MBIT Thesis Mobile Virtual Network Operator (MVNO) - Prepaid MVNO
MBIT Thesis Mobile Virtual Network Operator (MVNO) - Prepaid MVNO
MBIT Thesis Mobile Virtual Network Operator (MVNO) - Prepaid MVNO
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<strong>MBIT</strong> <strong>Thesis</strong><br />
<strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong><br />
(<strong>MVNO</strong>)<br />
Professor: Dr. Gregory Yovanof<br />
Author: T. Bassayiannis<br />
Date 08/12/2008
<strong>MVNO</strong><br />
Table of Contents<br />
1. <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong> (<strong>MVNO</strong>) - Abstract ..........................................................................5<br />
2. The <strong>MVNO</strong> ..........................................................................................................................................6<br />
2.1 The Beginning of <strong>MVNO</strong>s...........................................................................................................8<br />
2.2 The Value-chain & Value Net ...................................................................................................12<br />
2.3 The players...............................................................................................................................15<br />
2.4 <strong>Mobile</strong> Solutions .......................................................................................................................16<br />
2.5 Characteristics of an <strong>MVNO</strong> .....................................................................................................16<br />
2.6 A typical <strong>MVNO</strong> Business Model..............................................................................................17<br />
2.7 <strong>MVNO</strong> Defined From a Customer Perspective.........................................................................17<br />
2.8 MVNE (<strong>MVNO</strong> Enabler)............................................................................................................19<br />
2.9 <strong>MVNO</strong> & MVNE ........................................................................................................................20<br />
2.10 Why <strong>MVNO</strong>s make sense.........................................................................................................20<br />
2.11 Key driving factors enabling the <strong>MVNO</strong> opportunity .................................................................22<br />
2.12 The <strong>MVNO</strong> opportunity.............................................................................................................22<br />
2.13 <strong>MVNO</strong> opportunities increase with 3G rollout...........................................................................22<br />
2.14 The overall <strong>MVNO</strong> business context ........................................................................................23<br />
2.15 <strong>MVNO</strong>s Backgrounds (Legacy and Next generation <strong>MVNO</strong> Models) ......................................24<br />
2.16 Where is the <strong>MVNO</strong> today........................................................................................................26<br />
2.17 Next generation <strong>MVNO</strong>s...........................................................................................................26<br />
3. <strong>MVNO</strong>s: Identities and Distribution ...................................................................................................28<br />
3.1 <strong>MVNO</strong>S Global Initiative ...........................................................................................................28<br />
3.2 <strong>MVNO</strong> Global market share......................................................................................................31<br />
3.3 The Future of <strong>MVNO</strong>s in the 3G Era ........................................................................................32<br />
3.4 Global <strong>MVNO</strong> Distribution.........................................................................................................32<br />
3.5 <strong>MVNO</strong> Global Market Forecast (2006-2012) ............................................................................33<br />
3.5.1 The Customer Segments......................................................................................................33<br />
3.5.2 The Revenue Model (an example) .......................................................................................34<br />
3.5.3 <strong>MVNO</strong> business Models .......................................................................................................34<br />
3.6 <strong>MVNO</strong> Adoption in Europe - 151 <strong>MVNO</strong>s.......................................................................................40<br />
3.6.1 Fixed telephony <strong>MVNO</strong>s in Europe ......................................................................................40<br />
3.6.2 <strong>MVNO</strong>/MNO European Market share ...................................................................................41<br />
3.6.3 <strong>MVNO</strong>s in Europe: numerous initiatives, very few successes..............................................41<br />
3.7 <strong>MVNO</strong> Adoption in Greece .............................................................................................................42<br />
3.7.1 The <strong>MVNO</strong>s in Greece .........................................................................................................42<br />
3.7.2 <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s customer base (June 2008) .......................................................43<br />
3.7.3 <strong>MVNO</strong> Figures ......................................................................................................................44<br />
3.7.4 MNOs ARPU and AMOU......................................................................................................44<br />
4. <strong>MVNO</strong>/ MNO/ MVNE Benefits and Drawbacks.................................................................................45<br />
4.1 Advantages/ Benefits................................................................................................................45<br />
4.2 Disadvantages/ Drawbacks ......................................................................................................46<br />
4.2.1 MVNE trends ........................................................................................................................48<br />
4.2.2 MVNE Uses in Europe..........................................................................................................48<br />
4.2.3 <strong>MVNO</strong>-MVNE-MNO Functional Model .................................................................................49<br />
4.2.4 Viability of <strong>Virtual</strong> <strong>Mobile</strong> Players..........................................................................................50<br />
4.2.5 Sustainability.........................................................................................................................51<br />
4.2.6 Brand identity in <strong>Mobile</strong> Services..........................................................................................51<br />
4.2.7 Type of Companies attracted to the <strong>MVNO</strong> Model ...............................................................52<br />
4.2.8 VALUE TO MNO...................................................................................................................53<br />
4.2.9 VALUE TO MNO & <strong>MVNO</strong> ...................................................................................................53<br />
Page 2 of 110
4.2.10 VALUE TO <strong>MVNO</strong> ............................................................................................................53<br />
4.2.11 Different approaches to mobile services...........................................................................54<br />
4.2.12 Execution & Fulfilment ......................................................................................................56<br />
4.2.13 Business Planning ............................................................................................................56<br />
4.2.14 Business Design ...............................................................................................................57<br />
4.2.15 Business Infrastructure .....................................................................................................57<br />
4.2.16 Production Support ...........................................................................................................58<br />
4.2.17 Conclusion ........................................................................................................................59<br />
4.2.18 MNO Motivations (to host <strong>MVNO</strong>s)...................................................................................60<br />
