on the trends within MVNO’s markets. In particular ratios of pre-paid to contract customers / business customers. I would like to think that MVNO’s struggle to compete with discounted business customer contracts and would prefer to capture the pre-paid higher margin consumer customers. Any thoughts?
Dear all ,
The bottom lines are always pronounced as in this discussion also.As the contributors lengthen to the descending order to Mr Alok Ranjan, there is increasing bouyancy. But the iniitial comments of Ricky Cochran are very true & should be a bible for most aspiring MVNOs.
My views as a social practitioner suggest that MVNOs will succeed in the developing coutries of the SOUTH far greater than in the NORTH the MVNOs too will migrate from low base to higher base of netwrok to VAS to Mobile commerce and banking services in these terrain.
In these cases numbers will sanctify as there is a virtual market begging for such services.Prof Yunus has deftly combined these features in Grameen Phone.We at Grasso has done the same thing where we had a better image than BSNL, initially at least. But as stated already by most other fellow members the greed of the biggies to capitalise killed the goose as they failed to give services with their high cost of manpower to remote areas while they normally tend to drive out the lowly ones.
The efficient man managemnat with strong robust back end will be the key once the MNOs & potential MVNOs decide on the turf to tango so that it is complementary to each other. And I see no reason that not to happen as technology leapfrog for a better value realisation to customers safisfaction.
Regards
Santanu
It is largely observed that the single largest cost component for MVNOs is often the wholesale minutes that they purchase from their host MNOs. So a large part of their success really depends on how well they perform on the negotiating table with their host networks. This is where a lot of MVNOs get into trouble.
MNOs and MVNOs often tend to have rather tumultuous relationships, which end up hurting the MVNOs a lot more than the MNOs. I think the MVNO model will have more of a possibility to succeed once the operators have a real stake in the success of the MVNOs. So I foresee the successful MVNOs in future having a lot closer relationships with their host networks, possibly through equity ownerships or other similar arrangements. This will obviously need to be coupled with great marketing and a focus on a non-overlapping (with the host), niche segment of the market.
I co-founded Australia’s first MVNE business seven years ago and since then my views of the industry have changed markedly.
Its important to understand that there are three basic types of MVNO’s each with different target markets and chances of success. The most common MVNO has been a start-up that has gone out to capture a particular market segment relying on its market knowledge and product positioning to succeed against established competition. This is a tough business case with a high risk of failure as it has to create a brand and secure distribution channels, while facing the same costs of customer acquisition as the established players.
A second type of MVNO has been an established brand usually in a consumer market that has entered the mobile business seeking to expand its brand presence. Some of the biggest global consumer brands have attempted this with some spectacular failures such as Disney, ESPN, etc. Fundamentally consumer brands don’t understand the mobile business and rather than increase brand value they’ve generally ended up destroying it. Today there are much better ways for consumer brands to use mobile for advantage. This is in fact the target for my new company Gomeeki.
Lastly, and generally the more successful MVNO model has been an established telecom player that does not have the chance to build a mobile network but wishes to take advantage of FMC to add value to its established customer base.
Indeed, a very informative article on MVNOs, but i have my reservation, if this model will work in Sout East Asia especially in country, like ours.
For Instance, Virgin begun its operation ,almost a year back (Sharing Infrastructure with TATAs) has managed to garnered only a Million subs in markets like Mumbai & Delhi.(They have clearly defined their target markets as “Youths” (Age bucket of 15-25) , whereas other opertors are growing at a franatic pace. I think , they have failed miserably on cashing on their brand ” Virgin” , which is highly successful in Europe , Distribution channel and capturing subscriber base.
With 3G setting its foot in India, other operators will be far ahead , in terms of service and Virgin may not be able to manage itself.
There might be a case, where Virgin becomes a distinct picture.
If this model is working in India, then why are there not any other operator working on this model?
In my home market, Denmark, the MVNO businss model seems to be working well, and add value to the network operators, the market as well as the MVNO. The main idea of the major danish MVNO’s is to offer basic service at low cost. The network operators have an impressive range of services and options, which is expensive to support and sell. And when looking at a basic service model, the mobile network operator will have significant inefficiencies. You may remove credit risk by only offering web-based upfront payment. You may remove customer aquisition cost by not offering sponsored terminals, you may remove customer service expenses by … removing customer service.
I have left a more extensive comment in your other article on data only MVNO, explaining how the MVNO business model may work in some markets. And how it sometimes work well, but not exactly as predicted.
From our experience (North Asia) one business model, which has resulted in a “win –win” for both parties is where the MNO has an equity stake in the MVNO. This business model prevents some of the issues raised by Rick Cochrane.
In the future I think we will see more MVNO’s:
(i) From service providers that do not have a mobile licence and want to provide their enterprise customers with a FMC solution
(ii) In the m2m market – MNO’s are unlikely to have the resources/ expertise to address this market.
Jeanette Whyte