CONTENT · PDF fileCONTENT FOREWORD EXECUTIVE SUMMARY INTRODUCTION TO MOBILE VIRTUAL NETWORK...
Transcript of CONTENT · PDF fileCONTENT FOREWORD EXECUTIVE SUMMARY INTRODUCTION TO MOBILE VIRTUAL NETWORK...
CONTENTFOREWORDEXECUTIVE SUMMARY
INTRODUCTION TO MOBILE VIRTUAL NETWORK OPERATORS (MVNOs) DefiningMVNOs DifferentCategoriesofMVNO
MVNO EVOLUTION
CLASSIFICATION OF MVNO DiscountMVNO LifestyleMVNO Advertisement-basedofMVNO EthnicMVNO
PROSPECTIVE MVNOs
WHY MVNOs? MVNOsValueProposition
IMPACT OF MVNOs MinimisingCannibalisationRisk
MVNO LAUNCH RISK AND ENTRY BARRIERS
MVNO REVENUES, COSTS AND PRICING Revenues Cost Pricing
UNDERSTANDING THE SUCCESS AND FAILURE OF MVNO SuccessFactors CaseStudy:VirginMobile,US VirginMobileMVNO FactorstoAvoid
GLOBAL AND REGIONAL PERSPECTIVES OF MVNO INDUSTRY GlobalCurrentandExpectedGrowth Number of MVNOs Number of MVNOs Subscriptions MVNO Revenues GlobalMarketReadinessforMVNOs RegionalMVNOsTrends United Kingdom United States Asia
REGULATORY CONSIDERATIONS IN MVNOs Supporter of Regulatory Intervention Opponents of Regulatory Intervention LevelsofRegulatoryIntervention MVNORegulatoryRegimeWorldwide
ENABLEMENT PARTNER– THE MOBILE VIRTUAL NETWORK ENABLER (MVNE)
MVNOs IN MALAYSIA TrendsinMalaysia Malaysia’sMarketReadinessforMVNOs MVNOsandtheMalaysiaRegulatoryEnvironment
CONCLUSIONACRONYMSAPPENDIXCONTACT US
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2 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Thankyou.
DatukDr.HalimShafieChairmanMalaysianCommunicationsandMultimediaCommission(SKMM)
FOREWORD
TheMalaysianCommunicationsandMultimediaCommission(SKMM)isworkingonanumberofspecialindustryresearchreportsplannedfortheyearof2008anditiswithbothhonourandgreatpleasure,IpresenttoourreaderstheindustryresearchreportonMobile Virtual Network Operators (MVNOs) – The Redefining Game.
ThereportfeaturesabriefoverviewonMVNOsindustryincludingthedevelopment,growthand focus of MVNO in Malaysia and worldwide. There is a brief discussion on overallapproaches ofMVNO, namely discountMVNO; lifestyleMVNO; advertising-basedMVNOandethnicMVNO.
Furthermore,thereisalsoabriefdiscussionontheimpactofMVNOupontheMobileNetworkOperators(MNOs)andthemobilemarket;itssocio-economicbenefits,includingeconomiccosts. The discussion also covers revenue resources, cost, roaming issues and pricingmodelintheMVNOmarket.
Plus,thereareanalysisanddiscussiononsuccessandfailurefactorsintheMVNOindustry,includinghowfaraMVNOmodelissustainabledependingonthevalueitofferstocustomersaswellasitshostMobileNetworkOperator(MNO).TheanalysiscoversacomparisonoftheMVNOcompaniesworldwide. TheanalysisinthepublicationarebasedonvariousinformationsourcessuchasinternalinformationfromtheSKMMaswellasexternaldataandinformationpurchasedorobtainedfromothercompanies,includingpublicsourcesofnews,industryviews,researchreportsandotherdatabasesources.
AsoftcopyofthisreportcanbeobtainedfromtheSKMMwebsiteat:
http://www.skmm.gov.my/what_we_do/Research/industry_studies.asp
ItrustthisreportwillprovideusefulinformationtothereadersandcanservetobringtolightsomeperspectivestopropelthecommunicationsandmultimediaindustrydevelopmentinMalaysia. We look forwardtohearingyour feedback,whichwillhelpus improveourindustryreportsinthefuture.Pleasesendyourcommentstowebmaster@skmm.gov.my.
3MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
EXECUTIVE SUMMARY
MobileVirtualNetworkOperators(MVNOs)havegainedalotoffootholdintheglobalmobiletelecommunicationindustryandhaveevenattractedmuchinterestinAsialately.MVNOsarebasicallyresellerswhodonotownanynetworkfacilities,purchaseairtimeatwholesaleratesfromMobileNetworkOperators(MNOs)andthenresellwirelesssubscriptionstoconsumersthroughitsownbrandingandothervalueaddedservices.Aswidelyobserved,thereappearstobethreegenericcategoriesofMVNOs–resellers,enhancedserviceprovidersandfullMVNOs,witheachhavingadifferentmixofinfrastructureandoperationaltasksdependingonthebreadthanddepthof itsrelationshipwithitshostnetwork,theMNOs.However,MVNOstodaygobeyondbeingasimplereseller(firstgenerationmodel).MVNOsnowhavetakentheapproachofbeingafullMVNO(secondgenerationmodel)capableofprovidingamorecompellingservicemixtotheendusersthansimplydiscountvoiceonly.
Comparativestudieshaveshownthat,MVNOsalsohavefourgenericclassificationmodelsbasedontheirmarketingstrategies–discountMVNO,lifestyleMVNO,advertisement-basedMVNOandethnicMVNO.Eachmarketingstrategyleveragesonthenichemarketittargetsand the service and product differentiation opportunities. While the MVNOs greateststrengthisbeingabletoidentifyandtargetmarketsinneedoftheirservices,theirgreatestweaknessisthelackofeconomiesofscaleascomparedtoMNOs.
Nevertheless,withmobiletechnologicaladvances,higherbandwidthandmoreapplicationsthatspurthedemandforwirelessusage,theMVNOmodelremainsattractivefornewplayerswithpotentialentrantscuttingacross industrieswithmajoritynon-telcobasedoperatorssuchasretailers,financialinstitutionsandmediacompanies.Asseveralnon-telcobasedMVNOshavedemonstrated,UnitedKingdom(UK)leadssuccessinMVNObusiness.TherearemanyotherindustrydriverscontributingtothedevelopmentandproliferationofMVNOswhich include market opportunity, technology evolution and competitive dynamics. Inaddition,tobeasuccessfulMVNO,serviceprovidersnotonlyneedagoodbusinessmodel,theyhavetohaveanappealingvaluepropositionthatisnotonlygoingtoattract,butholdontocustomersthatareunique.
AlthoughmostMNOshavecometoaccepttheexistenceofMVNOsinthemarket,therestillstandsthefactthatMVNOshaveincreasedthecompetitivemarketpressureintheindustry,sometimes,indirectcompetitionwiththeMNOmarket.Subsequently,thereisincreasedriskofcannibalisationoftheMVNObytheMNO,whichusuallyhascomparativelyhighcontroloftheMVNO.Itisinterestingtonotethatontheupside,MVNOsdoprovideeconomicbenefitstotheMNOsastheyappeartoprovidegoodopportunitiessuchas increasedsubscriberbase,moderatesubscriberchurn,andincreasedtrafficdependingontheiragreementorbusiness relationshipwith theMVNOs. In otherwords, the incumbent is positioned tobenefit in terms ofmarket penetration and expansion, better network utilisation, loweroperationalcostsduetohighereconomiesofscaleandgenerationofadditionalrevenuesthroughwholesalevolumes.
On theotherhand,as thenumberofMVNOplayers increase, sodo the risks involved.Asestimatedbyanalysts, it takesonaverage,USD25milliontoUSD50millionandtwoyearstolaunchaMVNO1.SettingupanMVNOisalmostamonumentaltaskaseachstepup in itsservicedeliverychainposessomeentrybarrierand launchrisks. TheMVNO’scostandpricingmodelsarealsoimportantelementsastheywilldetermineifitwouldbeasustainablyprofitableentity.Consequently,noteveryMVNOthatislaunchedisableto
1 “Entering the Wireless Market – What You Need to Know to Launch and Operate Your Own Wireless Business” by Ovum, 2006
4 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
survivelongenoughtobreakevenintermsofprofit.MVNOshavemixedsuccessacrosstheworldandthereappearsnooneuniquesuccessformula.Keyfindingshaveshownthatstrongpartnerships,leveragingonbrand,widedistributionchannel,asolidcustomerbase,relevantvalueaddedservices,goodplanning,ampleaccesstocapitalandstrongexecutionteamareimportantelementsforawinningMVNOmodel.
EventhoughtherearebarriersandrisksinvolvedinlaunchinganMVNO,itisnoteworthythatthenumberofMVNOshasgrownsteadilyworldwideovertheyears,withUnitedStates(US),UKandcountriesinEuropeleadingtheway.Industryanalyst,BlycroftPublishing,estimatesthattherewere230activeMVNOsin2006.Byearly2007,accordingtoconsultancyfirm,TakashiMobile,thereare360plannedoroperationalMVNOsworldwide.Additionally,researchbyInformaTelecomsandMediaestimatedthatsubscriptionstoMVNOwillreach150millionworldwideby2013.IntheUS,Tracfone,VirginMobile,USandBoostMobileareamongthemajorplayerswhohavesuccessfullyadoptedtheMVNObusinessmodels.Evidently,UKhasoneof thebiggestMVNOmarkets intheworldwithVirginMobile,UKbeing thefirstMVNO in the countryandEuropeandnotably themost successful. ThepresenceinAsiaisalsobeingfelt latelywithrenewedinterestbeginningfrom2006.Todate,HongKongisthehighestMVNOpenetratedmarketinAsiawith720,000customersrepresenting7.5%ofHongKong’smarketpenetration.Overall,MVNOsareexpectedtohaveincreasinglysignificantimpactinthetelecommunicationsindustry.
Meanwhile, in termsof regulation,different countrieshavedifferingapproaches in theirregulatory regime towards MVNO business. Industry trends indicate that a supportiveregulatoryenvironmentisimportantforthedevelopmentsoftheMVNOindustry.Infact,MVNOsinUSandUKareobservedthrivingduetounregulatedenvironment,whereregulatorstake a non-interventionist, but “watchdog” ormonitoring stance towards the voluntaryMNO-MVNOrelationships.However,marketslikeHongKonghaveMVNO-relatedregulationthatrequires3Glicencestoopenupto30%oftheirnetworkcapacitytounaffiliatedMVNOswhileinItaly,thereisstrictprohibitiontowardsMVNOentry.
Likemanyothercountries,theMalaysialandscapeshowsreadinessforMVNOs.Factorssuchasincreasingmobilesubscribers,highnumberofprepaidsubscribers,diversifieddemographicstructuresuchasdifferentethniccommunitiesandsofarnon-intrusiveregulatoryregimeareencouragingdevelopmentsintheMVNOmarketinMalaysia.Recently,therearefourpioneeringMVNOsinMalaysia,namelyMerchantradeAsiaSdnBhd,REDtoneInternationalBhd,TuneTalkSdnBhdandXOX.comSdnBhd.Theseopenwindowsofopportunitiesfornon-telcooperatorstoaddmoremobileapplicationsandservices.ItwillbeinterestingtoseehowMVNOdevelopmentsunfold andenhance the telecommunications landscape inMalaysia.
5MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
INTRODUCTION TO MOBILE VIRTUAL NETWORK OPERATORS (MVNOs)
TherehasbeenanexponentialgrowthandfocusonMobileVirtualNetworksOperators(MVNOs)inthetelecommunicationsindustryworldwideinaperiodjustshortofadecade.ManymobilemarketshaveseensomeactivityintheMVNOspace,withmuchrenewedinterestinthismarketinthelasttwoyears.However,wheretherearemanyMVNOsinacountry,thenewentrantsinvariablyfaceahighlycompetitivemarketplace.
DEFINING MVNOs
Atpresent,thereisnocommonandagreeddefinitiononwhatconstitutesanMVNO.RegulatorybodiesaroundtheworldhavecometoadoptvariousdefinitionsanddifferentformsofregulatoryinterventiondependingontheextenttowhichanMVNOreliesonthefacilitiesoftheMobileNetworkOperator(MNO).Generally,MVNOsarecompanies thatdonotowna licensedcommunicationband,but resellwirelessservicesundertheirownbrandname,usingthenetworkofanotherMobileNetworkOperator(MNO).AfewexamplesofMVNOdefinitionsareasfollows:
Have specific network capabilities of their own, such as their own numberranges,SIMcardsorcorenetworkelements.AlightMVNOhasalittlemobilenetworkcapabilityotherthanthemanagementofSubscriberIdentityModule(SIM) cards,while a heavyMVNO invests in various infrastructures. MVNOoffersdistinctmobileservices,whichappeartocustomerstobeindependentfromtheunderlyinghostnetwork.
Providesmobilevoiceanddataservices toendusers throughasubscriptionagreement,withouthavingaccesstospectrum.MVNOnegotiatestobuyexcesscapacityforre-saletocustomersthroughcommercialagreementswithlicensedmobilenetworkoperators.
Enhancedserviceproviderthatindependentlybrandsandmarketsitswirelessservice,usuallytargetedatspecificmarketnichesandsupportedbyanexistingcustomerbaseholdingsomeaffinitywiththebrand.OwnsthecustomerbutusesthetelecomnetworkandradiospectrumofaMNO.
AGlobalSystemforMobile(GSM)phenomenonwhereanoperatororcompanydoes not own a licensed spectrum and generally without own networkinginfrastructure. MVNOs resell wireless services under their brand name anduseregulartelecomoperator’snetwork.MVNOsbuyminutesofusefromthelicensedtelecomoperatorandthenresellminutesofusagetotheircustomers.
Resellair timeandservicesbought fromthe licensedMNOs,adding insomefeaturessuchasbranding,alternativechannelstomarket,billingandcustomisedservices.