4.2.19 Host MNO Benefits ...........................................................................................................60<br />
4.2.20 Host MNO Requirements..................................................................................................61<br />
4.2.21 Host MNO Wholesale Business Potential (Example) .......................................................61<br />
4.2.22 The MNO Perspective ......................................................................................................61<br />
4.2.23 The <strong>MVNO</strong> Perspective ....................................................................................................62<br />
4.2.24 <strong>MVNO</strong>s rationales.............................................................................................................64<br />
4.2.25 <strong>MVNO</strong>s positioning ...........................................................................................................64<br />
4.2.26 Key challenges faced by <strong>MVNO</strong>s .....................................................................................68<br />
5. The MARKET structure & opportunities ............................................................................................70<br />
5.3 <strong>MVNO</strong> market drivers ...............................................................................................................70<br />
5.4 <strong>MVNO</strong> market structure............................................................................................................70<br />
5.5 Market size ...............................................................................................................................71<br />
5.6 MVNE value..............................................................................................................................71<br />
5.7 Aggregation business model benefits.......................................................................................71<br />
5.8 Key Requirements ....................................................................................................................72<br />
5.9 Competition is intensifying –mobile premiums decrease..........................................................72<br />
5.10 Local scale is key to achieving EBITDA margin ambitions .......................................................74<br />
5.11 <strong>Operator</strong>s need to adjust ..........................................................................................................74<br />
5.12 The challenger strategy must be tailored to the market environment.......................................75<br />
5.13 Marketing strategies .................................................................................................................75<br />
5.14 Timing.......................................................................................................................................76<br />
5.15 Provider Selection criteria.........................................................................................................77<br />
5.16 <strong>MVNO</strong> Services ........................................................................................................................77<br />
6. <strong>MVNO</strong> BUSINESS SETUP ...............................................................................................................80<br />
6.1 Setting-up Strategies ................................................................................................................80<br />
6.2 Key Issues <strong>MVNO</strong> players are faced with ................................................................................80<br />
6.3 Issues per player ......................................................................................................................81<br />
6.4 Targets per player.....................................................................................................................82<br />
6.5 Business Case Structure ..........................................................................................................82<br />
6.6 <strong>MVNO</strong> Business Guide.............................................................................................................83<br />
6.7 The <strong>MVNO</strong> Business: High Entry Barriers and Risks ...............................................................83<br />
6.7.1 Barriers .................................................................................................................................83<br />
6.7.2 Launch Risks ........................................................................................................................84<br />
6.8 The future of <strong>MVNO</strong>s................................................................................................................85<br />
6.9 Implementing an <strong>MVNO</strong> ...........................................................................................................86<br />
6.10 Modeling <strong>MVNO</strong>s: The Big Picture...........................................................................................90<br />
6.11 Critical Success Factors ...........................................................................................................94<br />
6.12 Closing remarks........................................................................................................................96<br />
7. Conclusions.......................................................................................................................................97<br />
7.1 Conclusions & Lessons to be learned ......................................................................................97<br />
7.2 Conclusions regarding the future....................................................................................................98<br />
7.3 Three improvement suggestions ....................................................................................................99<br />
8. References......................................................................................................................................100<br />
<strong>MVNO</strong><br />
Page 3 of 110
9. Annex 1 - Case Study – Western Europe Cellular revenues ..........................................................101<br />
10. Annex 2 - <strong>MVNO</strong> Experience ......................................................................................................107<br />
Annex 3 - Glossary................................................................................................................................109<br />
<strong>MVNO</strong><br />
Page 4 of 110
1. <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong> (<strong>MVNO</strong>) - Abstract<br />
This thesis addresses the phenomena of <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong>s (<strong>MVNO</strong>): often <strong>MVNO</strong> do not<br />
come from the telecom sector but they rent the network of mobile operators to become fully mobile<br />
operators on their own. So they compete directly not only with the other mobile operators but also with<br />
their hosting mobile operator.<br />
Hosting <strong>MVNO</strong>s, supporting them from both operational and commercial perspectives are new<br />
challenges for the mobile operators: they have to set up a specific internal organization because they<br />
used to be a vertically integrated industrial structure. All of this represents tremendous changes for<br />
them.<br />
The aim of the thesis is to research and analyze the current status of the <strong>MVNO</strong> industry, present<br />
different views on implementation approaches, identify markets and market segments served, note<br />
weaknesses and strong points, refer to successes and failures, research current legislation(s)/<br />
regulatory aspects (that are an essential driver for the liberalization of network economies) and in<br />
general show the industry’s evolution path over time. The key element is to see if the <strong>MVNO</strong> is able to<br />
increase the efficiency and competitiveness of mobile markets in specific.<br />
Additionally, starting from the Western European market, an effort will be made to specifically analyze<br />
the case in the Greek <strong>MVNO</strong> market by providing some specific data such as type of service<br />
(prepaid/postpaid), airtime replenishment volumes (prepaid case), brand awareness, market segments,<br />
penetration/ adoption rates, etc).<br />
Having gone through the <strong>MVNO</strong> insights at the end, a description of all the steps involved for an entity/<br />
business, in becoming an <strong>MVNO</strong> from scratch (in the form of a generic guide) will be prepared. A stepby-step<br />
approach will be used for implementing a <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong> (<strong>MVNO</strong>), stating<br />
actions to be adopted and mistakes to be avoided. Given that most of the current implementations have<br />
