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.