InvestinsomehardwareallowingittodifferentiateitsoffertothecustomersandmakeitlessdependentontheMNO’scapacity.HasfullcontroloverthecustomerwhowillhavetosignacontractwiththeproviderandissuetheirownSIMcards.
Resellersofferingservicetoconsumersbypurchasingairtimeatwholesaleratesfromfacilities-basedprovidersandresellingitatretailprices.
Provides mobile telecommunications services to customers throughinterconnectionwithandaccesstotheradiocommunications infrastructureofaMNO.
Organisationthatdoesnothaveassignmentof3Gspectrumbutiscapableofprovidingpubliccellularservicestoenduserbyaccessingradionetworksofoneormore3Gspectrumholders.
Analysys Research
Pyramid Research
KPMG
Telecomspace.com
Ovum Consulting
UK Office of Communications (Ofcom)
US Federal Communications Commission (FCC)
Office of the Telecommunications Authority (OFTA), Hong Kong
Malaysian Communications and Multimedia Commission (SKMM)
Source MNVO Definition
Source: Various websites
Industry Definition of MVNO
6 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
DIFFERENT CATEGORIES OF MVNO
ThereisawiderangeofMVNOmodels,fromsimpleResellertoEnhancedServiceProviders(ESP)andeventofullMVNOs.Eventhen,thereisyettobeasustainablewinningformula,althoughtherehasbeenmixedsuccessofMVNOsacrosscountries.
AccessNetworkMNO
MNO Position in the Mobile Value Chain
Mobile Network Operator (MNO)
CoreNetwork
ApplicationPlatform
SubscriberMangement
OperatorBillingCRM
DistributionSalesBranding
Degree of control and ownership
Reseller
Enhanced Service Provider (ESP)
Full Mobile Virtual Network Operator (MVNO)
Mobile Virtual Network Enabler(MVNO)
Source: Adapted from “Mobile Virtual Network Operator White Paper” by Nokia Siemens Networks, 2006
The appropriate businessmodels in positioning, branding,marketing and partnership appeals as keyfactors for success. How far anMVNO has control and ownership over its business depends on theworkingrelationshipitestablishesandbuildswithitsMNO.Insomecases,thereisalsoanotherentityarisingbetweentheMVNOandMNO,which isusuallyabusinessmodelspecialising insupporting thenetwork-operator-sidefortheMVNOthatistheservicesoftheMobileVirtualNetworkEnabler(MVNE)2.(Note:Thediscussions in the rest of this report focuson theMVNOmodel, although there is abriefintroductiontotheMVNEinalatersectionofthereport).
Ingeneral, thereare threecategoriesofMVNOs,namelyreseller,enhancedserviceprovidersand fullMVNO.Eachcategoryhasadifferentmixofnetworkinfrastructureandoperationaltasksinrespectiveareassuchasbranding,ownershipofSIM,networkinfrastructureincludingbillingandcustomercare.
2 MVNE provides the technical architecture and may enter into a wholesale agreement with a host MNO to enable mobile service provision. MVNE does not directly provide services to mobile users. Instead, it acts as an enabler for any number of MVNOs Sourced from “Mobile Virtual Network Operator White Paper” by Nokia Siemens Network, 2006
7MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
3 http://www.mobilein.com/what_is_a_mvno.htm
Abletosecuretheirownnumberingrange,offerownSIMcardandhavefullflexibilityonthedesignoftheservicesandtariffstructures.
Ownorprovidenetworkfacilitiesandnetworkservicessuchastowers,mobileswitchingcentres,HLRandcellularmobileservices.
Carryouttheircustomercareandbillinginhouse.
Fullyindependentbrandingandcustomerownership.
Ownpricing
*NFP(I)licencefor networkfacilities*NSP(I)licencefor networkservices*ASPlicencetoprovide publiccellularservice toendusers.
SIM, National Destination Code (NDC)
Network Infrastructure
Billing and customer care
Branding
Pricing
Licence*
Havetheabilitytosecuretheirownnumberingrange,operateownHomeLocationRegister(HLR)andofferSIMcardwithitsownmobilenetworkcode.
Donotownorprovidenetworkfacilities.DependentonMNOsfornetworkfacilitiesandradionetwork;abletomaintainsomeindependencefromMNOsasenhancedserviceprovidersareabletodifferentiatetheirproducts.
Carryouttheircustomercareandbillinginhouse.
Independentbranding,billingandhighlevelofcustomerownership.
Ownpricing,negotiationbased
*NSP(I)toprovide bandwidthservices, cellularmobileservices ormobileapplication services*ASPlicencetoprovide publiccellularservices toendusers.
DonothaveownSIMcardbutstillabletooffertheirownbrandedpackages.
RelyonMNOsforaccesstotheradionetworkandnetworkfacilities.
Carryouttheircustomercareandbillinginhouse.
Bundledbrandingandpossibleownbilling.
Ownpricing,negotiationbased
*ASPlicencefor providingpubliccellular services.
Infrastructure and Operational Task Full MVNO Enhanced Service
Providers Reseller
* MVNO in Malaysian environment as per Guideline on Regulatory Framework for 3G Mobile Virtual Network Operators dated 16 February 2005Note: NFP (I) = Network Facilities Provider (Individual); NSP (I) = Network Service Provider (Individual); ASP (I) = Application Service Provider Source: Various websites, Industry, SKMM
WhileMVNOstypicallydonothavetheirowninfrastructure,someleadingprovidersdodeploytheirownMobileSwitchingCenters(MSC),andinsomecases,evenServiceControlPoints(SCP).LeadingMVNOsdeploytheirownmobileIntelligentNetwork(IN)infrastructureinordertofacilitatethemeanstooffervalue-addedservices.Inthisway,MNVOscantreatincumbentinfrastructuresuchasradioequipmentasacommodity,whiletheMVNOoffersitsownadvancedanddifferentiatedservicesbasedonexploitationoftheirownintelligentnetworkinfrastructure3.
Thegoalofofferingvalue-addedservicesistodifferentiateversustheincumbentmobileoperator,allowingMVNOcustomeracquisitionnotorientedtocompeteonthebasisofpricealone.WhilesometimesofferingOperationalSupportSystems (OSS)andbusiness support systems forMVNOs, the incumbentmobileoperatorsusuallykeeptheirownOSS/BusinessSupportSystem(BSS)processesandproceduresseparateanddistinctfromthoseoftheMVNO.
AllthreeMVNO,MNO(andMobileVirtualNetwork(MVNE)wheretheseoccur)elementscreateadynamicecosystemstructurethatenablesoperationalefficiencyacrossdifferentcomponentsprovidingsupporttotheMVNObusiness.
Categories of MVNO
8 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
INFRASTRUCTURE OFFER
FINANCE
CUSTOMER
CORECAPABILITIES
COSTSTRUCTURE
REVENUESTREAMS
MVNO
Increasethenumberofmobilephoneusersandpenetratingmarketsegments
thatMNOfindworthytotarget
Mobileoperatorthat“rent
out”capacitytoMVNOscompanies
Providingback-office
processesandsystemsforMVNO
PARTNERNETWORK
VALUEPROPOSITION
CUSTOMERRELATIONSHIP
DISTRIBUTIONCHANNEL
TARGETCUSTOMER
Involvemarketsegmentation
AdvertisingSalesforce
Include“NofrillsMVNOs”,“SomefrillsMVNOs”
and“LotsoffrillsMVNOs”
•Pricingandservices•Content•Brand•Handsetpackage•Distribution•Customercare
•Interconnect•Operational•Investment•Marketing•Innovation•Others
•Subscriptionusers•Advertising•M-commerce•Contentapplication•Others
ReduceCapitalExpenditure(CAPEX)andrisk
Buildsbrand
Leadtopricecompetitionandnichespecificity
Limitedservicecreationcapabilitiesanddifferentiation
MostlyrelyonMNO’scorenetworkinfrastructureandserviceplatforms
•CallCentre•Instoreservice•Selfservice (e.g,.:Web)•Others
•Direct•Indirect
MNO
General Ecosystem for MVNO Services
Source: Adapted from various websites
Source: “The HLR for MVNOs” by Blueslice Networks, 2008
MVNO EVOLUTION
Overtheyears,theMVNOmodelitselfhasevolved,fromthefirstgenerationmodel(reseller)toasecondgenerationmodelorfullinfrastructuremodel.Todate,theMVNOmodelscoutssophisticatedapproachtowards consumers and potential target segments by providing compelling servicemix to end usersusuallymorethansimplydiscountvoice4.
2 “The HLR for MVNOs” by Blueslice Network, 2008
First Generation MVNO1st Generation MVNO
Reseller MVNO
MobileNetworkOperator(MNO)RadioAccess
Network(RAN)
MobileVirtualNetworkOperator
(MVNO)BillingSystem
HLR
GMSC
BSC MSC
BillingSystem
CustomerCare
9MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
CLASSIFICATION OF MVNO
DecreasedependenceonMNOnetwork
Totalsubscriberownership
Servicecreationanddeploymentagility
Harderforotherresellerstoentermarket
MVNOservicedifferentiationdrivesMNOsuccess
Second Generation MVNO
Source: “The HLR for MVNOs” by Bluslice Networks, 2008
Likeitsdefinition,thereisnooneclassificationforMVNOs. Froman operator’s viewpoint, there aregenerallyfourgenericMVNOapproachesbasedonits marketing strategies, namely discount MVNO,lifestyle MVNO, advertising-based MVNO andethnicMVNO.AsusuallyabasicgoalofanMVNOistoappealoutsideoftheexistingprevalentvoicemarket, such MVNO strategies essentially targetspecific niche markets by taking advantage ofserviceandproductdifferentiationopportunities.
Discount MVNO
DiscountMVNOsarerelativelystraightforward.ItisbasedonlowerprepaidorpostpaidtariffswithbasicvoiceandShortMessageService(SMS)servicesandis coupled with cheap cell phones and affordablepricingplans.Insomemarkets,itcanprovidecut-pricecallratestocertainmarketsegments.Mostofthehandsetsofferedareprettybasic,usuallymeantforthosewhojustwantaphonetomakecalls.
In a very competitivemobilemarket today, suchopportunities to grow MVNO using this approachappears tough for sustainability. An example isVirginMobile inanearlierpredominantlypostpaidUSmobilemarketwhichstartedoffthiswaybuthassinceevolvedovertimetoincludelifestylefeaturesincombinationwithoperationalefficiencies.
Lifestyle MVNO
LifestyleMVNOsoperatebyfocusingonspecificnichemarkets marked by demographics from youngerusersallthewaytoseniorcitizens.Handsetlineups
can therefore vary widely, as do services offeredandpricingplanscateringtowhatappealsintheserespectivemarketsegments.
Forexample,intheUS,MVNOsfocusingonyoungadultsareHelioandBoostMobileofferinggames,music, videos and evenmobile social networkingsuchasMySpaceapplication,whileDisneyMobileand Kajeet are family oriented MVNOs. GreatCalltargetstheelderlycommunityofferingsimplehandsets with larger than average buttons,24-hour operators assistance and simple serviceplans. Basically, lifestyle MVNO market is notextremelypricesensitivesincethephonescatertothefeature-hungry,notthevalueconscious.
Advertisement-based MVNO
A new trend in mobile phone content is theemergenceof advertising on this communicationsplatform. The advertisement-based MVNO offersfreeorsubsidisedmobilephoneserviceinexchangefor subscribers viewing a number of subscribertargeted advertisements. These MVNO’s utilisea “one person per presentation” model whererelevancyofanygivenadvertisement isbasedonuserdemographics,questionnaires,andtheliketobuild itsrevenuesfromadvertisingbyprovidingapre-setamountof freevoice, textandcontent tothesubscribers.
Inotherwords,mobileadvertising,whenexecutedappropriately, is no longer advertising in itstraditional sense; instead it effectively providesusefulandrelevantinformationtothesubscriberinapersonalisedmode.AnexampleofsuchaMVNOconsideredsuccessfulis,Blyk.
2nd Generation MVNO
Full Infrastructure MVNO
MobileNetworkOperator(MNO)RadioAccess
Network(RAN)
MobileVirtualNetworkOperator
(MVNO)
BillingSystem
BillingSystem
ServicePlatformsHLR
HLR
GMSC
GMSCBSCSoftswitch Auc
SMSCVoicemailEtc.
MSC
10 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Ethnic MVNO
TheethnicMVNOapproachcancertainlybeagoodideainamarketwhereahugeforeigncommunitybaseispresent.Forexample,inUSthereisasubstantialpresenceofChinesecommunitybasedthereandthisincludesimmigrants,studentsandbusinesstraderswithtiesinChina.TobridgethetelecommunicationsgapforChinesespeakingpeopleresidingintheUS,in2006,RedPocketMobilewaslaunchedasthefirstUStelecomoperatorwithChinese languagecharactersandcustomerserviceagentswhospeakAsianlanguagesprovidingfreeinternationallongdistancecallsknownas“Asiaisalocalcall”.
AccordingtoresearchbyPiranPartners,thesubscribersofethnicMVNOscanbethenewimmigrantstoacountryandalsopeoplewithfamilyrootsinothercountrieswithhigherthanaveragedisposableincomeandaneedtokeepintouchwithfamilybackhome.Theyrepresentagenuinesourceofnew,highqualitymobilephonecustomers,muchneededinacompetitivecommunicationsmarketsohighlycharacterisedbychurn.
PROSPECTIVE MVNOS
Asthemobilemarketmaturesovertimeresultingfrom increasing customer base and intensecompetitionresultinginmoderatingmargins,thereis an increasing need for products and servicedifferentiationtomaintainmarketshareoracquirenew customers. This together with new mobiletechnologicaladvances,suchashigherbandwidthandmoreapplications,thedemandfortheusageofwirelessservicewillspellopportunitiesfornotonlyexistingserviceprovidersbutalsonewentrants.