followed different/ diversified paths (depending on the market needs to be served each time as well as<br />
the intended capital investment by the <strong>MVNO</strong> candidates), an effort will be made to come up with<br />
guidelines (hopefully the most suitable ones, having learned from former/recent <strong>MVNO</strong> adoptions) for<br />
aiding such future implementations.<br />
Another important aspect is the modeling of a mobile network: the <strong>MVNO</strong>s will use some components<br />
while other components are un-useful for them. Without such model, it is impossible to derive the right<br />
costs and price to be charged to the <strong>MVNO</strong> in order to have a win-win industrial model for both the<br />
<strong>MVNO</strong> and its hosting operator.<br />
<strong>MVNO</strong><br />
Page 5 of 110
2. The <strong>MVNO</strong><br />
There is a lot of definitions for <strong>MVNO</strong>s in the sector but a sound definition of virtual operators would consist in<br />
saying they are actors not totally integrated who lack at least a part of the asset at the basis of the network..<br />
Applied to mobiles, this means they do not own the radio access.<br />
However they supply to the market a complete mobile service and they own partially or totally their customers.<br />
They rent at least the radio access to their hosting operator but nothing prevents them to rent more than that to the<br />
operator as some elements of the service provided to the end user (billing, contact center, …). They also complete<br />
the radio access by their own assets like a transport network or some switching infrastructure.<br />
However <strong>MVNO</strong> today are most of the time simple resellers of mobile services that the hosting operator operates<br />
technically.<br />
Scarcity of spectrum has allowed only 3 to 5 mobile operators with a full infrastructure per country via a licensing<br />
process. However it appeared quickly this number was insufficient to have a fully efficient (and competitive) market<br />
despite the existence of 3 to 5 competing networks.<br />
National Regulatory Authorities (NRA) has seen <strong>MVNO</strong> as a (too) quick remedy at least for the access mobile<br />
market. This new kind of actors was deemed to bring more competition (which is not an objective in itself) that<br />
would boost innovation and economic welfare.<br />
Today NRAs consider other remedies like spectrum trading as a means to enable more innovation in wireless<br />
sector.<br />
However <strong>MVNO</strong> remain an efficient means to break the vertical integration of MNO that is considered by some<br />
authors as one of the root cause for a player not to innovate any more; the <strong>MVNO</strong> comes indeed between the<br />
MNO and the end user.<br />
Other authors consider on the contrary that vertical integration allows economies of scale and scope that amortizes<br />
more easily investment. It is an incentive to take more commercial and financial risks. <strong>MVNO</strong>s too use 3 rd parties<br />
for their own innovation so that this argument may not sound completely true.<br />
The multiplication of wireless technologies, the emergence of UMA and IMS will demand new players active on<br />
multiple networks without having the opportunity to own all of them. They will become de facto virtual operators on<br />
other’s assets to operate their services seamlessly across networks and technologies. Such virtual operators will<br />
be innovation-driven.<br />
Another more accepted obstacle to innovation in network economies are the guaranteed incomes that mobile<br />
operators can expect due to their oligopoly situation. The mobile sector is indeed a kind of oligopoly with<br />
guaranteed income. <strong>MVNO</strong> can break this situation as the guaranteed income is based on the difference between<br />
the costs of the network (assets), the revenues and the limited number of players. An <strong>MVNO</strong> does not own a<br />
network and is not stuck to this logic.<br />
<strong>MVNO</strong><br />
Page 6 of 110
There are different kinds of <strong>MVNO</strong>s<br />
Classic Service Provider (reseller of the GSM operator offers)<br />
Resellers merely resell subscription to end users. In most cases, resellers are completely dependent on<br />
MNOs for every aspect of service provision, billing and customer care. However, end users will not be<br />
able to make a distinction between resellers, other form of <strong>MVNO</strong>s and MNOs as resellers have direct<br />
relationship with end users. <strong>MVNO</strong>s that operate as resellers are likely to require an ASP licence.<br />
Enhanced resellers are primarily distributors who resell services provided by MNOs. As with enhanced<br />
service providers, enhanced resellers rely on MNOs for access to the radio network and network<br />
facilities. The key feature that distinguishes enhanced resellers from enhanced service providers is that<br />
enhanced resellers do not have their own SIM cards. While they may still be able to offer their own<br />
branded packages, they will not be able to distinguish their services by their MNC. Enhanced resellers<br />
are likely to carry out customer care and billing in house.<br />
Enhanced resellers may require NSP individual licence if they provide bandwidth services, cellular<br />
mobile services or mobile application services and an ASP licence for providing public cellular services.<br />
ESP: Enhanced Service Provider (Hybrid <strong>MVNO</strong>)<br />
Procures their own SIM cards and controls a few network elements. So, enhanced service providers are<br />
those who do not own or provide network facilities but have the ability to secure its own numbering<br />
range, operate its own HLR and offer its own SIM cards with its own mobile network code. They are<br />
dependent on MNOs for network facilities, as well access to radio network. These service providers are<br />
still able to maintain some independence from MNOs as they are able to differentiate their products.<br />
Enhanced service providers may require NSP individual licence if they own or provide bandwidth<br />
services, cellular mobile services or mobile application services and an ASP licence to provide public<br />
cellular services to end users.<br />
Full <strong>MVNO</strong><br />
Owns everything (including HLR) except the radio network equipments. A full <strong>MVNO</strong> is one that owns or<br />
provides network facilities and network services such as towers, mobile switching centres, home<br />
location registers (“HLR”) and cellular mobile services. A key feature that distinguishes a full <strong>MVNO</strong><br />
from other business models is its ability to operate independently of the MNOs. Full <strong>MVNO</strong>s are able to<br />
secure their own numbering ranges, offer its own SIM card and have full flexibility on the design of the<br />
services and tariff structures.<br />
So, full <strong>MVNO</strong>s are likely to require a network facilities provider (“NFP”) individual licence and a network<br />
service provider (“NSP”) individual licence for the network facilities and network services that they own<br />
or provide. In addition, full <strong>MVNO</strong>s will require an application service provider (“ASP”) licence in order to<br />
provide public cellular services to end users.<br />
Additionally, <strong>MVNO</strong>s are considered as independent service providers willing to access the mobile<br />
operator’s radio network in order to develop and sell product and services competing directly with the<br />
mobile operators. This type of access could be regarded as unbundling of the radio subsystem in the<br />
mobile telecommunications network, and will to some extent be analogous to local loop unbundling<br />
(LLU).<br />
<strong>MVNO</strong><br />
Page 7 of 110
2.1 The Beginning of <strong>MVNO</strong>s<br />
It all started in 2000 in Denmark with what was then a small start-up called Telmore. Using the mobile<br />
network of the former state operator TDC, Telmore launched an <strong>MVNO</strong> business solely online.<br />
Customers bought SIM cards only (solely on-line), using phones they already owned. They prepaid a<br />
single per-minute rate regardless of what time of day they made a call or whether they called a mobile or<br />
fixed line. "In the beginning, it went slowly, but gradually it increased mainly by word of mouth. Within<br />
three years, Telmore had attracted 10 percent of the mobile market. Perhaps more importantly, within a<br />
10-month span, the price of a prepaid minute in Denmark had dropped by 50 percent.<br />
<strong>MVNO</strong>s though will only really have an impact if the incumbents lose their nerve on price and try to<br />
follow them down. If they can hold their nerve and not panic and accept some leakage, the market can<br />
accommodate a few extra niche players.<br />
Along those lines, however pioneering, this first online SIM-based concept was a niche concept and<br />
targeted only a small share of the market.<br />
This first <strong>MVNO</strong> model however has paved the way for others to follow.<br />
