The Future of Data Only MVNOs
MVNO as a concept has been there for almost 10 years now but has failed to gain significant subscriber market share or make profits. The MVNOs were envisaged to provide service differentiation or lower cost of ownership but most of the MVNOs failed to live up to the expectations. However, there is now an opportunity to look at a different value proposition which is data MVNO. One of the readers (Phil Solis) of my earlier post on MVNO (MVNO Demystified) had pointed to the concept of Amazon’s Whispernet as data MVNO and I completely agree with him that data MVNOs could work if coupled with a compelling service.
Whispernet is a wireless delivery system for the Amazon Kindle e-book reader that allows the user to surf the web and download books and other Kindle content without the use of an outside internet provider. Whispernet works through an EV-DO system offered by Sprint and is free with the Amazon Kindle. Through this arrangement, the customer gets a complete solution to his basic need of reading a book electronically. The customer gets a book reader device, content and internet connection for downloading content from Amazon. Kindles were launched by Amazon in Nov’07 and were sold out within five and half hours of the launch. Amazon had not anticipated this huge success of their book reading solution and hence was not able to replenish the stocks until Apr’08. The huge success was partly due to the solution approach of Amazon where the consumers need not get into the hassle of getting another internet connection for the new device. It was a plug and play device. In this case, Amazon is acting as data MVNO for Sprint and the purpose of its becoming an MVNO is to support its own service.
Dell in Japan has tied up with NTT DoCoMo to resell mobile data airtime along with its notebooks. The notebooks are preconfigured and are ready for plug and play providing convenience to its notebook buyers. The service provider brand is invisible though the service provider is responsible for billing and collection. Here also, Dell is moving in the direction of data MVNO to support its product, i.e. notebooks.
The underlying factor in both the above examples is that the players are venturing into MVNO space to support their products thus having a strong value proposition. In other words, data was required to provide a better experience to their customers and hence Amazon and Dell ventured into the MVNO space. This is very different from the earlier round of MVNO ventures in which companies from totally unrelated fields tried to make money in the mobile space by becoming an MVNO. The only asset was their customer base but had no experience in the mobile industry which resulted in some high profile failures like Disney Mobile in UK and ESPN Mobile in US.
Currently, the content providers are dependent on carriers for delivery and billing of their content. There are not enough mechanisms for micro-payments on mobile and for content delivery the bandwidth is provided by the carriers. The flat data rate is still not available in many parts of the world and hence it could be quite expensive to download content. On the other hand, the many operators do not charge data download charges when content is being downloaded from the walled garden. This means that the content providers do not get the level playing field if they are not on the walled garden. With the advent of mobile payments, content providers have a unique opportunity of bypassing the carriers completely by becoming a data MVNO. Players like EA (Electronic Arts) can actually become data MVNO and bundle data with their games. Customers can pay for the game by mobile wallets or Stored Value Accounts and get the game delivered from EA. EA may not charge extra for the data bandwidth and would still make more money by saving on the revenue share with carriers.
Apart from the content owners, I also see a lot of device vendors following the direct to consumer route it is possible that console game players like Wii or X-Box may bundle internet subscription with their devices. I would not be surprised if even the digital camera manufacturers like Canon or Kodak start to bundle data services with their camera for instant upload of photos on the web while one is enjoying the holidays (of course, I expect the cameras to have WiFi/ WiMax/ 3G chip embedded in them in next 2-3 years). Another area that is likely to explode in terms of growth is M2M (machine-to-machine) communications. M2M communications can exceed human subscriber base in future and it would use data as a medium of communicate. It is imperative that M2M communications use a solutions approach to selling to gain popularity. This means the customer would want one stop shop where he or she can get the device as well as service activated. The players in M2M communications can become MVNOs to bundle data along with their devices. In case of M2M, the carriers would find the business complexities too complex to handle and would be happy to partner with an MVNO to reduce its workload. Moreover, the MVNOs are also likely to bring in efficiencies that would help reduce the cost to justify substantially low ARPUs for M2M communications as compared to human communications. Examples of M2M communications are electricity meter reading, fleet management, automobile insurance, vending machines, smart homes, etc. Kore Telematics is an example of M2M MVNO that is providing an end to end integrated solution to its customers. CrossBridge Solutions is another premier data MVNO specializing in Telemetrics and Machine-to-Machine (M2M) solutions.
As more carriers across the world build 3G and 4G networks, there would be excess capacity that would be available with the carriers. Carriers understand voice very well but when it comes to data, their efforts and innovation fall short of expectations. They took a long time to understand the dynamics of voice but cannot afford to spend same amount of time to get a grip on data services. Collaboration is the only way out and hence carriers would be more open to data only MVNO.
Juniper Research had estimated that the data revenues of MVNOs would increase from $0.5 billion in 2006 to $25.2 billion in 2012. I firmly believe that $25.2 billion could be topped due to emergence of data MVNOs. What remains to be seen is approach of carriers towards the data MVNOs. If the carriers view them as partners, they are likely to see an increase not only in their revenues but also avoid their marginalization.
A video below from Kore Telematics talks about the M2M communications and the future possibilities.