Fixed NetworkOperator
Retailer
FinancialInstitutions
•Partlyglobal brands
•National brandswhich arestrongin retailingbut notimplicitly suitedfor brand differentiation
•National/ globalbrands
•Established distribution channels•Existing customerbase
•National distribution network
•National distribution network
•Fixed/mobile convergent•Fixedand mobile bundles
•Retailing diversifies intofinancial service industry (discount cards,leasing purchases)
•Product portfolio focusedon financial services
•Modest opportunityto expandinto new businesses
•National offerings inthemass market•Noexperience inmarketing forexisting targetgroups
•Goodvertical opportunities forspecial applications (e.g.mobile payment)
•BT,UK•AAPT, Australia
•TescoMobile, UK•Sainsbury’s One,UK•7-Eleven SpeakOut,US
•RaboMobiel (RaboBank), Netherlands•KFTCI,Korea•Standard Chartered (Potential)•Bankof America (Potential)
Prospective MVNOs
Industries Brand DistributionNetwork
ProductDiversification
StrategicOptions
Examples and Potential
Examples
Hence, the MVNO business model remains anattractiveoneinthesetimes,especiallythosewithstrongbrandsandextensivedistributionchannels.Evenfixednetworkoperators,andindeednon-telcobasedoperatorslikeretailers,financialinstitutions,mediacompaniesandautomotivecompaniesstandarelativelygoodchanceinpositioningitselfasanMVNO, or working in partnership or alliance withanMVNO,byleveragingontheirexistingbrandsaswellasoptimisingtheirdistributionnetwork.
11MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
WHY MVNOs?
MVNOas awireless reseller or a cellularwholesaler purchasingwireless services froman underlyingnetworkoperatoratwholesaleand,resellingthesethroughtheirowndistributionchannelsisnotnew.Indeed,MVNOsaredeemedtohavebeenaroundforaslongastherehavebeencellularservicesasinthecaseoftheUSmarket.
MorerecentMVNOdevelopmentseesthese“resellers”alsoofferingvalueaddedservicesthatcatertospecificnichemarketsasmarketsaturationormaturitypromptsproductorservicesdifferentiationinahighlycompetitivemobilemarkettomanagechurn,accelerateslowersubscribertakeupandincreasingcustomeracquisitioncostfacedbyMNO,forexampleco-brandingservices.IthasbeengenerallyproventhatMVNOstosomeextenthavethecompetenciestomeetthechallengesusuallyfacedbytheMNOs.
Media Companies
ConsumerElectronics
Automotive
•Globalbrands
•Globalbrand forthemass andtheniche market
•Globalbrand
Highchurn
Slowingpenetrationgrowth
Increasingcustomeracquisitioncosts
BrandloyaltyCustomercare
NewdistributionchannelsDiverseoffersthatappealtoniches
outsidethemassmarket
Leverageexistingcustomerbasetoacquirecustomersatreducedcost
•Distribution through retailer outlets/direct sale
•Nooronlyfew ownPointOf Sales(POS)•Established distribution channels
•Global distribution
•Information and entertainment forclassical andnew media
•Ingeneral, partofa conglomerate witha diversified product portfolio
•Carfocused
•Global offeringsfor themass market
•Goodglobal opportunities forofferings intheniche market
•Global offeringsfor themass market
•MobileESPN, US•DisneyMobile, US
•Playstation (Potential)•Xbox (Potential)
•Toyota (Potential)•Nissan (Potential)
Industries Brand DistributionNetwork
ProductDiversification
StrategicOptions
Examples and Potential
Examples
Prospective MVNOs (continued)
Source: “Port TV Mobile Virtual Network Operators” by Arthur D. Little Int. Inc, November 2001
MVNO Competencies
Ch
all
en
ges
MV
NO
Co
mp
ete
nci
es
Source: “MVNO Opportunities for Software and Information Companies”, www.siia.net, March 2002
12 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
USD10billiontoUSD12billionrevenueprojectedby2008dueto:
Opportunitiesforcustomeracquisitionbynon-wirelesscompaniesbasedontheirexistingcorecompetenciessuchascontent,brandextensionsorefficientdistributionchannels.
Opportunitiestocapturenon-consumingwirelesscustomersthroughniche,targetedofferings.
Consumermarketismatureandhighlysegmented,opportunitiesinniche/segmentedmarketsrequireuniqueandintegratedofferings.
Mobilemarketisreachingsaturationandtheintroductionofprepaidsubscriptionshashadalargeimpact.
Thefocusinrevenuesisexpectedtoshiftfrombasicservicestomorecontent-basedvalue-addedservices.
Maturingof3G(highspeedwirelessnetworks)enablingmedia/entertainmentoffers
EmergingintegrationtechnologiessuchasIMS(IPMultimediaSystems)whichsupportintegrationofvoiceanddataproductssuchasvideo,music,andgamingmakingmobileaviablemediacontentchannel.
Slowinggrowthoftheoverallwirelessmarket–thusmakingwholesaleanattractiverevenuesourcetothewirelesscarriers.
Consolidationofmegawirelesscarrierscreatinganeedfordifferentiation.
Competitivepressuretocontinuetoinvestinimprovingthenetwork.
MVNO Drivers
Market Opportunity Technology Evolution Competitive Dynamics
Source: “Mobile Virtual Network Operators: Converge in Action: Is an MVNO right for you?” by Deloitte, Technology, Media and Telecommunications, 2006; “Mobile Virtual Network Operators: Introducing the Business Concept of “One Does Not Need to Own a Cow to Milk a Cow”, during seminar on Mobile Operator, Strategies and Games, November 2003
MVNOs Value Proposition
Forend-users,valuecouldbeequatedtothemobileexperiencederivedfromusageofthemobileservicespaidfor.Ontheotherhand,valuetotheserviceprovidersandnetworkoperatorsisrelatedtorevenue.Similarly,MVNOsbasetheirstrategiesoncreatingvaluesfortheirtargetmarket.Theyarealsomoreinclined to consider consumerpreferenceand identify consumerneeds, tooffer specific serviceswithvalue-addedperspectives.
AccordingtoAccenture,MVNOsbasetheirstrategieseitherontargetingapartofthemarketplacethatiscurrentlyunservedorunderservedor,alternatively,by“hyper-serving”asegmentofthepopulationwithanoverwhelmingvaluepropositionthatconvincesconsumersinthatsegmenttoswitchfromtheircurrentproviders6.
6 “Virtually Mobile” by Accenture, 2006
13MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Customer care
Product and Services
Handset Packages
Distribution
Brand
Pricing
-Dealingwithcustomersincontext.Forexample,agentsofMVNO companiesaretrainedtospeakinthelanguageoftheirbase, respondingtocustomers’complaintnotwithformalisedplatitudes butratherwithcolloquialexpressions.
-MVNOsneedtodetermineproductisprepaid,postpaidorsome combinationofthetwo.-Identifyvoiceservices,dataservicesandcontentthatenrich customer’sexperience.
-Understandtherequireddevicefunctionalityandthenconstructa handsetportfolio,identifyingtheproposedvendors
-Representsamajorcost.However,someMVNOscanderive significantcostadvantagesfromtheirdistributionstrategy.
-Involvesprospectingforpotentialsubscribers,brandingwhich positionsanddifferentiatestheMVNO,anduseofthemediato promotethebrand.
-Mustdifferentiatethepricing;voiceanddatarates,contentpricing andhandsetpricing.
MVNO Value Proposition
7 “Your Brand, Unplugged: A Strategic and Structured Approach to Launching an MVNO” by DiamondCluster International Inc., 2005
TobeasuccessfulMVNO,serviceprovidersnotonlyneed a good businessmodel, they have tohaveanappealingvaluepropositionthatisgoingto attract and havecustomers holding onto that unique servicesor products offered.Given these inputs, theMVNOvaluepropositionfromend-userspointofviewcanbedividedintosix segmentswhich arecustomer care, productand services, handsetpackages, pricing,brand, and distribution.Each of these valuepropositions serves todifferentiate the MVNOfrom the operators andat the same time stillbe coherent with eachother, their segmentneeds, and spendingdisposition, whencombined, producingthe desired valueproposition.
Source: “The MVNO Opportunity” by Ericsson, September 2006
Source: “Your Brand, Unplugged: A Strategic and Structured Approach to Launching an MVNO” by DiamondCluster International Inc., 2005
MVNOValue
Proposition
HandsetPackages
Product&Services
CustomerCare
•Callcentre•Instoreservice•Selfservice (IVR,Web)
•Functionality•2G/3G•Portfolio•Customisation
•Voice•Data•Content•Broadband•Handset subsidy
•Ownstores•Indirectchannels•Directsalesforce•Corporate•Logistic
•Marketsegments•Marketcommunications•Media•Advertising
•Pre-paid•Voice/Data•Content
Distribution Pricing
Brand
14 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
IMPACT OF MVNOs
There isnodoubtthat thearrivalofMVNOswill increasecompetitionthuscreating increasingmarketpressures. As MVNOs can provide both socio-economic benefits and economic costs to incumbents,MVNOsneedtofindtheappropriatebalancetomoderatethepossibleincumbentlossofbusinessortakeadvantageandturnthemintoopportunities.FindingshaveshownthefollowingimpacttowardsMNOsandthemobilemarket:
InadditiontolosingtraditionallypostpaidcustomerstoMVNOs,MNOscanalsofindthemselvescompetingdirectlywithMVNOsintheprepaidsegment
MVNOcantriggerpricewarsandundermineprofitabilityofallplayersanddrivingthemobilemarkettowardslowerARPU.
IfMNOislinkedtoanMVNOthatprovidessubstandardqualityservice,theMNOwillriskitsownbrandreputationbygettingtheblamefromcustomers,ratherthantheMVNOforpoorcustomerservice.
ThoughMVNOcanincreaseMNOsnetworkutilisation,itcanalsocauseseriousnetworkcongestionproblemwhichleadstoreductionsinservicequality.
Theincreasednumberofavailablecompetitivealternativesmaymotivatecustomerstochangetheirrespectivemobileserviceprovidersmorefrequently.
MVNOspromoteprepaidplansthatgeneratemuchlowerARPUwhereMNOsareforcedtooffertheirownlow-ARPU
ExtendingservicestomarketsegmentsthatarenotviablefortheMNOe.g.,nichemarket
ExpandsmarketreachorbringsmorebusinessinmarketsegmentswheretheMNOisalreadystrong
Betternetworkutilisation
MostMVNOsdotheirownbilling,customerserviceoperations,collectionandmarketingandsales.ThisreducescostburdenonMNOs.
Generatesadditionalrevenuesthroughhighwholesalevolumesand/orthroughparticipationfrompremiumprice
Market Segments(Strategic)
Market Expansion(Market)
Network Utilisation(Operational)
Lower Operational Costs(Operational)
Increased Profits(Financial)
Market Share Cannibalisation(Strategic)
Price Erosion(Financial)
Branding Impact(Strategic)
Network Congestion(Operational)
Increased Churn(Market)
Lower ARPU(Financial)
Economic Benefits Economic Costs
Source: “Mobile Virtual Network Operators: Blessing or Curse? An Economic Evaluation of the MVNO Relationship with Mobile Network Operators” by NERA, 2006; “Mobile Virtual Network Operators” by Arthur D. Little Int. Inc, 2001
Impact of MVNOs to MNOs and the Mobile Market
Minimising Cannibalisation Risk
AsMNOsmay,atsomepointintimeduringthedevelopmentofaMVNO,seetheMVNOasathreattotheirbusiness,thereisinherentriskofMVNOcannibalising.Toavoidsuchdevelopment,andtosustainitselfinthebusiness,ithasbeenreportedthatsomeMVNOshaveundertakendifferentstrategiestoprotectthemselvesasfollows:
1.ExpandthebusinesstoasubstantialsizethattheMVNOisabletocompetewiththeothersignificant mobileproviders.AnexamplecouldbeVirginMobilewhosebusinesshasgrownsignificantinsizeina relativelyshortperiodoftimethatenablesittosurviveinacompetitiveindustry.
15MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
MVNO LAUNCH RISKS AND ENTRY BARRIERS
• Lackofwirelessdistributionskills/ expertise•Brandbuildinginvestments•Highdistributioncostsorlackof capillarity
• Lackofwirelessofferskills/expertise•Highofferdevelopmentcosts• Lackofscaletonegotiatewith CertificationandAccreditation(C&A) providers/partners
• Lackofhandset/skillsexpertise•Highhandsetsubsidies• Lowvolumeofhandsetstonegotiate withOEMs
• Lackofmobiledataskills/expertise•Highintegrationcosts• Lackofscaletonegotiatewithmobile dataplatformproviders
• Lackofback-officeskills/expertise•Highintegrationcosts• Lackofscaletonegotiatewithback- officeproviders/MVNEs
• Lackofwirelessnetworkskills/ expertise• LackofscaletonegotiatewithMNO
•Branddesignandcosteffectivelaunch•Selectionandnegotiationwithdistribution channels
•Targetedandattractiveofferdesign•Targetedandprofitablepricingplan design•Selectionandnegotiationwithkey ContentandApplication(C&A) providers/partners
•Selectionandnegotiationwithhandset OriginalEquipmentManufacturers(OEMs)•Customisationhandsets•CertificationofhandsetswithMNO
•Selectionandnegotiationwithmobile dataplatformproviders•Systemintegrationbetweenmobiledata platformsandback-officesystems
•Selectionandnegotiationwithback-office providers/MVNEs•Managementandsystemintegrationof multipleproviders
•SelectionandnegotiationwithMNOs•SystemintegrationwithMNO
Brandanddistribution
Offerdevelopment
Handsets
Mobiledataplatform
Back-officeprocessesandsystems
Network
End-user Launch Risks Entry Barriers
MVNO Launch Risks and Entry Barriers in the Service Delivery Value Chain
ThelaunchandoperationofanMVNOrequire: a. awholesaleagreementwithanMNO; b. start-upcapital;and c. capitaltocoveroperationalexpendituresandconsumeracquisitioncosts.