Pictorially the different kinds of <strong>MVNO</strong>s can be seen below:<br />
Radio<br />
access<br />
Host MNO<br />
Host MNO<br />
Host MNO<br />
Switches & Services CRM Marketing Distribution<br />
other network & content & &<br />
elements Billing branding<br />
Reseller<br />
Enhanced Service Provider<br />
Full <strong>MVNO</strong><br />
NOTE: GSM operators are referred to as « MNO – <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s »<br />
Therefore in short each of the business models practically means that:<br />
Reseller:<br />
Enhanced Reseller:<br />
Service Provider:<br />
Enhanced Service Provider:<br />
<strong>MVNO</strong>:<br />
Complete <strong>MVNO</strong>:<br />
Buys bulk airtime from the MNO and resells to target<br />
segments<br />
Offer their own branded packages but they will not be<br />
able to distinguish their services by their MNC.<br />
Enhanced resellers are likely to carry out customer<br />
care and billing in house.<br />
Provides services over the mobile platform<br />
Combines the reseller and the service provider business<br />
models<br />
Owns portion of the mobile network with or without<br />
SIM cards depending on choice of mobile technology of<br />
the MNO<br />
Has more control of the mobile network and enables mult<br />
operator agreements<br />
<strong>MVNO</strong><br />
Page 8 of 110
Depending on the extent of involvement/ adoption in the value chain, some other way of looking at the<br />
business models involved can be seen below.<br />
‘Thin’ <strong>MVNO</strong>s will normally source their own billing and customer care services. They will establish their<br />
own tariffs, customer care mechanisms, and provide their customers with basic voice/text services,<br />
usually with simple Internet access and some premium content services. They won’t be able to provide<br />
custom facilities like voicemail, advanced messaging (MMS or SMS) services, or offer advanced<br />
Internet, email services separately from those the host MNO can support.<br />
‘Thick’ <strong>MVNO</strong>s, in addition to their own billing and customer care, will frequently run some of their own<br />
network services, typically SMS or MMS, voicemail, overseas-call routing, and WAP gateways. This<br />
allows these virtual operators to provide advanced services such as VoIP, routing for overseas calls,<br />
more sophisticated email products or custom-built handsets.<br />
The figure below shows a typical <strong>MVNO</strong> infrastructure showing (in green) what a ‘thin’ one might provide<br />
and the additional features (in blue) that a ‘thick’ <strong>MVNO</strong> could offer<br />
<strong>MVNO</strong><br />
Page 9 of 110
Infrastructure Matrix<br />
Offered primarily to nontelecom<br />
companies or telecom<br />
companies wanting to diversify<br />
without significant investments<br />
Offered to companies with some<br />
experience in telecommunications<br />
who can take over some of the<br />
responsibility for providing key<br />
services<br />
<strong>Network</strong> Rollout<br />
The mobile network roll-out follows three <strong>MVNO</strong> Lifecycle clear stages.<br />
<strong>MVNO</strong><br />
Page 10 of 110
Strategy Development, offer packaging, (through all the technology and support needed) to service the<br />
target market and start generating revenue.<br />
Traditional billing systems do not meet the requirements of an <strong>MVNO</strong><br />
<strong>MVNO</strong> need Motivation Insufficiencies today<br />
Low TCO<br />
• Fewer subscribers<br />
to carry total cost<br />
of billing<br />
Easy introduction<br />
of new<br />
services<br />
Future-proof<br />
growth into<br />
mobile and<br />
VAS<br />
Opportunity for<br />
outsourcing<br />
• Limited billing<br />
competence<br />
• Excellence in time<br />
to market critical<br />
• The core business<br />
and growth<br />
opportunity<br />
• Focus on core<br />
business with lean<br />
organization<br />
• Solutions do not<br />
scale down costefficiently<br />
• Incomplete solutions<br />
• Products build to be<br />
run by large billing<br />
departments<br />
• Cross-product<br />
dependencies<br />
• Legacy products<br />
lacks in architectural<br />
flexibility<br />
<strong>MVNO</strong><br />
Page 11 of 110
2.2 The Value-chain & Value Net<br />
The Value Chain<br />
By looking at the value chain and considering the involved enablers (Technical, Emotional, spectrum,<br />
physical, profit) it can be said that <strong>MVNO</strong>s fall between emotional and spectrum enables (between<br />
service and network operators, or between ASPs, ISPs and Portals from one side and <strong>Mobile</strong> <strong>Network</strong><br />
<strong>Operator</strong>s from the other)<br />
The standard approach to the analysis of industry attractiveness is Michael Porter’s Five Forces<br />
framework. The attractiveness of an industry, such as the telecommunication industry, depends on the<br />
state of competition. Competition in an industry is rooted in the underlying economic structure of the<br />
industry. The state of competition<br />
in an industry depends on five basic competitive forces. The figure below gives a picture of the Porter’s<br />
“Five Forces” framework: The power of the five forces – Suppliers, Buyers, Potential Entrants,<br />
Substitutes and Rivalry among existing firms – depends on some major factors and characteristics listed<br />
in the work of Porter.<br />
In his book ”Competitive Advantage” [4] Michael Porter suggested analyzing the “cost leadership” and<br />
“differentiation” strategies by means of the value chain model, which has become the standard approach<br />
to these analyses. An effective competitive strategy according to this approach takes offensive or<br />
defensive action in order to create a defendable position against the five competitive forces.<br />
<strong>MVNO</strong><br />
Page 12 of 110
Figure 1: Porter’s Five Forces<br />
The Value Net<br />
The Value Net can be seen as a generalization of the Five Forces framework. Complementors are<br />
added as a new dimension. The Value Net emphasizes that the value to the customers can depend on a<br />
package of complementary services and/or products. Logically, Complementors will influence the<br />
attractiveness of an industry. Figure 2 gives a picture of the Value Net of a company.<br />
Figure 2: The Value Net<br />
A player is a complementor if customers value your product more when they have that player’s product<br />
than when they have your product alone. A player is a competitor if customers value your product less<br />
when they have that player’s product than when they have your product alone.<br />
<strong>MVNO</strong><br />
Page 13 of 110
Also, a value network can be seen as a web of relationships that generates economic value and other<br />
benefits through complex dynamic exchanges between two or more individuals, groups or organizations.<br />
Two primary types of value can be distinguished:<br />
1. Tangible value exchanges - involve all exchanges of goods, services or revenue<br />
2. Intangible value exchanges - include two primary subcategories: Knowledge and Benefits.<br />
The value network is important part of the organisation design presented by Faber [Faber 2005].<br />
To that extend, in an <strong>MVNO</strong> implementation an extended personalization concept is presented that<br />
enables value networks of content providers, network providers, and service providers to offer<br />
personalized services to mobile users in a way that suits their individual needs at a specific place and<br />
time.<br />
The fact that consumers would like to have only one billing relation will most likely consolidate the<br />
number of actors. Therefore, a new value network with different types of interactions between<br />
stakeholders will be needed in the new <strong>MVNO</strong> market. New networks will consist of many different<br />
actors that have certain resources and capabilities, that when brought together, will create value for the<br />
customers and at the same time, realise their own strategies and goals. The set of arrangements<br />
between the different actors will include how profit, investment, cost, risk and revenue sharing are<br />
arranged.<br />
<strong>MVNO</strong><br />
Page 14 of 110
<strong>MVNO</strong> - A Service Centric Business Model<br />
In the Service Centric Business Model a <strong>Network</strong> Provider offers seamless access on a number of core<br />
and access networks. The Service Provider bundles this seamless access with a number of aggregated<br />
services. This is the case exactly for all <strong>MVNO</strong> types.<br />
Examples of models belonging to the Service centric category are the WEB 2.0 services:<br />
- Model_1 (Flickr, Skype): The model is based on technical innovation, offering a compelling value<br />
proposition. Value adding services are being offered as a premium for which the customer has to pay.<br />
<strong>Network</strong> effects help to drive the adoption and value of the service. Technology is important as an<br />
infrastructure tool, facilitating the business model.<br />