Another video that demonstrates the M2M capabilities and the need for a complete solution to customers
In the Scandinavian market, and specifically Denmark, MVNO business models have been quite successful. In the end. By offering stripped down service (no customer service, web-based payment up front, no sponsored phones) they avoided many of the basic customer maintenance expenses of the real mobile operators at the time. They attracted significant numbers of customers. I do not feel confident that they really made money. But anyway, they drained the mobile operator customer numbers. In the end the two major MVNO’s were sold to the two major mobile operators for large money. This was also a good way of making big money in short time.
Currently, the major MVNO’s are still owned by the mobile operators. This give the operators the opportunity of maintaining their own quality brand with a broad range of services, call centres, sponsored phones etc for the customer segments with these preferences and at the same time offer a stripped down basic service to other customer segments without confusing their message. Currently in Denmark, the 4 major MVNO’s are all owned by mobile operators, and they seem to provide attractive services and atract good customers. By focusing on the basics for low end segments, they can survive with very limited organisations. I would agree that it has become a strange kind of MVNO when it is owned to the mobile network operator, but it still operates according to MVNO regulations, and a quite limited market (5-6 mio population) has a wide range of service proposals.
The initial cost of starting up a MVNO today is very limited. This service is offered commercially for 7.000 USD by https://www.mvno-systems.dk/Default.aspx and you are on the market within 30 days. This attracts interrest outside the traditional telecom business area, as local companies, radio stations, workers unions, etc, generally companies with a high brand visibility locally or nationally. There are 8 operators in DK with more than 1% of the total market share. But the last 6,8% of the market is shared between 50-60 minor MVNO with all less than 1% of the total market share. Over the last years the total market volume of these minor MVNO’s have grown significantly. They are mainly hosted services, which means that they have no day-to-day work related to this business area. They are simply utilizing their brand value. In some cases they are local or regional FTTH operators in need of a bundled offer including mobile services.
The mobile network operators have 73,8% of the total market. The two main MVNO (owned by mobile network operators) have 15,3%, which points in the direction that about 11% of the customers are served by MVNO with no mobile network operator ownership.
In the 3G market the network operators have 88,1% of the total market. The two main MVNO (owned by mobile network operators) have 7,9%, which leaves only 4% of the market to the MVNO’s without mobile network operator ownership. And the number of companies in this last segment are very few. And this reflects on the business model that MVNO only offer basic service / low cost, and 3G is still not considered basic service. These date are 6-12 months old, and this is about to change now.
There is no indication telling me that this is a market or business model heading for disaster. It seems to provide certain opportortunities and benefits to all parts of the business model (consumers, MVNO, mobile network operator).
This was just to show an example of a market where the MVNO business model is working well. It may not be the case in certain other markets, depending on regulation and other external conditions.
I fail to see the niche market/target group for data only. MNO’s offer both voice and data, so why would you only ake one? Only when data-centric networks (WIMAX) start picking up, I could envisage data only MVNO’s. Of course, MVNO’s could (again, based on customer needs) focus more on data, but why not take the full suite of products? Unless of course as MVNO you intend to invest in your own back-end (GGSN, data billing engine, GW, etc.) and don’t want to spend the additional buck on VMS, SMS-C, etc. Still, I would see only extremely limited market for that, as most customers will also use voice at some point…..
The consumers would continue to use voice but what I envisage is that voice would be provided by the operator or a voice MVNO and there would be data only MVNOs which would be primarily content providers. So the game would come bundled with bandwidth and the game owner would be data MVNO. Customers would not sign up separately for Data MVNOs. In fact they would not even be aware of it and will get the data bundled with the service.
The success of an MVNO has to be based on some USP not directly related to the underlying service. USPs can be such things as brand association, captive markets or other complimentary services. The MVNO model has systemic competitive disadvantage which is that the underlying operator will always have a cost advantage. The failure of many MVNOs were rooted in not offering something that could be had cheaper from the network operators. Virgin Mobile in the UK for example leverages the Virgin brand and bundled offerings from other Virgin group companies something that can’t be reproduced by other network operators.
The underlying structure of the competitive landscape is no different for data services. So services such as Whispernet have a USP in that they have a captive Kindle market but rather than milking the data service revenue, Amazon expects to generate more revenue through sales of ebooks. Fundamentally the failure or success of a data MVNO will depend on being able to either generate revenue from another source resulting from the availability of the data access other than data charges or from providing a service mix that can not be replicated by the underlying network operator. In the latter case a company nearly has to look at the data service as a cost of sales. The reality is that basic services for voice and telephony are rapidly becoming commodities and replaceable with other technologies. Your examples of M2M communications all have something in common, that the primary revenue is generated from another service.
A very good article on data VAS indeed! The data applications and their usage has been in discussion of various VAS forums for many years now, but what lacks is the take up of these applications by the VAS industry. Wireless definitely adds the remote arm to the common man but the VAS industry need to be patient for the returns on their investment till the end user becomes dependent on these applications.
The Amazon and Dell examples are niche markets and will only appeal to the big guys with no focus on the return on their investment and may be they can write off their investment as value addition / product differentiation. Are we looking at these guys to promote the Data MVNO model? It may not be the answer to the Data MVNO model etal.
There can be other general data services such as GPS / Navigation handhelds which can be looked at for Data Only MVNO business models. Text SMS included, general infotainment handheld can be one such device that can be developed to make carrier / operator friendly Data MVNO model. But the bottom line is the service should be broad based to appeal to the masses and VAS industry at the same time.