Industryestimatesarethat,ittakesonaverageUSD25milliontoUSD50millionandtwoyearstolaunchanMVNO8.Despiterealisingthepotentialforsuccess,settingupanMVNOisrelativelylabourintensiveandamassivetaskduetoentrybarriersthatneedtobefacilitatedandratherhigh“launch”risksasitislegendarythatnotallMVNOssucceedintheirbusinesses.Furthermore,anMVNOmustmanageawidearrayofresponsibilitiesandrelationshipsasitmovesthroughtheservicedeliverychain.Forexample,criticaltothelaunchisthenegotiationofwholesaleagreement.Furthertothat,ifanMVNOmanagesitsownbusiness,ithastopurchaseacustomerrelationshipsoftwareapplication,adataplatformandbillingsoftware9whichareallelementsintheservicedeliverychain.EachofthestepsintheservicedeliverychainislinkedwithpotentialobstaclesandpartnershipdependenciesthatcouldderailtheMVNO’slaunchplan.Asummaryofthelaunchrisksandentrybarriersassociatedwitheachstepintheservicedeliveryvaluechainisshowninthetablebelow:
8 “Entering the Wireless Market – What You Need to Know to Launch and Operate Your Own Wireless Business” by Ovum, 2006.9 “Mobile Virtual Network Operators (MVNOs) in Israel: Economic Assessment and Policy Recommendation” by NERA Economic Consulting, August 2007
2.Theotherstrategyistoextendoperationsintoamarketthatissmallanddifficultenoughtodissuade theotheroperatorsfromhavinginteresttopursuetheMVNO.
3.Alternatively,thereisthe“surrender”strategywherebyMVNOsareabletomakeasignificantprofit for themselves by expanding the business substantially enough to make it so lucrative for other carrierstobeinterestedinbuyingitover.
Source: “MVNO 3.0: How a New Breed of Wireless Providers will Bring Strong Brands in the MVNO Space” by Diamond Management and Technology Consultants, 2006
Serv
ice D
eli
very
Ch
ain
16 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
MVNO REVENUES, COST AND PRICING MODEL
Revenues
ForanMVNO,themainsourceofrevenueisusuallyfrom its customers where the customers pay forcallconnectionandservices.However,abusinessdependentonvoiceonlyisnotviableenoughtodaytoobtainrevenuemargins.Asanexample,MVNOswhich are resellers that resell voice plans usuallyobtains low-revenuemarginproposition,generallyin single-digits. Makingmoney off voiceminuteswill be a persistent issue due to price erosion.EncouraginglyMVNOsareabletoimprovemarginsintherangeof15%to17%bysellingvalueaddeddataorcontentapplicationservices.Hence,inordertosucceedbydevelopingsignificantvolume,anMVNOneedtobeable toalsosourceotherkeyrevenue
The situation is different for MVNO as it doesnot own its ownnetwork, thusno customers canroamdirectlytootherMNOsorMVNOs.However,all customers of the MVNO have to roam to thenetworkofthesupportingMNObeforeroamingtootheroperators.
elementssuchasadvertisingorm-commerceontopofprovidinginnovativevalueaddeddataservices.SuchcombinationsorpackagesareuniquesourcesofincomethattheMVNOcanandisabletocontroltotally10.
Costs
Cost is associated with roaming issues. Roamingallows customers from one mobile operator(MNO or MVNO) to access the network of otheroperators(MNOs).RoamingbetweenMNOsisusualinthesensethatcustomersofMNO1roamstothenetwork ofMNO2, and some customers ofMNO2roamstothenetworkofMNO1.
Source: Adapted from “Option Pricing of Mobile Virtual Network Operators” by Telektronikk Vol. 4, 2001
Consequently,MVNOpaysforinterconnectioncosttoMNO forbothoutgoingand incomingcallsandinterconnection payments to other operators forcompleting outgoing calls11. Additionally, MVNOshaveotherkeycostelementssuchasoperational,investment marketing and innovation costs tomanage.
10 & 11 “The Mobile Virtual Network Operator Concept: Truth and Myths” by Telektronikk Vol. 4, 2001
RoamingMVNOto1(MVNO’snetworkprovider)beforeroamingto2(anotherMNO)
MNO2network(otheroperators)
MNO1networkRoaming2to1
Roaming1to2
MVNO
MVNO
MVNO
17MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Source: Adapted from “How do the Price Agreements Affect the Business Case of an MVNO?” by Telektronikk Vol. 4, 2001
Source: Adapted from “Mobile Virtual Network Operators: Introducing the Business Concept of “One Doesn’t Need to Own a Cow to Milk a Cow” during Seminar on Mobile Operators, Strategies and Games, November 2003
SummaryoftherevenueandcostelementsforaMVNOisasfollows:
Revenue and Cost Elements for an MVNO
SIM–SubscriberIdentificationModuleIN–IntelligentNetworkHLR–HomeLocationRegisterVLR–VisitorLocationRegisterMSC–MobileSwitchingCentre
Outgoingcall/roamingout
Incomingcall/roamingin
Outgoingcall/interconnectother
Incomingcall/interconnecttoMVNO
Signaling/database
MSC MSC
SIM
SIMMNO
MVNO
IN IN
VLR
HLR
HLR
Other operator
TargetCustomer
VoiceServices
CostLeader
Subcription/Usage
Interconnect
Advertising
M-commerce
Contentapplication
InnovativeValue
AddedServices
Operational
Investment
Marketing
Innovation(R&D)
ServiceLeader
InnovationLeader
ValueAddedServices
-Limitedservicemix-Fewtarget customersgroup
-Largeservicemix-Manytarget customersgroup
-Higherinnovation investment-Fasterintroductionof newservics
Service Mix
Key Cost Elements
Key Revenue Elements
MVNO
MVNO’s Customers Making and Receiving Calls Architecture
18 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Pricing
Pricing is an important element in thecommunicationsservicesbusiness.FortheMVNO,the right pricing can tip thebalance enabling theMVNOtobecomeaprofitableentity.Ontheotherhand,theadverseeffectofpoorpricingcan incurfatality. A win-win situation in price negotiationsbetween theMNO and theMVNO is desirable forsustained opportunities offering enhanced returnsall around, both in the short and the long term.Strikingthebalancewithaviewofawin-winformulawouldofferMNOsthebenefitsthatMVNOcanoffertoitsreturnonbusinessinvestments,andfortheMVNOstoinvestforanticipatedreturns,whichoneortheotherwouldnotobtainwithoutthismutuallybeneficial relationship inthefirstplace. Inshort,
MVNOsareobservedtofaceaseriesofoperatingchallengesinthediversemarketsinwhichtheyareimplemented. The success and failure ofMVNOsappear dependent on amix of factors. AlthoughthereappearshighlaunchriskforMVNOsworldwide,successful ones do exhibit sustained businesssuccess,andnewMVNOshaveinvariablycontinuedtoenterthemarket.
Nevertheless, how far an MVNO model is trulysustainable depends on the value it offers tocustomers as well as its host MNO. SeveralMVNOs like VirginMobile andBoostMobile in UShave demonstrated ability to outlive others in acompetitivelandscapeduetoappropriatebusinessmodelcapitalisingontheirstrengths.
havingashareof thebiggerpiegoesa longwayforderivationofnecessarilysustainablereturnsoninvestments.
OurfindingshaveshownthatthereareanumberofdifferenttariffmodelsthatcanbeappliedbyMVNOsonpricingstrategy. Theprovisionof tariffshouldalsoreflectthenatureoftheMVNOs,whetheritisapureresellerorafullMVNO.
TherearetwopossiblegeneraltariffmodeloptionsbetweenMVNOsandMNOseitherwithorwithoutregulatoryinterference,whichisthegenericmodelsofretailminusandcostplus.Asthedynamicsofthedetailsinsuchpricingmodelscannotbeadequatelytouchedinthisreport,sufficetonoteherethatthebasicsofsuchcostingmodelsareasfollows:
•LowMVNOmargins•Discouragepricecompetition•DefendMNOspositionand interest
•HighermarginsforMVNOs•Freedomtocompeteonprice
•Tariffmodel“Retailminus”•Retailprice–Negotiatedprice
•Tariffmodel“Costplus”•Costprice+agreedpremium/ margin
DeterminedbyMNO
DeterminedbytheRegulator
Tariff Models
Source: Adapted from “MVNOs in the Middle East: Threat or Opportunity?” by Delta Partners, July 2007
UNDERSTANDING THE SUCCESS AND FAILURE OF MVNO
Success Factors
MVNO’ssuccess isbuilt, inpart,by leveragingonthe brand, distribution channel, a solid customerbaseandanofferwhichincludescontent,platformsandinfrastructure.Tosucceed,accordingtoVirginMobile,MVNOsneedtoexecutethefollowing:
1.Targetcustomersthatmostcarriersignorelike low-credit,prepaidcustomersthatVirginMobile andTracfoneinUSfocuson;2.Launchadifferentiatedproduct;3.Buildcheapplatformslikesimplephones;4.Focus on crazy retail like selling big national retailchainsfromdayone;5.Acquirecustomercheaply;and6.Focus on the right metrics: Revenue per megabyteorperminute.
19MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Case Study: Virgin Mobile, US
VirginMobile,USjointlyownedbySprintNextelandVirginMobileHoldings,PLCwaslaunchedin2002.By2007,thecompanyowned5.1millioncustomerswhichisabout10%ofSprint’scustomers.Virgin’sstrongbranding,VirginMobileutilisedtheparentcompany’sexistingproductsandservicessuchastravel,musicandbankingtorepresentitscontent.
Virgin’s Strategic Assets Include a Strong Brand, Channel and Relevant Content.
VirginMobileUSlaunched
OnemillioncustomersmakingitthefastestUSwirelessoperatortohitthismark
Atop10USwirelessprovider
2006AdjustedEBITDAofUSD47.9million
J.D.PowerandAssociateshighestprepaidcustomersatisfaction
ExceedsUSD1billioninannualrevenues
Secondyearrunning,J.D.PowerandAssociateshighestprepaidcustomersatisfaction
VirginMobilelistedinNYSEas“VM”
5.1millioncustomers
FinancialYear2007AdjustedEBITDAofUSD95–USD100million
July2002
November2003
March2004
January2006toDecember2006
August2006
December2006
August2007
October2007
December2007
January2007–December2007
Brand-Oneofthemostrecognisedbrandsinyouth segment-Youthappeal-People’schampion
Distribution-Sellsproductsthroughdirectdistributionchannels consistingofitswebsiteandcustomercarecenter, aswellasthird-partyretaildistributionchannels
Content-Music,travelandentertainment-VirginMobileSugarMama-serviceenhancement andmobilebyviewingadvertisementsfromvarious businesspartners
Virginbrandmorepowerfultoconsumersthanincumbentcarriers
Moreretaildistributionpointsthananycarrier
Contentwhichrepresentsfun(entertainment)andutility(travel)
Month/Year Market Events
Note: EBITDA is Earning Before Interest, Taxes, Depreciation and AmortisationSource: Adapted from “Technology, Telcom and Internet Conference 2008” by Virgin Mobile, February 2008
Source: “MVNO Opportunities for Software and Information Companies”, www.siia.net, March 2002
Developments of Virgin Mobile
20 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
-Sprintcontrastto2027-Near-ownereconomicswithlimitedcapex-Accesstocurrent/futuretechnologies-Nationwide
-MVNO-heavyapproach-Ownthecustomerexperience-Real-timebilling/pricing/promotions
-Worldclassyouthorientedbrand-LeverageoverUSD350millioninglobalannualspend-Lowercustomeracquisitioncosts-Brandlicenceto2027
-49%ofnewcustomersareovertheageof34-63%areemployed-88%payforsomeoralloftheirservices-Customerrace/ethnicitymirrorsUSpopulation,exceptHispanics
-Leadingproviderinhigh-growth,no-contractmarket • BroadNationalAppeal-ResilientMVNObusinessmodel • Lowfixedcoststructure • Abilitytocompeteinvaryingprice/economicsenvironment • Strongcashflowmanagement-Trackrecordofconsumer-driveninnovation-StrongVirginbrandequity-Primiernationalretaildistribution-Highestcustomersatisfactionintheprepaidindustry
Network
Infrastructure
Brand
ValueProposition
SustainableCompetitiveAdvantage
MVNO Business Model
Source: Adapted from “Technology, Telcom and Internet Conference 2008” by Virgin Mobile, February 2008
Virgin Mobile MVNO
Factors to Avoid
BythelooksofthenumbersofMVNOscomingintotheworldwidemarket,therehasnotbeenaslowdowninthedevelopmentsandprogressofMVNOindustryoverall.Nevertheless,therearefactorstoavoidforMVNOs.OurfindingsidentifiedthatabasiclackofcustomerbasereducesthesuccessofMVNOtostaycompetitiveinamarket.
FindingtherightMNOpartnershipcanalsomakeorbreakanMVNOcompany.VirginMobileconsidersthefollowingtobebadlyconceivedfactors12:
1.MVNOstargetcustomersthatcarriersthemselvesarefindingithardtoget;2.Launchofanot-very-distinctiveproductpropositionthatfocusesonallthesamethingsthatcarriers themselvesareoffering;3.Buildsexpensivenewproductplatformswithloadsofcapexandopex;4.Ignoresbasicretailingsuchasbigmedialaunchingwithnoorlittlestoreavailability;5.Acquirescustomerexpensively;and6.Getsdistractedbythe“high”ARPUthatpeoplewillspendavastamountofmoneywithyourservice.