- Model_2: (MySpace, YouTube): The business model is based on network effects created by a user<br />
base and user interaction. A community is built around content like User Profiles for MySpace or<br />
interesting Blogs as is the case for Gawker. Sometimes the SPs syndicate their content to 3rd parties<br />
like Google or Yahoo.<br />
2.3 The players<br />
Along the value chain, the involved parties/ players include several types of providers ranging from<br />
service, to content, to network etc, as well as operators.<br />
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Content Provider<br />
<strong>Mobile</strong> Application Providers<br />
<strong>Mobile</strong> Marketing<br />
System Integrators<br />
Internet Service Providers<br />
Content<br />
Value<br />
Addition<br />
Delivery<br />
Enterprises /<br />
<strong>Mobile</strong> Subscriber<br />
Internet-to-mobile service providers<br />
Short-Code <strong>Operator</strong>s<br />
Modem-based service providers<br />
MNOs<br />
<strong>MVNO</strong>s (for Data Services)<br />
2.4 <strong>Mobile</strong> Solutions<br />
An overview of the ICT component when implementing different <strong>MVNO</strong> types is as follows:<br />
2.5 Characteristics of an <strong>MVNO</strong><br />
• <strong>MVNO</strong>s are new breed of wireless network operators who may not own the wireless spectrum, or<br />
wireless infrastructure but give a virtual appearance of owning a wireless network. These<br />
operators lease the wireless capacity from traditional operators and then repackage it for a<br />
specific vertical industry application.<br />
• Main added value that <strong>MVNO</strong> provides is billing and customer care functions. In that sense<br />
<strong>MVNO</strong>s own the customers.<br />
• <strong>MVNO</strong>s generally provide both voice and data services to end users through a paid up<br />
subscription agreement.<br />
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• To become an <strong>MVNO</strong>, one should cobble together a partnership that consists of a connectivity of<br />
a regular Telco, a customer base, and a sales channel. Most important, they need unique and<br />
compelling data services.<br />
• An <strong>MVNO</strong> usually provides: Brand, Marketing, Portal, Rights management, billing platform,<br />
Customer base<br />
2.6 A typical <strong>MVNO</strong> Business Model<br />
At its most basic level, an <strong>MVNO</strong> is a standalone entity. It buys access from a host carrier—often perminute<br />
or per-megabyte—and resells it under its own brand and marketing. <strong>MVNO</strong>s typically have a<br />
strategic intent focused on a recognized brand, with existing points of distribution and an already<br />
installed base of customers. That doesn't mean upstarts wanting to become <strong>MVNO</strong>s can't succeed, as<br />
evidenced by Virgin or Boost—neither of which were pre-existing brands in the mobile space at their<br />
inception. Success for those companies depended on delivering high-quality service, rather than just a<br />
brand. The term ‘<strong>MVNO</strong>' has become a catch-all for any consumer reseller, so there can be seen a<br />
variety of business models. But a classic <strong>MVNO</strong> minimizes capEx and keeps expenses as successbased<br />
as possible. That means leveraging outsourcing solutions for billing, customer care and content<br />
delivery. Considering the typical retail and network elements involved in an <strong>MVNO</strong>, there is a range of<br />
<strong>MVNO</strong> classifications/ types between Service Providers (SP) and full MNOs. Different functions can be<br />
carried out by the <strong>MVNO</strong> or MNO. Some may be carried out by a <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong><br />
Enabler (MVNE) which may simplify the <strong>MVNO</strong> provisioning for either the <strong>MVNO</strong> or the MNO. MVNEs<br />
develop systems and processes to help facilitate <strong>MVNO</strong>s, such as handset distribution, channel<br />
management or billing.<br />
2.7 <strong>MVNO</strong> Defined From a Customer Perspective<br />
To Fully understand the <strong>MVNO</strong>, and moreover Next Generation <strong>MVNO</strong>s, we have to look outside the<br />
legacy network led definitions of an <strong>MVNO</strong>, as an <strong>MVNO</strong> is a customer driven, and therefore business<br />
driven business model. From a customer perspective both the MNO and the <strong>MVNO</strong> are their "<strong>Network</strong><br />
Provider". That is in Greece for example Frog is seen to its customer as their network provider, not the<br />
host MNO (Cosmote), just as Cosmote is seen as a network provider.<br />
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Source: Christian Borman -2006<br />
Customer experience<br />
The customer’s perspective is a simple four-stage process:<br />
Buy -> Use -> Pay -> Care<br />
BUY a SIM card, handset, or starter pack<br />
USE for calling, SMS, or other services<br />
PAY recharge or other payment method<br />
CARE get advice with questions or problems<br />
There are different ways of handling each stage: from the internet through to stores, other point of sale,<br />
invoices, care centres, the handset itself.<br />
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2.8 MVNE (<strong>MVNO</strong> Enabler)<br />
Most <strong>MVNO</strong>s will lack the experience of dealing with handset manufacturers and establishing upstream<br />
and downstream systems for service creation, billing, customer care and data centres, hence the<br />
creation of the MVNE. So a special case of the <strong>MVNO</strong> model is the MVNE. An MVNE provides the<br />
technical architecture and may enter into a wholesale agreement with a host MNO, to enable mobile<br />
service provision. However, the MVNE does not directly provide services to mobile users. Instead, it acts<br />
as an enabler for any number of <strong>MVNO</strong>s; an MNO can also become an MVNE in order for it to directly<br />
support <strong>MVNO</strong> Resellers and Service <strong>Operator</strong>s. In other words, MVNE is a service company delivering<br />
tools & services to companies wishing to market their services over a mobile network, and thus<br />
becoming <strong>MVNO</strong>s. Those companies are referred to as “<strong>MVNO</strong> candidates”.<br />
Marketing functions are handled by the <strong>MVNO</strong> candidate: brand, distribution channels, customer base.<br />
The set-up, operation and evolution of the <strong>MVNO</strong> service is handled by the MVNE.<br />
An MVNE does not have a relationship with end-user customers. Instead, an MVNE provides<br />
infrastructure (will interface with carriers to deflect the risk and costs) and services to enable <strong>MVNO</strong>s to<br />
offer services and have a relationship with end-user customers.<br />
MVNEs form the backbone of an <strong>MVNO</strong>’s business of wireless <strong>Network</strong> Services providing help in broad<br />
areas of product development and marketing. These outsourced services include: Data Services,<br />
Content Management, Customer Relationship Management, Profile Management, Service Provisioning,<br />
Work Fulfilment, Billing, Invoice and Settlement, Revenue and Service Continuity Assurance etc. In<br />
other words, MVNEs collect usage data and handle rating and billing functions, and may go so far as to<br />
handle provisioning, order management, service assurance, fulfilment, content management and<br />
settlement.<br />
An MVNE offers infrastructure and related services ranging from network element provisioning,<br />
administration and operations to OSS/BSS support. MVNEs often provide the “middle-ground” between<br />
<strong>MVNO</strong>s that do not want to have any control over network elements and those that want complete<br />
control.<br />
Some <strong>MVNO</strong>s want to completely rely on the underlying wireless network infrastructure of the host<br />
mobile network operator whereas other <strong>MVNO</strong>s want to own and/or control their own network elements.<br />
MVNE’s provide the middle-ground in the sense that they can provide options to <strong>MVNO</strong>s for what they<br />
bring in-house versus what they rely on the host carrier. For example, a MVNE can provide HLR,<br />
SMSC, MMSC, as well as more advanced network elements such as GGSN, OSS/BSS, and other<br />
systems.<br />
The operating scope of MVNEs mirrors that of <strong>MVNO</strong>s, such that:<br />
• Full MVNEs operate a core mobile telecommunication infrastructure, building the capability and<br />
capacity to enable wholesale services from MNOs. This type of MVNE parallels the Full <strong>MVNO</strong> by<br />
implementing the same technical architecture and host MNO wholesale agreements, but with partner<br />
companies creating the end-user services and interacting with the customer. The Full MVNE is the<br />
intermediary between the host MNO and a Reseller or Service <strong>Operator</strong>.<br />
• Limited MVNEs operate elements of the service delivery infrastructure, in much the same way as a<br />
Service <strong>Operator</strong>, but leave the mobile service provision to partner companies. The Limited MVNE is<br />
also the intermediary between the host MNO and a Reseller or Service <strong>Operator</strong>, but cannot offer the<br />
service innovation that a Full MVNE can provide.<br />
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Providers supply components of the service delivery infrastructure to Resellers and Service Providers,<br />
but usually do not enter into a wholesale agreement with a host MNO.<br />
The MVNE is emerging because most MNOs have systems and approaches optimized to serve the<br />
mass market. This often makes it difficult for them to efficiently support third-party suppliers that address<br />
niche market segments with services that differ from the host MNO portfolio. MVNEs seek to fill this gap<br />
by providing the flexibility to support diverse services provided by a number of segment-specific thirdparties.<br />
Leveraging an MVNE brings the MNO the benefit of significant wholesale traffic volumes from multiple<br />
third-party service providers. The MVNE offers third-party providers economies of scale, access to new<br />
service platforms, flexible service deployment and the operational simplicity of a hosting service.<br />
The technical issues of setting up an MVNE are similar to those faced by an <strong>MVNO</strong>. They both need to<br />
support elements of the core network and service delivery platform infrastructure. The difference is in the<br />
customer interface, where the MVNE is selling B2B.<br />
2.9 <strong>MVNO</strong> & MVNE<br />
Some companies are mistakenly considering themselves as <strong>MVNO</strong>s, when they are really wireless<br />
resellers. Then there are instances where <strong>MVNO</strong> and MVNE overlap.<br />
At one side of the spectrum, some <strong>MVNO</strong>s focus on the low end, where voice is the primary product.<br />
These <strong>MVNO</strong>s tend to differentiate by brand and customer experience, such as Virgin <strong>Mobile</strong>.<br />
Sometimes there's a little data flavour, but it's largely a brand play. These companies tend to be largely<br />
prepaid. On the other side are the high-end players looking at postpaid services involving data and<br />
content.<br />
2.10 Why <strong>MVNO</strong>s make sense<br />
The mobile virtual network operator (<strong>MVNO</strong>) market is a crossroads for telecom, entertainment and<br />
other industries. The idea that a mobile phone can lead to a customer's wallet and loyalty has a range of<br />
companies interested in the opportunity.<br />
<strong>MVNO</strong>s are more about customers, community and content than they are technology. As a result their<br />
offerings need to be focused on specific audiences with a strong customer care component. Whether an<br />
<strong>MVNO</strong> business model is sensible and acceptable to the marketplace is no longer a question. In fact,<br />
those <strong>MVNO</strong>s that succeed will do so largely because their network operator partners have incentive to<br />
help them. It's arguable that the major mobile network operators could be opposed to helping <strong>MVNO</strong>s<br />
succeed. On the contrary, the ideal <strong>MVNO</strong> actually complements and extend the network operator's<br />
offering.<br />
One of the major issues operators consider with any market segment is risk. Financial markets are tough<br />
on operators if ARPU drops, so they cannot take on certain customer bases as a result. The issue is, the<br />
large operators are actively chasing markets within their risk threshold, but their networks still need<br />
minutes from somewhere else. So, some reasons why <strong>MVNO</strong>s make sense may be:<br />
• Many of the growth markets in mobile are riskier segments like the youth market, the credit<br />
challenged and those who dislike most operators' billing methods for minute overages.<br />
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• Another reason <strong>MVNO</strong>s make sense for operators is their focus on personalization. The large mobile<br />
operators generally offer one-size fits- all packages. Much of the market is satisfied with a generic<br />
plan, but a growing number of subscribers want something more personal. As an example, Sprint's<br />
<strong>MVNO</strong> partner, Virgin <strong>Mobile</strong> USA LLC, allowed it to effectively de-risk entrance into the pre-paid youth<br />
market, as they had a brand and shared in the cost.<br />
• Another reason <strong>MVNO</strong>s make sense for operators is that they provide an opportunity to gain strength<br />
through relationships with larger, non-telecom companies interested in <strong>MVNO</strong>s - like Virgin, The Walt<br />
Disney Co. and other media properties. These companies attract or bring with them more content, their<br />
own brand loyalty and, ultimately, more money to invest in building future mobile network and<br />
application infrastructure.<br />
• Building an <strong>MVNO</strong> will take an enormous amount of cash, to be spent on advertising, partnerships,<br />
wholesale network and content services, customer care support and various kinds of software. All that<br />
cost is an undesirable burden to an MNO (specifically for targeting niche markets), however at the<br />
same time is a key driver for the <strong>MVNO</strong>’s need to become known, access customers, control data,<br />
billing and customer interactions.<br />
• The <strong>MVNO</strong>s that prove successful seem likely to win for three primary reasons.<br />
o First, successful <strong>MVNO</strong>s will target segmented audiences that don't threaten their<br />
network partners' retail businesses, but promise to add minutes to their networks.<br />
o Second, they will not underestimate billing and customer care, nor will be so virtual they<br />
fail to maximize their customer relationships.<br />
o Third, they will use content, in addition to platforms like television, radio and the Internet<br />
to create compelling communities of interest that will, in turn, encourage usage and brand<br />
loyalty.<br />
• Key success factors for <strong>MVNO</strong>s<br />
The successful development of an <strong>MVNO</strong> requires the mastery of six key success factors:<br />
- Possessing a strong brand and being able to transpose it to new markets<br />
- Disposing of a wide distribution network adapted to the target customers<br />
- Disposing of a known and addressable existing client basis<br />
- Bringing to the market innovate offers in terms of price and/or content/services<br />
- Being customer and service quality oriented<br />
- Disposing of sufficient financial capacity to establish a long-term presence on the market<br />
- Must create the right mix of products and services<br />
- Support it with the correct infrastructure.<br />
- Partnerships forged with network operators, and vice versa: Thus selection criteria must be<br />
devised by the MNO, to ensure <strong>MVNO</strong>-focused partnerships are complementary to their<br />
business in terms of distribution.<br />
- Affordable prices and straightforward tariffs structures are the cornerstone of all offerings.<br />
- Multi-brand concept–tailored to suit the relevant target group.<br />
- Focus on core services–products and services with well-established demand.<br />
Success Examples<br />
Failure Examples<br />
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2.11 Key driving factors enabling the <strong>MVNO</strong> opportunity<br />
• Western Europe mobile market is reaching saturation since:<br />
o in the Nordic countries are already saturated at 90%<br />
o the introduction of pre-paid subscriptions has had a large impact<br />
• Deregulation opens the mobile markets to competition as:<br />
o there is no need for own spectrum licenses or radio networks<br />
o there are Regulator-controlled interconnection prices<br />
• The focus in revenues is expected to shift from basic services to more content-based value-added<br />
services. So:<br />
o There will be Convergence, evolution towards IP over everything<br />
o New entrants may have excellence in content-creation<br />
o Increasing shift from voice to data services is being observed<br />
2.12 The <strong>MVNO</strong> opportunity<br />
2.13 <strong>MVNO</strong> opportunities increase with 3G rollout<br />
3G offers <strong>MVNO</strong>s an exciting opportunity to offer users a rich multimedia experience. While many of the<br />
<strong>MVNO</strong>s today are offering low-cost pricing (voice and SMS), 3G will allow them to focus offerings<br />
equally on data.<br />
Some of the opportunities identified for potential <strong>MVNO</strong>s include:<br />
-- Focus on offering convergence<br />
-- Focus on a pan-European offering allowing for low-price calling while roaming abroad<br />
-- Focus on 3G and in particular data such as mobile music or mobile sports<br />
-- Focus an offering for enterprises, whether based on voice or data, that could potentially be broadened<br />
to include roaming as well<br />