12 “Amol Sarva: How to Make an MVNO Work” by Sillicon Alley Insider, October 2007
21MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Global Current and Expected Growth
Oflate,thenumbersofMVNOsaregrowingsteadilyworldwideespeciallywithmoreassignmentsofthirdgenerationmobilelicences.Manyoperatorshavearticulatedkeeninteresttoenterthismarket,ledbycountrieslikeNetherlands,Belgium,Germany,UK,SwedenandUS.
Number of MVNOs
In2005,therewereapproximately200plannedoroperationalMVNOsworldwide14.ByJune2006,BlycroftPublishingestimated230activeMVNOs15.AccordingtoconsultancyfirmTakashiMobile,byearly2007therewereapproximately360plannedoroperationalMVNOsworldwide.
Interestingly,amplyfundedorwell-brandedstartupslikeMobileESPN,DisneyMobileandAmp’dhavenotsustainedbusinessformorethan3years.Eachhasincurredsomeoftheabovefactors.AsummaryofmorefactorstoavoidisinAppendix1.
Overall, the changing landscape of thetelecommunication industry poses challenges tooperators, especially later start-ups in the MVNOindustry. Somerealities in today’smarketareasfollows13:
1.As competition in the wireless industry intensifies and market gets more saturated, innovation for product differentiation may becomescarce;
2.Subscriber acquisition can be already high, fuelledbycheaperavailablehandsetsinmarket otherthatthoseMVNOcanprovide;
3.Strongbrandcompetitionno longerguarantees success. However, affinity by a group of customerbasetoaparticularbranddoesexist. Monetising brands may not be as simple as it
looks,forexampletheMVNOs,MobileESPNand DisneyMobile;and
4.The youth market is generally lacking purchasing power and premium content approach is elusive. To them paying for content isunnecessarywhen thesamecontent is obtainable at no additional cost from other channelslikebroadbandortelevision.
While successful MVNOs like Virgin Mobile orTescoMobile are able to sustain their businessesfor a longperiod in the industry, replicating theirbusinessmodelmay be elusive for others due tomanydifferencessuchastimingoflaunch,appetiteofconsumersorcontextualchallenges.
Overall, therearenoshortcutstosuccess.Rather,there is much required excellent ground work,solid planning, and ample access to capital,good communication skills as well as a strongmanagementteamthatissensitivetomarketandconsumerbehaviourchangesandisnimblemindedenoughtobeproactiveorreactiveaccordingly.
GLOBAL AND REGIONAL PERSPECTIVE OF MVNO INDUSTRY
13 “The Retske Report: New Strategy for Winning, Surrender”, www.prepaid-press.com, May 200614 “Mobile Virtual Network Operators (MVNOs) (Special Reference to Regulatory Environments)” insert-research paper submitted to the University of Manchester, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=108726215 http://www.mvno.eu
22 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Asof2006,thespreadofnumbersinMVNOrelationshipstotal345inwholesalerelationships,189MVNOand156ESPs.NotethattheseareonlyourtotalsbasedontheselectedcountriescitedinthetablebelowtoobtainaflavouroftheMVNOmarketscenarioworldwide:
Australia
Austria
Belgium
Canada
Denmark
Estonia
Finland
France
Germany
Hong Kong
Ireland
Latvia
Liechtenstein
Lithuania
Luxemborg
Malaysia
The Netherlands
New Zealand
Norway
Philippines
Poland
Portugal
Russia
Singapore
Slovenia
South Africa
Spain
Sweden
Switzerland
Taiwan
Ukraine
United Kingdom
United States
TOTAL
29
3
29
6
14
3
10
13
32
6
4
1
1
2
1
2
36
1
13
1
5
3
2
1
2
1
4-5
23
5
2
2
27
60
345
1
1
3
6
4
2
5
9
13
0
3
0
1
2
1
2
6
1
12
1
3
3
2
1
1
1
3-4
20
3
2
2
24
50
189
28
2
26
0
10
1
5
4
19
6
1
1
0
0
0
0
30
0
1
0
2
0
0
0
1
0
1
3
2
0
0
3
10
156
* All figures as of January 2006** Wholesale Relationships - Service providers that purchase wholesale mobile minutes from a network operators and resell to end-users*** MVNOs - Mobile Service Providers having their own switching infrastructure**** ESP – “Enchanced” Mobile Service providers having more branded customer interfacesSource: “Incentives to License Virtual Mobile Network Operators (MVNOs)”, http://web.si.umich.ed; www.takashimobile.com/mvno.html
Number of MVNOs in Selected Countries*
Country Wholesale Relationships** MVNOs*** ESPs****
23MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Number of MVNO Subscriptions
WhileMVNObusinessmodelsfaceclaimsofdifficultyinsustainability,studiesbyInformaTelecoms&MediarevealtheoverallglobalperformanceofMVNOstohaveimprovedwithanincreaseof23%foratotalMVNO subscription at the end of 2007 comparedwiththeendof2006.TheseimprovementscomeastheWesternEuropeMVNOmarketstabilisedwithmany of thoseMVNOs launched during the latterpartof2005and2006maturingandexperiencingsustainabilityover200716.
Additionally, subscriptions to MVNO services willreach 150 million worldwide by 2013 with 58%coming from outside Western Europe. This willrepresent3%ofthetotalglobalmobilesubscriptionsaccordingtonewresearchfromInformaTelecoms&Media. Juniper Research forecasted subscriberstoMVNOsataround93millionin2006globallyto352millionby2012.Newconsumersareexpectedto continue to be hungry for low-cost voiceservices(USD42billionby2012)buttheyarealsoincreasinglylookingformobileentertainment,suchasmusicandgames.
MVNO Revenues
Worldwide MVNO revenue on the other hand, isexpectedtopoststeadygrowth.IN-StatforecastedrevenueforMVNOworldwideatnearlyUSD40billionin2009andmorethanUSD60billionbytheyear2010.Onasimilarnote,JuniperResearchpredictedrevenues for MVNOs to increase from USD15.4billionin2006toUSD67.4billionby2012.Ofthis,USD42billion(62.3%)willbefromvoiceservices,withtheremainderbeingaccountedforbymobiledataservices,mainlymusicandgames.
70
60
50
40
30
20
10
0
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
MVNO Revenues Worldwide 2004-2010
Worldwide MVNO Revenues Forecast by Region(USD million) 2006-2012
MVNO Revenues Forecast Voice/Data Split(USD million) 2006-2012
2004 2005 2006 2007 2008 2009 2010
Revenues(USbillions)
Source: IN-Stat
Source: Juniper Research Limited
Source: Juniper Research Limited
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2012
2012
Africa&MiddleEast
RestofAsiaPac
IndianSubContinent
FarEast&China
EastEurope
WestEurope
SouthAmerica
NorthAmerica
MVNODataRevenues
MVNOVoiceRevenues
2006
93millionglobalsubscribers
2013
150millionglobalsubscribers
2012
352millionglobalsubscribers
2012
150millionsubscribers
Source
InformaTelecoms&Media
JuniperResearch
PyramidResearch
MVNO Service Subcription Forecast
Summary of Forecasts
16 “Global and Regional MVNO Market Development” by Informa Telecoms & Media, July 2008
24 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
2009
USD40billion
2006
USD15.4billion
2010
USD60billion
2012
USD67.4billion
2012
USD30billion
Source
IN-Stat
JuniperResearch
PyramidResearch
MVNO Revenue Forecast
Summary of Forecasts (continued)
Inconclusion,mostanalystsexpectMVNOssubscriptionsandrevenuestobeonuptrendinthecomingyears,albeitinvaryingdegreesofgrowthinvariousmarkets.
Global Market Readiness for MVNOs
Themobiletelecommunicationindustryisbuoyedbytherelativelyfastchangingdevelopmentsandevenparadigmshifts.TrendsthatindicatethelikelihoodofmarketreadinessforMVNOs,therebypropellingorpromptingMVNOsbusinessesareasfollows:
Regional MVNOs Trends
Themarketplace saw the appearance of many leading MVNOs with various MVNOs businessmodelsespeciallyinbrand-led,niche-focusedMVNOs.MostsuccessfulMVNOshaveshownthemobileindustryhowtocapitaliseonnichemarketsandexploitthe“longtail”.WhilemostleadingMVNOsarelocatedintheUK,EuropeandtheUS,thereisanincreasingnumberofMVNOsemerginginAsia.
a.Mobilemarketsaregettingsaturated. Overthepast20years,themobilemarketsare reachingorhavereachedsaturationormaturity, especiallyinvoiceservices,mostlyindeveloped countries. Thus, these are poised for data services take-up such as MVNOs which can sustaincustomerloyaltyandreducechurnorto increasedifferentiation;b.The mobile telecommunication industry is moving towards 3G. 3G provides opportunities for existing MVNOs to increase their data revenues;c.Convergence emerging in cross industry productsandservicesinthewirelessspace;d.DecliningARPU;e.Increasingsubscriberacquisitioncost;andf. The need for segmentation increases opportunities.
MVNO Revenues Worldwide 2004-2010
Penetration(%)
Time
Europe
Americas
VNOASPSP
Branding&Segmentation
Fewmajorplayers
100%
50%
Saturation Consolidation
Asia
Source: Adapted from “Mobile Virtual Network Operators and Enablers in Challenging Market Environment – Market Assessment and Study” by Logan Orviss International Deutchland GmbH
25MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
UK MVNOs
MVNO Fast Facts*
United Kingdom
Intermsofsubscribers,UKhasoneofthelargestmarkets formobile services in Europe. In 2007,there are 73.4million totalmobile subscribers inUK and it is expected to grow to 76.7million in201017. Whereas the wireless penetration in theUKmarket has surpassed 100% since 2003, andreachedapenetrationrateof117%bymid-200718,itisexpectedtoreach121.6%in201019.
Duetothehighmobilepenetrationrate,thenumberofMVNOsintheUKhasincreasedrapidly.Ithas
•Countries with the most MVNOs: Netherlands (43),Belgium(38),Germany(31)andFrance(22)•Most active Host Network Operators (HNOs): KPN in Netherlands (35),BaseinBelgium(31) andE-PlusinGermany(11)•Most active MNO Groups acting as HNO: T-Mobile (19 MVNOs in 3 countries)andOrange(15 MVNOsin5Countries)•Country with the highest MVNO market share: Netherlands with 3.05 million customers servedbyMVNOsin1Q2007•Largest MVNOs by number of subscribers: Debitel (roughly 13 million in Germany alone)and VirginMobile(roughly6millionintheUKalone)•Fastest growing new MVNOs: Tesco Mobile in the UK(500,000customersduringfirst12months, +1.5milliontoday),M6inFrance(400,000customersinfirst12months,+1.0milliontoday),Virgin MobileinFrance(300,000customersinfirst10months),NRJMobileinFrance(300,000customersin 12months,+400,000today)
* from FRiENDi mobile MVNO market research of 18 countries in Western Europe, with a total of 399 million peopleSource: FRiENDi Mobile, 27 August 2007
oneofthebiggestMVNOmarkets intheworldbyvolume of customers, with more than 6 millionMVNOcustomersbytheendof200420. UK’sandEurope’sfirstMVNOwasVirginMobile,whichwaslaunchedin1999.
Bymid-2005, there were sevenmajor MVNOs inthemarket,outofanestimated53MVNOsacrossEurope as a whole. Of the UK operators, Virginhas been the most notably successful21, followedbyTescoMobile, the second largestMVNO inUK.Among themorenotableUKMVNOsarenoted inthetable:
•Nocontracts.•Nohiddenfees.•Historyofbrand extension.
•Offerscustomers value,simplicityand choice,alongwith supermarketstyle offersandthe chancetoearn Clubcardpoints whenbuying handsetsandcall time.
•Createsvalue andprofitabilityin cellphoneservice industry.•Targetsmarketages 15–29years.•Toservetheyouth marketinaway theyhavenever beenservedbefore.
•Leverageits competitive advantageof distributionand strongbrand associationby havingbranded pre-paidphones onsaleinstores andthroughtesco.com.
DiscountMVNO
DiscountMVNO
Youthandyoungadults
Loyalandpriceconsciouscustomers
T-Mobile
O2
1999
2003
VirginMobile(Prepaid)
TescoMobile(Prepaid)
MVNO (Service Plan)
Launch Year
Hosting MNO Objective Differentiating
FactorsTarget
SegmentsMVNO
Classification
17 http://www.reuters.com/article/pressRelease/idUS110953+25-Jan-2008+BW2008012518 “Mobile Virtual Network Operators (MVNOs) in Israel – Economic Assessment and Policy Recommendation”, www.moc.gov.il, August 200719 http://www.reuters.com/article/pressRelease/idUS110953+25-Jan-2008+BW2008012520 “The Future of MVNOs in the 3G Era” by Analysys, 200521 “The Communications Market” by Ofcom, February 2006
26 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
UK MVNOs (continued)
•Servicesincludea mobileVirtual PrivateNetwork service,Business Circleand Conferenceon Demand,aswell asnewtariffsto givelargeandsmall businessesgreater freedomtostructure pricesaccordingto theirneeds.
•Ads,promotionsand marketingmessages inexchangeforfree calls/voiceminutes andtextmessages.
•Supportcustomers byownlanguage customerservice beforeandafterthe purchase.
•OnelowpriceforUK calls.•Onelowpricefor texts.FreeSIMcard.•Nocontract.•Nomonthlycontract.•Nominimumspend.
•Providingfixedmobile convergenceutilising itsMVNOcapabilities.
•Builtaservicearound whatyoungpeople wantandneed–free communication,ease ofuseandrelevant messagesfrombrands andallowsadvertisers toreachyoungpeople usingtheonlychannel thattheycarrywith themeverywhere.
•Acompetitiveway forpermanentlybased immigrantsintheUK, andmigrantvisitors andworkerstotheUK, tousetheirmobilesto calloverseas.
•Pre-paidservices thatwillbeavailable toIkeaFamilyLoyalty programmemembers andallIkeastaff.
LifestyleMVNO
Ad-fundedMVNO
EthnicMVNO
DiscountMVNO
Corporatemarketandhighusageresidentialcustomers
16yearsoldto24yearsold
UKimmigrantsandmigrantworkers
MembersofIkeaFamilyLoyaltyprogramme
Vodafone
Orange
Vodafone
T-Mobile
2004
2007
2007
2008
BTMobile(Prepaid)
Blyk(Prepaid)
LebaraMobile(Prepaid)
IkeaMobile(Prepaid)
MVNO (Service Plan)
Launch Year
Hosting MNO Objective Differentiating
FactorsTarget
SegmentsMVNO
Classification
Source: Adapted from various websites
However,eventhoughtherehasbeensoundsuccessinEurope,therewasanabundanceofMVNOlowcostdiscounterswhichareputtingdownwardpressureonprices.Onasimilarnote,UKisexperiencingthistrendwheremanyoftheMVNOsalsoarelowdiscounters.
United States
In2004and2005,traditionalmarketsegmentsareapproachingmaturity,asmobilepenetrationgrowstohighlevels.Already,theUSwirelessmarketsawanumberofMNOconsolidations,forexample,CingularWirelessmergerwithAT&TWireless,andSprint’smergerwithNextel.ThishasresultedinfournationalMNOs,VerizonWireless,CingularWireless,SprintNextelandT-Mobile22.
Intermsofsubscribergrowth,analysiscompany,SNLKaganprojectedmobilepenetrationintheUStosurpass100%by2013.ForecastisforthetotalUSwirelessservicerevenuetoincreaseata5%CAGRfrom2007to2017,fromUSD155billionthisyeartoUSD253.6billionin2017.
22 “Mobile Virtual Network Operators: Blessing or Curse? An Economic Evaluation of the MVNO Relationship with Mobile Network Operators” by NERA, 2006
27MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Notknowntomany,theMVNOsorcellularresellersastheyareknown,havebeenaroundintheUSforaslongastherehasbeencellularservice.ManyofthecarriersthatexistwereresellersbuttherigidwholesalepricingstructureofferedbycarriershaspreventedtheMVNOsfromofferinginnovativepricingandproductdifferentiation.
Inthemid90s,thethenemergingcarrierssuchasSprintPCSandCingularWirelesscitingmoreopenattitudetowardsresellerchannelsstartedtoworkcollaborativelywithresellers. Initially,mostmobileoperatorsintheUSlackedenthusiasmforprepaidwireless,whencomparedtotheircoreandverylucrativepostpaid, contractbusiness. In contrast, prepaidgenerated lessARPUand facedhigher churn rates.However,withincreasedcompetitionandmoresaturatedmarketplace,MNOshadtorelookthewirelessprepaidopportunitytoreapthishistoricallyunderservedmarketsegment.
Overtheyears,withreasonablesuccessofTracfone,VirginMobileandBoostMobile,thenumberofMVNOsintheUShasgrownrapidly.In1999,therewerelessthan500,000intheUS,representinglessthan1%ofthemobilemarket.By2010,thenumberofMVNOsubscribersisexpectedtogrowto25million.
In2005,thetotalMVNOrevenuewasUSD4.6billionandby2010,NERAprojectsMVNOrevenuestobeUSD29.6billion.By2006,thereareapproximately40MVNOsoperatinginthecountry,afterthefirstUSMVNO,Tracfonewaslaunchedin1996.Tracfoneitselfhassincegrowntoapproximately10millioncustomersandnearlyUSD200millionEBITDAin2007.AselectionofUSMVNOsisshowninthetablebelowon“USMVNOs”:
Source: SNL Kagan, a division of SNL Financial LC estimates
Source: Nera Research Source: Nera Research
350
300
250
200
USCellphonePenetration
(million)
2006
77.4%%Penetration 84.3% 88.3% 91.7% 94.6% 96.9% 98.5% 100.0% 101.2% 102.3% 103.5% 104.2%
233.0
256.0
300.9 303.8 306.8
WirelessSubsEOY
USPopulation
309.8 312.8 315.8 318.9 322.0329.0
328.3 331.6 334.8
271.0
284.0296.0
306.0314.0
100%Penetrationin2013
322.0 325.2
336.0343.0
349.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
50
40
30
20
10
0
225
200
175
150
125
100
75
50
25
0
MVNOSubcribers TotalMobileSubcribers Percentage
14
12
10
8
6
4
2
0USMVNOLaunches(Cumulative)
Subscribers(million)
Percentage
1996
1
1997
1
1998
2
1999
3
2000
3
2001
3
2002
8
2003
10
2004
17
2005
30
2006201020092008200720062005200420032002200120001999
43
US MVNO Launches, 1996 - 2006 US MVNO Subscriber as Percentage of Mobile Subscribers, 1999-2010
28 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
US MVNOs
•Offersservicesunder twobrands: TracFoneandNet10.•Offersprepaid servicesonboth CDMAandGSM networks.•Doesnotuse contractsnordoesit conductcredit checks.
•OffersPay-as-you- goandmonthly planswithno contractrequired.•Strongfocuson music,ringtone dealsandspecialist youthhandsets.
•OffersbothCDMA andiDENphones.•OffersPush-to-Talk (PTT)serviceor walkie-talkiestyle communications throughMotorola phonesonly.•Monthlyuserscan choosefromthree plans,eachwith unlimitedcalling. Planswithunlimited messagingand Internetare availableaswell.
•Offeringpostpaid wirelessservices toresidentialand businesscustomers aspartofa quadrupleplay.
•Servicesare deliveredprimarilyin Spanish.
•Tomakecellphone serviceavailableto everyonewithout theneedfora contractorahigh creditrating.
•Tomakeprepaid servicesomething coolandsocially acceptable.
•Developingand distributingwireless communications productsforthe youthmarket.
n.a.
•Providingpay-as- you-govoiceand dataaccesswith anemphasison internationaland Spanish-language contentandservice.
DiscountMVNO
DiscountMVNO
LifestyleMVNO
DiscountMVNO
EthnicMVNO
Lowerincome,lower-volumecustomers,seniorcitizens,casualcellphoneusers,parents,safetyusers.
Youthmarket
Youthmarket(14yearsoldto34yearsold),urbandemographic,Hispanicmarket
Residentialandbusinesscustomer
Hispanicmarket
VerizoneWireless,Cingular,AT&TWirelessandAlltel
SprintNextel
SprintNextel
VerizonWirelesssince2008(previouslySprintNextel)
SprintPCS
1996
2002
2002
2003
2005-ceasedoperation
Tracfone(Prepaid)
VirginMobileUSA(Prepaid)
BoostMobile(Prepaid)
QwestWireless-Postpaid
Movida(Prepaid)
MVNO (Service Plan)
Launch Year
Hosting MNO Objective Differentiating
FactorsTarget
SegmentsMVNO
Classification
29MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
US MVNOs (continued)
•Offersentertainment- focusedDisney- themedcontent. Child-andparent- focusedservicessuch asFamilyMonitor,to helpparentscontrol thefamily’swireless spending.FamilyAlert, forsendingpriority messagestotheentire familyatthesame time.CallControl, toenableparentsto controlthedaysand timesthatchildren’s phonescanbeused andFamilyLocator,a Location-BasedService (LBS)thatusesGPS toenableaparent topinpointonamap thelocationofachild’s phone.
n.a.LifestyleMVNO
Familieswithkids
Sprint2006 -ceasedoperation
DisneyMobile-Prepaid
MVNO (Service Plan)
Launch Year
Hosting MNO Objective Differentiating
FactorsTarget
SegmentsMVNO
Classification
Asia
Although the majority of countries in Asiapride themselves as having one of the fastestdevelopmentsinthemobileandtelecommunicationnetworks,themarketforMVNOsisstillatnascentstage.MVNOsdevelopmentisnotasvisibleastheirEuropean counterpartswhereMVNOs therehavebeengainingalotoftractionoverthepastyears.
According to a report by Yankee Group, MVNOpenetrationislessthan1%ofthetotalsubscribersin Asia Pacific by the end of 2006. The slowpenetration is attributable to amongst others,regulatorypolicieswhichpreviouslyhavenotbeenveryopenandsupportivefornetworkaccess.Otherchallengesincludehighpenetrationlevels,lowpricesanddifficultyincompetingonValueAddedServices(VAS)asprepaidusersusuallydonotconsumeVASasmuchaspostpaidusers.
The failedattemptsbyVirginMobile inSingaporeafterninemonthsofoperationduetohighwholesalepricing and Shell in Hong Kong due to lack ofcustomerbasearegoodexamples.However,theseexampleshavenotdamperinvestors’anticipationinventuringintotheMVNOmarket.InvestorsinAsia
arestillhopeful indrawing inspirationfromhighlysuccessfulMVNOsinEurope.
With a growing large share ofmobile terrain, anoverallaverageof33%ofmobilepenetration23andexpectedpenetrationratejustover50%by201024,theproliferationofMVNOisexpectedtomatureinAsianmarketinthenearfuture.ErnstandYoungreported there being renewed interest in MVNO,particularly in the two most highly penetratedmarketsofSingaporeandTaiwansince2006. Todate,HongKonghasthehighestMVNO-penetratedmarketinAsiawith720,000customers,representing7.5%HongKongmarketpenetration25. By2007,the trend has spread across other AsianmarketslikeSouth,Korea,Japan,ThailandandMalaysiaaswell.
Experiences drawn from other countries indicatethatMVNOsthrive inmorematureand liberalisedmarketsasopposedtoemergingmarkets,especiallythose with restrictive regulatory regime. Hence,there are different opportunities to stimulatecompetitionviaMVNOentryincountriesacrossAsiaduetomarketmaturityandregulatorystancetaken.When markets are more mature (higher marketpenetration),MVNOsareseenmorepertinent.
23 “Asia Calling – Taking on the Rising MVNO Wave in Asia, Global Telecommunication Centre” by Ernst and Young, 200724 “Asia Phone Penetration to Reach 50% by 2010” by Cellular News, http://www.cellular-news.com/story/17162.php25 “Asia Calling – Taking on the Rising MVNO Wave in Asia, Global Telecommunication Centre” by Ernst and Young, 2007
n.a.: not availableSource: Adapted from various website
30 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Source: “Asia Calling, Taking on the Rising MVNO Wave in Asia” by Ernst & Young, 2008
Asia MVNOs
MVNO Activities No MVNO
•Comprehensiveand largestrangeof mobilephonesand plansinAustralia.
•OfferingIslamic contentdeliverysuch asprayertimetables.
n.a.
n.a.
n.a.
n.a.
•Theworld’sfirst text-basedmoney remittanceservice, Bibleverses,24-hour customerservicefrom fellowFilipinos,make long-distancecallsto thePhilippinesand textmessagesfor around50%lessthan theywouldotherwise payonalocalHong Kongnetwork.
•Providingquality customerservice andofferingthe bestpossibleprices.
•Connectingglobal ethniccommunities, withouttheexcessive costs.•Providingethnic- orientedMVNO offeringlow internationalcalls.
n.a.
n.a.
n.a.
n.a.
•ProvidingFilipinosin HongKongwith accesstothesame Smartmobile servicesandcontent theycanuseinthe Philippines.
Blue-collarworker
Ethnicmarket
n.a.
n.a.
n.a.
n.a.
Ethnic/affinitygroup–overseasFilipinoworkers
VodafoneAustralia
VodafoneAustralia
FarEasTone
FarEasTone
FarEasTone
TelekomMalaysia
ThePhilippinesLongDistanceTelephoneCompany
2007
2005
2006
2007
2007
2007
2004
CrazyJohn
SlimTel
Arcoa
PresidentChain
StoreCorp(7-Eleven)
FamilyMart
Samarti-Mobile
PLDT‘1528Smart’
Australia
Taiwan
Thailand
HongKong
MVNO (Service Plan)
Launch Year
Hosting MNO Objective Differentiating
FactorsTarget
SegmentsMVNO
Classification
ExamplesofsomeofAsiaMVNOsareasperthetablebelow:
160
140
120
100
80
60
40
20
0
MobilePenetration
(%)
Singapore
HongKong
NewZealand
Australia
Taiwan
SouthKorea
Mal
aysia
Japan
Thailand
Philippines
China
Indonesia
Vietnam
Dynamic MVNO Activities in Mature Mobile Markets, June 2007
31MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Asia MVNOs (continued)
n.a.
•Nomonthly subscriptionfee. Instead,customers willpayaperhalf- minutepriceforall calls,oraone-off paymentpermonth forunlimitedcalls.•Toofferservices andhandsetsfully usableinthemobile environment,similar tothecurrentPC environmentathome oroffice.
•High-speed nationwidemobile environment.•International roaming.•UniqueMVNOfee plan.•Fixed-rateplan, Packetshareplan, andConnectionshare plan.•Secure,stablemobile communications environment.
•Subcriberscan receivea“phoneand fly”rebateofupto 15centsinthedollar ontheirtelcobills, whichtheycanspend ontravelproducts offeredthrougha sistercompany.
n.a.
n.a.
•Aimsatstablemobile bankingserviceto protectcustomers’ dataasdirectly administeredbythe operatingbanks.
•Providing“high-speed datacommunications bybuildingmobile broadbandservices supportedbythe latest“HSDPA”(High- SpeedDownlink PacketAccess)andIP networktechnologies.
•Providing comprehensive solutions(including one-stopcorporate networkconstruction andoperationthat includesmobiledata communications)for businessesemploying mobilebroadband.
n.a.
n.a.
n.a.
n.a.
n.a.