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For any new <strong>MVNO</strong>, it is important to focus on niche markets and get to market sooner rather than later.<br />
This will certainly provide the company with a competitive advantage and allow it to build its brand and<br />
raise awareness in the marketplace.<br />
So the market for <strong>MVNO</strong>s opens up the space for established and new players such as billing and<br />
customer care companies to sell into. Billing and customer care is just one opportunity, and there are<br />
also opportunities for IT companies and those that specialize in data. This in turn will allow <strong>MVNO</strong>s to<br />
personalize their data offerings, which can increase usage and reduce churn.<br />
The insight Opportunities for <strong>MVNO</strong>s in Western Europe, analyzes developments in some key Western<br />
European countries and major companies. It also addresses opportunities for new companies looking to<br />
enter this space.<br />
2.14 The overall <strong>MVNO</strong> business context<br />
In 2G, network operators generate about 90% of the revenue by selling voice services and simple data<br />
services to their subscribers. Traditional 2G <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s tend to keep end user ownership<br />
instead of opening their radio access network to <strong>MVNO</strong>s. That situation is changing with the introduction<br />
of broadband wireless services. <strong>MVNO</strong>s are the direct provider of services to their subscribers and not<br />
merely an entity that puts its content on the services offered by carriers. Most of the consulting groups<br />
predict a shift in the mobile value chain. Where <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s are generating about 90% of<br />
their revenues in GSM by selling network capabilities to their subscribers, in UMTS 40% of the revenues<br />
will come out of the broadband wireless data services (portal and content applications).<br />
To remain competitive, <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s have to offer innovative services and deploy them<br />
very rapidly on the market. <strong>MVNO</strong>s represent definitively one of the best solutions to their concern,<br />
because alone, <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s would face far more difficulties in mastering the UMTS<br />
challenge. Partnership with an <strong>MVNO</strong> is for them one of the most important success factor. Entering the<br />
3G area, <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s will have to face challenges like managing their new network (new<br />
technology), handling financial transactions (m-commerce) and gaining a lot of new partners (for<br />
content, m-commerce, advertising, media partners, etc.). Therefore <strong>MVNO</strong>s with their respective<br />
background can optimally solve some of <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s challenges in the frame of a win-win<br />
agreement. Due to the investment related to UMTS technology and the price of UMTS licenses in some<br />
European countries, <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s are facing pressure from financial institutes in order to<br />
reduce their ROI period. According to the most optimistic business cases, their ROI period is not likely to<br />
be shorter than 7 years. <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s envisage therefore increasing their revenues and<br />
optimizing the usage of their network capacity by opening their network to <strong>MVNO</strong>s. As <strong>MVNO</strong> get<br />
ownership of their subscribers they act much more as a full service provider than a content provider. As<br />
such the <strong>MVNO</strong> actively contributes to the business development of <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s<br />
(business complementary).<br />
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2.15 <strong>MVNO</strong>s Backgrounds (Legacy and Next generation <strong>MVNO</strong> Models)<br />
<strong>MVNO</strong> backgrounds<br />
<strong>MVNO</strong>s are attractive to companies with strong brands, which usually have not been used previously in<br />
the cellular area. In particular, anyone that can offer innovative services and appeal to different<br />
demographic sections to target niche sectors and tailor services should be attracted to this market.<br />
The MNOs:<br />
• usually have their roots in the fixed line business<br />
• leverage on the existing network and ownership of spectrum licenses<br />
The <strong>MVNO</strong>s:<br />
• can emerge from a plethora of industries<br />
• leverage on strong brands and extensive distribution networks<br />
ISPs<br />
Fixed network<br />
operators<br />
Media<br />
companies<br />
Internet<br />
companies<br />
<strong>MVNO</strong>s<br />
Retailers<br />
Automotive<br />
& M2M<br />
Niche &<br />
Communities<br />
Financial<br />
institutions<br />
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Another pictorial way of seeing the <strong>MVNO</strong>s entrants’ background can be seen below.<br />
Fixed network<br />
operators<br />
Media companies<br />
Consumer<br />
Electronics<br />
<strong>MVNO</strong>s<br />
Retailers<br />
Automotive<br />
Financial<br />
institutions<br />
Therefore <strong>MVNO</strong>s in particular may arise from:<br />
o Traditional landline operators planning to add mobile services<br />
o <strong>Mobile</strong> operators planning to enter into international markets<br />
o Companies with strong brand names<br />
o Companies who could not obtain 3G licences<br />
o Companies from telecom, media and internet industries<br />
Legacy and Next Generation <strong>MVNO</strong>s<br />
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2.16 Where is the <strong>MVNO</strong> today<br />
An explosion of the <strong>MVNO</strong> activity is taking place in the mobile marketplace. Many players from multiple<br />
industries are exploiting the <strong>MVNO</strong> model, to get revenues from the mobile market. While many <strong>MVNO</strong>s<br />
have entered the mobile market on a “pure voice play”, their offerings are not very different than<br />
traditional mobile operators. As the voice ARPU declines, <strong>MVNO</strong>s need to execute effective mobile data<br />
strategies and create innovative ways to differentiate their services to high-margin multimedia, location<br />
based and mobile commerce services.<br />
An <strong>MVNO</strong> usually offers not only voice services but also value-added services or sometimes referred as<br />
mobile value-added services, which are a combination of voice, data, graphics and video information.<br />
Examples include mobile music, mobile TV, games, ring tones, multimedia messaging, mobile<br />
commerce and location-based services.<br />
While the initial business model of creating new revenue streams without actually having to be an expert<br />
in the wireless industry still stands, today’s <strong>MVNO</strong>s are far from achieving a license to print money.<br />
Three essential factors have emerged:<br />
1. <strong>MVNO</strong>s must differentiate themselves with new value-added services orientated around<br />
customer choice and a personalised customer experience. For example, Helio a US <strong>MVNO</strong> now<br />
offers its customers GPS-enabled Google Maps, OTA music downloads and exclusive access to<br />
MySpace <strong>Mobile</strong> at no charge.<br />
2. Convergence has become the new driving force behind the Next-Generation of <strong>MVNO</strong>s. For<br />
example, Virgin Media is now offering a quadruple play package, combining mobile and fixed line<br />
telephone services, broadband and TV.<br />
3. On paper <strong>MVNO</strong>s present operators with a way to realise revenue from spare capacity and<br />
target niche markets that are peripheral to their core business.<br />
However, supporting <strong>MVNO</strong>s brings with it burdens and risks for the operators. Qualifying the business<br />
cases of potential <strong>MVNO</strong>s to a network provider can therefore be time-consuming and distracting<br />
2.17 Next generation <strong>MVNO</strong>s<br />
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<strong>MVNO</strong> Next generation preface<br />
Next Generation <strong>MVNO</strong>s in general do not necessarily invest in, nor duplicate exact elements of the host<br />
MNO, nor will they be ad-hoc creations that require integration into the host MNO, but instead they will<br />
all reside on a single platform that interfaces with the Host MNO and grows infrastructure around its<br />
individual customer needs and requirements in order to never become a potential burden to its host<br />
MNO.<br />
Note the fact that the <strong>MVNO</strong> model now goes beyond the Radio Access & Transmission element, this is<br />
to take into account the recent rise of convergence. These will therefore be unlicensed Radio Access &<br />
Transmission elements, not licensed spectrum.<br />
<strong>MVNO</strong> Next generation Concept<br />
The "Next generation <strong>MVNO</strong>" concept refers to the creation of a global network with Europe wide<br />