Corporatebusinesscustomers
Smallandmediumsized
corporateusers
Smallandmediumenterprisebusinesscustomers
Customerswhodonotwanttobetiedupwithlongtermcontracts
SKTelecom
NTTDoCoMo
NTTDOCOMO(3GFOMAnetwork)
VodafoneNZ
TelecomNZ(CDMA)
VodafoneNZ
2007
2008
2008
2007
2007
2008(notlaunched)
KoreaFinancialTelecom&ClearingsInstitute
EMobile
IIJMobile
M2Telecoms
TelstraClear
Black+White
Korea
Japan
NewZealand
MVNO (Service Plan)
Launch Year
Hosting MNO Objective Differentiating
FactorsTarget
SegmentsMVNO
Classification
n.a.: not availableSource: Adapted from various websites
32 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
REGULATORY CONSIDERATIONS IN MVNOs
TheviewsofregulatorstowardsMVNOsdifferacrossvariousjurisdictions,whereopinionshavebeenbothfor and againstMVNO regulations. Nevertheless,regulators in many countries are considering towhatextent the regulatory intervention, includingaccesspriceandconditions,isnecessary,ifindeedthereissuchdevelopment.
Herewedocumentsomeexamplesforandagainstregulatoryinterventionsfromvariousjurisdictions:
Supporters of Regulatory Intervention
AccordingtoareportbyITUNews26,thoseinfavourofregulationarguethefollowing:
1.Mobile network operators control the available radio spectrum, which is a bottleneck facility that isanentrybarrierfornewmobilenetwork operators.Hence,mobilenetworkoperatorsare lesslikelytoprovideMVNOaccessunlessitisa regulatoryrequirement;
2.Regulation of the mobile market is said to be failing, which is another reason why MVNO regulationmaybeagoodidea;and
3.Mobile operators have very high profitmargins of25%, in somecasessignificantlyovercosts. Current regulation, as interpreted by some nationalregulatoryauthorities,alreadyprovides the power to enforce an access obligation on existingoperators.
Opponents of Regulatory Intervention
Further to the report, ITU News27 has suggestedthat those who are opposed to MVNO regulatoryinterventionargueonthefollowingbasis:
1.Benefits of MVNOs are as yet unproven, and that there is inadequate evidence that market failurehasoccurred;
2.Themobilemarketiscompetitivebynatureand thereforedoesnotrequireregulation;
3.There is no industry consensus that MVNO accessisnecessary;and
4.There is a bleak possibility that MVNOs could evendiscourage investment inmobilenetworks (both2Gand3G).Anti-regulatoryintervention stances also argue that regulatory measures such as indirect access or 3G networks will improvethecompetitivesituation.
Levels of Regulatory Intervention
The levels of regulator intervention vary amongcountriesdependingonhowopen it istonetworkaccess. Interventionvariesfrom–strongmarketintervention to creating a more favourable entrysettings.Thefourbasicregulatorytoolstofacilitateentryare:
SuggestingoperatorsvoluntarilyopentheirnetworksandnegotiatewholesaleagreementswithpotentialMVNOs.
•Lessinterventionist•Commercial negotiation•Lefttothemarket players•Canbethrougha co-regulatory approach•Requirescredible threatfromregulator
MandatedMVNOaccesswithdirectinterventionandestablishmentofastrictregulatoryframework.
•Highlyinterventionist•Fastestandclearest approach•Canbejustifiedon basisofmarketfailure or“bottlenecks”•Normallyrequiresa ReferenceAccess Offer(RAO)/Reference InterconnectionOffer(RIO)
Noregulatoryinterventionandbaseonmarketforcesthatenablebothpartiestoarriveatcommerciallysensibledeals.
•Noninterventionist•SupportsWin-Win ethos•Riskis:no commercialdeals withnofurther competition•Maybesubjectto gamingandabuse byMNO
IntroducingenablingfactorsthatwouldfacilitatetheentryofMVNOswithoutdirectlyregulatingthem(loweringswitchingandentrybarriers.
•Veryminimal interventionist•Onlyintroduce overallframeworks requiredtoensure astableenvironment fordecisionsandto supportMVNOentry byreducingbarriers
Definition
Approaches
Regulatory Tools
Heavy-handed interference
Signalling regulation Enabling
Purely commercial negotiation
26 ITU News No. 8/2001, http://www.itu.int/itunews/issue/pdf/2001/08.pdf27 ITU News No. 8/2001, http://www.itu.int/itunews/issue/pdf/2001/08.pdf
Source: Adapted from “MVNO Access and Interconnection: Regulatory Models and Key Agreement Terms”, by FRiENDi Mobile, 2007
Decreasing Levels of Regulatory Intervention
33MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
MVNO Regulatory Regime Worldwide
DifferentcountriesapproachdifferentregulatoryregimetoencourageMVNOsentryintothemarket.ThisrangesfromensuringopennetworkaccesslikeinHongKongtostrictprohibitionasinItaly.OftenanopenandsupportiveregulationisthemostimportanttoenableMVNOtothriveinamarket.
ThefollowingtableshowsthedifferentregulatoryapproachtowardsMVNOentryinvariouscountries:
28 Autorité de Régulation des Communications électroniques et des Postes (ARCEP)29 For a summary of EC’s New Regulatory Framework, please see International Telecommunications Union “The New European Union Regulatory Framework for Electronic Communications: Convergence and Regulation”, http://www.itu.int/ITU-D/ conferences/wtdc/2002/doc/info-docs/024E.doc, 23 March 2002 and for further readings on EU Regulatory Actions in EU, please refer to “Mobile Virtual Network Operators: Blessing or Curse? An Economic Evaluation of the MVNO Relationship with Mobile Network Operators” NERA, 2006
Source: “Mobile Virtual Network Operators (MVNOs) in Israel – Economic Assessment and Policy Recommendation” by NERA Economic Consulting, August 2007; “Asia Calling – Taking on the Rising MVNO Wave in Asia” by Ernst and Young, 2007; “The Communications Market Interim report” by Ofcom February 2006; “Mobile Virtual Network Operators: Can They Succeed in a Competitive Carrier Market?” by The Yankee Group, 2000; “Mobile Virtual Network Operators (MVNOs) (Special Reference to Regulatory Environments)”, research paper submitted to the University of Manchester, http://11papers.ssrn.com/sol3/papers.cfm?abstract_id=1087262
MVNO Regulatory Regime
HongKong
Norway
SouthKorea
UnitedStates
UnitedKingdom
France
Denmark
Finland
Japan
Taiwan
Ireland
Canada
Argentina
Italy
HasaMVNO-relatedregulationwhichwasimplementedin2001.Theregulationlimitedto3Gnetwork,requires3Glicencestoopenup30%oftheirnetworkcapacitytounaffiliatedMVNOsandispartofthelicensingconditionsfor3Gspectrum.
RegulatorimposedanobligationonMNOstoprovideaccesstoMVNOsin2003.
ItsMinistryofInformationhasindicatedastrongwilltoopentheMVNOmarket.TheNationalAssemblyissettorevisetheTelecomActtoforcenetworkoperatorswithover50%marketsharetoopentheirnetworkstoresellers.
FCChasrepeatedlyfoundthemobilemarkettobeeffectivelycompetitive.NointerferenceintheMVNO-MNOrelationship.MNOandMVNOsareneverthelessregulated.AllwirelesscarriersincludingMVNOsmustregisterwiththestateconcernedbeforeprovidingservice,musttoregulatorsandhaveuniversalserviceandcustomercomplaintobligations.
NoMVNOrelatedOFCOM-specificregulatoryrequirementsbeyondthoseinthepublishedGeneralConditionsofEntitlementtoopennetworkstoMVNOentirelyvoluntarily.
ECstruckdowntheFrenchregulator’sproposedMVNO-relatedregulation.NoMVNO-relatedregulation.ARCEP28actsasawatchdogandhaspromisedtoreassessthemarket.
OneofthefirstEuropeancountriestoimplementwholesaleaccessregulationandtosupportandpromotetheMVNOconceptwithamandatorywholesaleaccessrule.UnderEC’snewregulatoryframework29,thisrulewaswithdrawn.Currently,therearenoMVNO-relatedregulatorymeasuresinplace.
TheFinishregulator(FICORA)hastraditionallyencouragedMNOstoenterintowholesaleagreementswithMVNOs,buthasrefrainedfromactuallyintervening.AllMVNOagreementsinFinlandhavebeentheresultofcommercialnegotiations.
ThegovernmenthassetnewguidelinestomandatemobileoperatorstoopentheirnetworktoMVNOs.OperatorscannotrejectarequestfromanMVNOwithoutjustifiablereasons.
TaiwanamendedregulationstoopentheMVNOmarketsin2003whereplayerscanobtainTypeIItelecommunicationslicencetostartservice.
ThereiscurrentlynoMVNO-relatedregulationandMNOsmayhostMVNOsattheirowndiscretion.
TheCanadianRadio-TelevisionandTelecomCommission(CRTC)hasrefrainedfromregulatingtheMNO-MVNOrelationship.
LargenumberofMNOlicencesgrantedtomakemarketunattractivetoMVNOs.StringentrolloutobligationstoMNOsmakeMVNOsentrydifficult.
TheregulatorhasdeterminedthatnetworkoperatorsdonothavetoopentheirnetworkstoMVNOsinrequest.TheItalianregulatorAgcomhasdecreedthatthenetworkoperatorsshouldbeaffordedalevelofprotectiontodeveloptheir3Gbusiness,inadecisionthatwasupheldbytheEUinDecember2005.TheItaliangovernmentdecidedtodelayMVNOlegislationuntilatleast2010,sotogiveincumbentstimetorecoverUMTScostsandestablishthemselvesinthemobiledatamarket.
ForceMVNOstoShareNetwork
FacilitateLaunchofMVNOs
IndifferenttoMVNOs
DiscourageDevelopmentofMVNOsProhibitMVNOs
Regulatory Position Country Regulatory Regime
34 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
ENABLEMENT PARTNER - THE MOBILE VIRTUAL NETWORK ENABLER (MVNE)
MVNOs IN MALAYSIA
With the successful entries of MVNOs, the needfor a special focus enabler to efficiently supporttheoperational tasksof theMVNOespecially inamarketwithalargenumberofMVNOsisbecominganecessity.Asaresult,thishasgeneratedanewsub-segment, or an added element in the valuechain,totheMVNOindustry.KnownastheMobileVirtualNetworkEnabler(MVNE),thisentityemergestoaddressandfillthegap.
ThoughthedegreeofmaturityoftheMVNEindustryisstillatanascentstage,ithascreatedanopportunityforMVNEstopartnerwiththeMVNOsandactasaninterfacebetweenaReseller or EnhancedServiceProvidersandahostMNO.Hence,throughasmartpartnership,aMVNEcanbeagoodcomplementtotheMVNO’scorebusiness.
Recognising this, MVNEs role is to provideback-office support in terms of processes andsystems that make a MVNO run; allowingMVNOs to outsource telecom intensive activities(e.g., logistics, provisioning, billing, real-timecharging,collections,recharge,andcustomercare),systemsimplementationandhosting.Attimes,a
Trends in Malaysia
Like many other countries, Malaysia has similartrends in embracingMVNOmodels as part of themobileindustry.ThearrivalofMVNOsinMalaysiarepresents an exciting window of opportunity forotheroperators,especiallythosewhoarefromnon-telecommunications industry to penetrate a highgrowthmarket and at the same time renew thismarketgrowthfromadifferentperspective.
MVNEmayalsoprovidetechnicalarchitectureandenter intowholesale agreementwith a hostMNOtoenablemobileserviceprovisiononbehalfoftheMVNO.
Choosing an end-to-end solution by MVNE willenable the MVNOs to go tomarketmore quicklywhilefocusingonitscorecompetenciesandatthesame time, minimise the capital investments forthe MVNOs or MNOs or even both the operatorsconcerned. According to Telecompaper, someexamplesofMVNEsthatarecurrentlyinoperationareZtarMobilintheUS,SpinboxinFinland,Norwayand Sweden, Transatel for the European market,ComTel Corporation and Virtel Group in AustraliaandAspiderSolutionsinSweden,NetherlandsandCroatia.
Just like for MVNOs, to understand the MVNEsoperationalperspectiveandcorebusinessrequiresindepthstudyasMVNEsareactuallyamarketbyitself. However,presentlynotmanystudieshavebeen done partly because of the current nascentstateoftheMVNE.
Four operators, Merchantrade AsiaSdn Bhd, REDtone International Bhd,TuneTalkSdnBhdandXOX.comSdnBhdhaveMVNOlicenceawardedbythe Malaysian Communicationsand Multimedia Malaysia(SKMM). While some MVNOoperators likeMerchantradeAsia and REDtone havelaunched their services,TuneTalkandXOX.comhave yet to rollouttheirservices.
35MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Malaysian Market Readiness for MVNO
WhereisMalaysiacurrentlypositionedandwhatisthemarketreadinessforMVNOs?Overall,Malaysiahasmoremobileprepaidsubscriberscomparedtomobilepost-paidsubscribers.Theratiois80:20prepaidtopost-paidsubscribersoutofthe23.3millionmobilesubscribersin200730.Thatis,thetotalnumberofprepaidsubscribersfor2007standsat19.4million.
Malaysia MVNOs
SMS,MultimediaMessagingService(MMS),GeneralPacketRadioService(GPRS)andmobilecontent.
SMS,MMS,GPRSand3Gtechnology.
PrepaidvoiceandSMS
Purchasesthroughmobiledevices,top-upfacilities,contentandservicesofferingasocialnetworkingelement.Alsoinitssuiteofservicesisafeaturethatallowsconsumerstoseamlesslyaccessmobilewebservicesthroughthewebandontheirmobiledevices.
ToprovideforeignworkerssegmentinMalaysiawithmobileandremittanceservices.
OnestopsupplierandServiceProvideroftotaltelcosolutionscateringtocorporate,SMI,SMEandSOHOcommunitiesinMalaysia.
LowcostPanAseanMVNO.
Offeringcustomersfull-fledgedservicescompetitivewiththosefromamobilenetworkoperator.
ForeignmigrantworkersinMalaysia
Enterprisecustomer
Massmarket
YoungChinesemarket
Celcom
Celcom
Celcom
Celcom
2007
2008
Pendinglaunch
Pendinglaunch
(November2008)
Merchantrade(Prepaid)
REDtoneMobile
(Postpaid)
TuneTalk
XOX.com(PrepaidandPostpaid)
MVNO Launch Year Description Service ProvidedHost MNO Target Market
Source: Various websites and meetings with Malaysian MVNO operators
Source: “Industry Performance Report 2007” by SKMM, 2007 Source: “Industry Performance Report 2007” by SKMM, 2007
30 “Industry Performance Report 2007” by SKMM, 2007
25
20
15
10
5
0
50
40
30
20
10
0
No.ofSubscribers(million)
Growth(%)
2000 20002001
5.1
7.5
9.3
11.0
14.5
19.5 19.5
23.3 47.0
24.0
18.3
31.8
34.5
0.4
19.5
20012002 20022003 20032004 20042005 20052006 20062007 2007
Cellular Mobile Subcribers(2000-2007)
Cellular Mobile Subcribers Growth(2000-2007)
36 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Source: “Industry Performance Report 2007” by SKMM, 2007
n.a.: not availableNote: Including five years industry forecastSource: Business Monitor International Report third quarter 2008
Source: “Industry Performance Report 2007” by SKMM, 2007
ThehighnumberofprepaidsubscribersisencouragingforanMVNOmarketasmostMVNOsofferprepaidservicestotheircustomers.
PriorexperiencehasshownthatMVNOsthriveinamorematureanddynamicmarketwhiletheyhavemuchlessimpactinemergingmarkets.In2007,themobilemarketpenetrationratestandsat85.1%whichindicatesemergingmaturityofthesector.
WhenlookingatAverageRevenuePerUser(ARPU),thegreaterprepaidsubscribermixesinsecondquarter2007andintothirdquarter2007haveinevitablyledtoaflatblendedARPUinMalaysia31.Furthertothat,accordingtoaResearchandMarketsreport,theARPUlevels inMalaysiahavestabilised32. Malaysia’smobileprepaidARPUdivideisasfollows:
Malaysia’s ARPU Divide (USD)
14.8
n.a.
16.6
15.1
n.a.
15.7
15.1
n.a.
15.4
15.1
30.6
15.7
12.8
26.8
14.8
10.8
25.1
14.0
10.3
25.7
14.3
10.8
28.8
14.6
12.5
30.6
15.7
13.1
31.7
15.4
13.1
33.1
15.4
14.0
34.8
14.6
Celcom
Maxis
DiGi
Dec-07
Dec-06
Dec-05
Jun-07
Jun-06
Jun-05
Mar-07
Mar-06
Mar-05
ARPU Prepaid
Sept-07
Sept-06
Sept-05
31 “Dividing the 3G Mobile Market in Asia” by Business Monitor International, 200832 http://www.researchandmarkets.com/research/901d64/3q08_malaysia_mobi, July 2008
25
20
15
10
5
0
100
80
60
40
20
0
2000
1997
11.49.7 12
21.8
30.836.9
43.9
56.5
74.1 72.3
85.1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
2001 2002 2003 2004 2005 2006 2007
2.6
3.13
2.5
2.6
2.9 3.4
3.9
No.ofSubscribers(million)
PenetrationRate(%)
2.54.4
6.38.5
11.9
16.6 16.119.4
Prepaid Postpaid
Cellular Mobile Prepaid and Post-paid Subscribers (2000-2007)
Cellular Mobile Penetration Rate (1997-2007)
37MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Nigeria
Cameroon
Pakistan China
Indonesia Brazil
ArgentinaMexico
South Africa
UAE
Saudi Arabia
Malaysia Malaysia - 2007
Romania
Poland
ChileBulgariaRussiaIndia
Eygpt
Source: “Industry Performance Report 2007” by SKMM, 2007
AccordingtoPyramidResearch,MVNOinemergingmarketscanbedividedintofourtypes,namelysweetspot,maturemarket, attractivebut riskymarket andunattractivemarket as shown in thequadrantsabove.In2006,PyramidResearchpositionedMalaysiainquadrantIItogetherwithothercountriessuchasPoland,SouthAfricaandMexico.Inthisquadrant,themarketisatamaturingstagewithhighARPUandhighpenetration.Meanwhile,subscription,penetrationandARPUfiguresfrom2007,haveallowedMalaysiatoremaininquadrantII,amarketwhichissuitablefordevelopmentofMVNOsinthecountry.
Additionally,withadiversifieddemographicstructure(potentialsindifferentethniccommunityaswellastheforeignworkersmarket)whichcreateswindowsofopportunityforsegmentedandnicheMVNOmarket,competitive telecommunication industry landscape,andoverall favourable regulatoryenvironmentwillfurtherprovideacatalystfortheemergenceofMVNOsinMalaysia.
MVNOs and the Malaysia Regulatory Environment
SKMMdefinedMVNOinaverybroadtermasbroaderdefinitionsnotonlylowerthebarrierstomarketentry but also provide flexibility to potential MVNOs to establish businessmodels according to theirfinancialcapability34.
Unlikemostothercountries,thelicensingframeworkundertheCommunicationsandMultimediaAct1998(CMA)wasdeveloped toaccommodatebusinessmodels suchasMVNOs. The licensing requirementssetoutbySKMMforeachbusinessmodelsareindicativeonlyandtheactuallicensingrequirementscanonlybeascertainedbySKMMuponassessmentoftheapplicationsvis-à-vistheCMAandtherelevantsubsidiarylegislationsonacasebycasebasis35.
ThereappearsmarketreadinessinMalaysiaforopportunitiestostimulatethecommunicationsmarketfurtherthroughdifferentiationofservicesinahighlycompetitivemarketthroughMVNOs.Thismatchesthe AsianMVNOmarketwhere presence or intended roll-outs are seen in the topmobile-penetratedregions33.
MVNO Suitability in Emerging Markets
33 “Asia Calling – Taking on the rising MVNO wave in Asia” by Ernst and Young, 200734 “Guidelines on Regulatory Framework for 3G Mobile Virtual Network Operators” by SKMM, February 200535 “Guidelines on Regulatory Framework for 3G Mobile Virtual Network Operators” by SKMM, February 2005
I II
IVIII
60
50
40
30
20
10
010 20 30 40 50 60 70 80 90 100
AverageRevenuePerUser(ARPU)
permonth(USD)
MarketPenetration(%)
I Sweetspot:highARPU,lowpenetration MVNOspursuesegmentsthatexistingplayers donotalreadyhave.MNOswillnotopen networksunlessforces,butregulatorsmay mandateopening.MNOsmaycompletefor samesegmentsasMVNOs.Marketsinthis categoryincludeNigeria,CameroonandEgypt.II Maturemarket:highARPU,highpenetration Relativelysloworganicgrowthandintense competitionmeanMNOsmayhostMVNO approachesarestillpossible.MNOslikelyto havenetworkcapacity.MarketssuchasSouth AfricaandMexicofallintothiscategory.III Attractivebutrisky:lowARPU,lowpenetration HighpotentialmarketvolumesbutlowARPU. MNOsneedtobemuchmorecost-effective; MNOsunlikelytoopennetworkstoMVNOs.IV Unattractive:lowARPU,highpenetration Addressablemarketalreadystretched.MNOs unlikelytoopennetworkstoMVNOs.
38 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
MVNO Differentiation by Licensing Categories
NetworkFacilitiesProvider(NFP)
NetworkServiceProvider(NSP)
ApplicationServiceProvider(ASP)
•Switchingcentre•Radio communications transmittersand links
•Bandwidthservices•Cellularmobile services•Accessapplication services
•Publiccellular services
•Bandwidthservices•Cellularmobile services•Accessapplication services
•Publiccellular services
•Bandwidthservices•Cellularmobile services•Accessapplication services
•Publiccellular services
•Publiccellular services
Licence Full MVNO Enhanced Service Provider Enhanced Reseller Reseller
Source: “Guidelines on Regulatory Framework for 3G Mobile Virtual Network Operators” by SKMM, February 2005
Atthisstage,SKMMisdirectingASPstoseekMVNOsventureswithcurrent3Glicenceholders.SKMMmonitors,butwill intervene if it issatisfiedthatsuch intervention isnecessarytoensurea longtermbenefitstoendusersandgrowthintheindustry36.
CONCLUSION
TheMVNOconceptwillcontinuetoreceiveheightenedlevelofinterestoverthenextfewyearsandisexpectedtoprovidemorecompetitionandinnovationtothetelecommunicationsmarket.ItisnotedthatmanyoftheincumbentoperatorshavenowacceptedtheexistenceofMVNOswhichtosomeextentdoprovideopportunitiestotheMNOsthemselvesespeciallywhentheystandtobenefitfromtappingnichemarketswhichtheypreviouslycouldnotserve.
However, challengesstill remain fornewentrants topenetrate the telecommunicationmarketas longas there are continuous changes in the telecommunication landscape. But by capitalising onmarketdifferentiationandsegmentingtheindustryinsteadofcompetingonprice,someMVNOshaveprovedtoberesilient.
Approachestoregulatoryinterventionareobservedtodifferaroundtheworld,whilemostMVNOsthriveinunregulatedmarketconditionswhereregulatorstakeamonitoringposition.ThereareclearindicatorsofvariousbusinessmodelsforMVNOswithdifferingdegreesofrelationshipswithMNOs,differentwholesalestrategies,andapproachestovaluepropositionfortheend-users.Thoughonemodelmaybedeemedsuccessful foroneMVNO, itmaynotworkforanotherMVNOduetouniquechallenges incontextandinherentissuesarisinginthebusinessmodels.
Theappropriateentrystrategy–astrongpartnershipwithanMVNO,alargecustomerbase,theabilitytoacquirecustomersatalowercostthantheindustryaverageandanexperiencedexecutionteam–arethefewkeybasicstoagoodheadstart.Overall,theoutlookfortheexpansionoftheMVNOindustrylookspromisingwithdiverseopportunitiesespeciallyfornon-telecommunicationproviders.
36 “Guidelines on Regulatory Framework for 3G Mobile Virtual Network Operators” by SKMM, February 2005
39MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
ACRONYMSACRONYMS
ThirdGeneration
AverageRevenuePerUser
ApplicationServiceProvider
(Individual)
BusinessSupportSystems
CertificationandAccreditation
CapitalExpenditure
CanadianRadioTelevisionand
TelecomCommission
CodeDivisionMultipleAccess
CommunicationsandMultimediaAct
1998
CustomerRelationshipManagement
EarningsBeforeInterest,Taxes,
DepreciationandAmortization
EnhancedServiceProviders
FederalCommunicationsCommission
GeneralPacketRadioService
GlobalPositioningSystem
GlobalSystemforMobile
HomeLocationRegister
HighSpeedDownlinkPacketAccess
IPMultimediaSystems
IntelligentNetwork
KoreaFinancialTelecommunication
andClearingInstitute
LocationBasedService
MultimediaMessagingService
3G
ARPU
ASP (I)
BSS
C&A
CAPEX
CCRTC
CDMA
CMA
CRM
EBITDA
ESP
FCC
GPRS
GPS
GSM
HLR
HSDPA
IMS
IN
KFTCI
LBS
MMS
MNO
MSC
MVNE
NDC
NFP (I)
NSP (I)
OEM
OFTA
OSS
POS
PC
PTT
R&D
RAO
RIO
SCP
SIM
SME
SMI
SMS
SOHO
UMTS
US
UK
VAS
VLR
MobileNetworkOperator
MobileSwitchingCenters
MobileVirtualNetworkEnabler
NationalDestinationCode
NetworkFacilitiesProvider
(Individual)
NetworkServiceProvider(Individual)
OriginalEquipmentManufacturer
OfficeoftheTelecommunications
Authority
OperationalSupportSystems
PointOfSale
PersonalComputer
Push-To-Talk
ResearchandDevelopment
ReferenceAccessOffer
ReferenceInterconnectionOffer
ServiceControlPoints
SubscriberIdentityModule
SmallandMediumEnterprises
SmallandMediumIndustry
ShortMessageService
SmallOfficeandHomeOffice
UniversalMobileTelecommunications
System
UnitedStates
UnitedKingdom
ValueAddedServices
VisitorLocationRegister
40 MobileVirtualNetworkOperators(MVNOs)-TheRedefiningGame
Fact
ors
to
Avo
id in
MV
NO
Bu
sin
ess
Mo
del
Sourc
e: V
ario
us
web
site
AP
PEN
DIX
Failed
MV
NO
Sta
rt U
p
Date
Fail
ed
Date
Mo
nth
/Y
ears
Wh
ole
sale
p
rici
ng
to
o
hig
h
Po
or
po
siti
on
ing
in
targ
et
mark
et
Po
or
dis
trib
uti
on
ch
an
nels
Po
or
mark
eti
ng
Lack
of
Bra
nd
ing
Lack
of
un
iqu
e
ap
plica
tio
ns
Lack
of
cust
om
er
base
Exp
en
sive
serv
ice
Po
or
bil
lin
g a
nd
co
llect
ion
sy
stem
To
o n
ich
e
Rest
rict
ive
an
d c
ost
ly
term
s o
f it
s M
VN
O
ag
reem
en
ts
USA
MobileESPN
DisneyMobile
Amp’d
Sonopia
Helio
Movida
Voce
XEMobile
UK
easyMobile
SINGAPORE
VirginMobile
Singapore
HONGKONG
ShellHongKong
AUSTRALIA
OneTel
NETHERLANDS
EasyMobile
Nov2005
June2006
2005
1999
2005
Nov2005
2006
June2005
Oct2001
1995
Oct2005
Dec2006
Dec2007
2007
Mar2008
2008
Feb2008
2007
Dec2006
July2002
June2001
Mar2006
13months
18months
24months
9years
27months
12months
18months
9months
6years
5months
XX
X
X X X
X X X
X X X X X
X X X X
X X X X X X X X X X
X X
X X
X