coverage, consisting from all GSM/UMTS network elements, except radio access, and centralized<br />
service platform, connected by broadband network and binded with each countries incumbents through<br />
interconnection agreements.<br />
The “Next generation <strong>MVNO</strong>” concept as evolution of existing first generation <strong>MVNO</strong> business model,<br />
based on completely different approaches: a transition away from price competition toward innovative<br />
and higher-value services.<br />
If initially <strong>MVNO</strong>s offer simple discounted prepaid voice and SMS services, does not have infrastructure<br />
and act as host network resellers under their brand, on opposite next generation <strong>MVNO</strong>s is going to<br />
have all GSM/UMTS network elements, except radio access, offer sophisticated voice and data services<br />
and differentiate on services, innovations, data offerings and customer care.<br />
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3. <strong>MVNO</strong>s: Identities and Distribution<br />
3.1 <strong>MVNO</strong>S Global Initiative<br />
Description<br />
The “<strong>MVNO</strong> Global” initiative is to create Pan-Europe global alternative GSM/UMTS mobile operator and<br />
service enabler using full infrastructure <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong> (<strong>MVNO</strong>) concept. Also to<br />
introduce and complete consolidation by horizontal merger of existing <strong>MVNO</strong>’s, one from each country,<br />
and rising funds to expand globally. The global footprint of operator should cover EU25 countries and<br />
beyond, performing unified and centralized service platform.<br />
“<strong>MVNO</strong> Global” strategy is to be build in EU’s “Lisbon Strategy” framework which strives to turn the EU<br />
into the world's most dynamic and competitive economy till 2010.<br />
“<strong>MVNO</strong> Global” mission is to promote and be the part of Single European Information Space offering<br />
affordable and secure high bandwidth communications, rich and diverse content and digital services.<br />
Since the “de jure” EU is single market, “de facto” we still have very defragmented mobile market with<br />
considerable roaming and global services(112 and in vehicle emergency call service) implementation<br />
problems.<br />
The industry players<br />
The target market is medium and high-end business and residential users, other <strong>MVNO</strong>’s and service<br />
and content providers willing to start global operations on company’s technical platform.<br />
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<strong>MVNO</strong> Global footprint<br />
At first stage of project analysis of EU15 countries mobile markets will be performed in order to identify<br />
mobile market alternative key players and select those will be invited to negotiate aspects of fore coming<br />
merging process. Throughout second stage all separate networks and service offerings will be upgraded<br />
to developed standardized platform. In third stage other countries networks will be developed and<br />
connected.<br />
List of countries involved in project depending from implementation time frame:<br />
<strong>MVNO</strong><br />
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<strong>Mobile</strong> internationalization EUROPE<br />
Next Gen <strong>MVNO</strong> Transition process<br />
Benefits for existing <strong>MVNO</strong>s (According to Global Initiative)<br />
To create shareholder value over and above that of the sum of the companies; hence companies together are<br />
more valuable than separate companies.<br />
• This rationale is particularly alluring to existing <strong>MVNO</strong>’s and SP’s operating in tough mobile markets like<br />
Denmark, Finland and Sweden.<br />
• The companies should come together to benefit from economies of scale, thus reducing duplicate departments or<br />
operations, lowering the costs of the company and increasing<br />
profit.<br />
• The companies in addition benefit from synergy: better use of complementary resources, centralized service<br />
platform and value of global brand name.<br />
<strong>MVNO</strong><br />
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Technical platform<br />
• FULL infrastructure <strong>MVNO</strong> model:<br />
• GMSC, HLR, SMSC, MMSC, WAP, etc;<br />
• Centralized customer care and billing applications;<br />
• Centralized and unified LBS;<br />
• SIM cards Java toolkit;<br />
• OTA platform implementation.<br />
<strong>MVNO</strong> Global network topology<br />
<strong>MVNO</strong> Global network should consist from GMSC equipment in each country connected<br />
to each other by broadband connections. Each country’s GMSC is connected to other incumbent operators under<br />
terms of interconnection agreements. Every GMSC should be connected to countries MNO: host mobile network<br />
operator. Service platform and applications should be centralized, as much it is technically possible in order to<br />
reduce CAPEX. Roaming agreements should be signed to rest of the worlds GSM networks. In each country<br />
Global <strong>MVNO</strong> should have its own MNC and IMSI range.<br />
3.2 <strong>MVNO</strong> Global market share<br />
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3.3 The Future of <strong>MVNO</strong>s in the 3G Era<br />
2006 Market Map: European <strong>MVNO</strong> 3.0<br />
Source: FirstPartner 2007<br />
3.4 Global <strong>MVNO</strong> Distribution<br />
North America - 63 <strong>MVNO</strong>s<br />
Canada, Dutch Antilles, USA<br />
Rest of the World - 41 <strong>MVNO</strong>s<br />
Australia, Hong Kong, Israel, Japan, Malaysia, New Zealand, Réunion, Russia, Singapore, South Africa,<br />
Taiwan, Ukraine (linked to Russia), Zanzibar<br />
- Planned <strong>MVNO</strong>s - 53 (not regionalised)<br />
The global market for <strong>MVNO</strong>s will reach 150 million subscribers by 2013, with 63 million of those<br />
subscriptions coming from Western Europe. This will result in <strong>MVNO</strong>s accounting for a 3% market share<br />
of the total mobile market by 2013.<br />
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3.5 <strong>MVNO</strong> Global Market Forecast (2006-2012)<br />
The global <strong>MVNO</strong> market from 2007 is likely to be impacted due to technological factors, shifting end-user demand<br />
trends and possible changes in the supply environment.<br />
3.5.1 The Customer Segments<br />
<strong>MVNO</strong><br />
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3.5.2 The Revenue Model (an example)<br />
3.5.3 <strong>MVNO</strong> business Models<br />
The sort of companies most likely to become a virtual operator could be:<br />
- Companies with fixed network licences in several countries and its own international backbone.<br />
Building on this would enable such companies to offer a degree of mobility to their fixed network<br />
customers and reduce their cost base for calls made from and between countries in which they<br />
operate. Also, this provides a basis to offer a common look and feel to their services. All those<br />
fixed network operators that failed to win 3G licences then, if they weren’t currently strapped for<br />
cash.<br />
- Another likely profile would clearly be a well-known company wishing to capitalise on its brand<br />
name and with a strong customer base<br />
The most established business models are focusing on the support of services and customers<br />
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Source: FirstPartner<br />
<strong>MVNO</strong> Business Case<br />
- Lower operating margin and capex vs. MNOs<br />
- Less time to cash flow breakeven<br />
- MNOs gain access to customers that are difficult to target<br />
- Content / brand owners can enhance & extend the wireless market<br />
<strong>MVNO</strong> Risks<br />
Unfavourable wholesale agreement & restrictions<br />
Hostile pricing by MNOs - unlimited call tariffs & SMS bulk bundles<br />
SIM locking<br />
Difficulty in setting appropriate relationships with handset vendors<br />
Traditional <strong>MVNO</strong>s<br />
Rigid wholesale contracts<br />
Lean staffing structure<br />
Selected channels<br />
Simple products<br />
Very easy to understand tariff<br />
SAC lower than MNO<br />
Lower ARPU than MNO<br />
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Next Gen <strong>MVNO</strong>s<br />
Flexible wholesale contracts<br />
Dedicated customer care team<br />
Augmented distribution capacity<br />
Innovative content and service offerings<br />
Flexible tariff<br />
SAC similar to MNO<br />
Higher ARPU than MNO<br />
Fixed<br />
Telephony<br />
possible<br />
<strong>MVNO</strong><br />
models<br />
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Source: AGCOM 2007 –MERRILL LYNCH 2007 ACCENTURE ANALYSIS (Nov. 2007)<br />
Fixed <strong>Operator</strong>s are the only ones with<br />
experience in both voice and data services, while<br />
for the rest is another opportunity<br />
In <strong>MVNO</strong>s mature countries the ratio <strong>MVNO</strong>/MNO is approximately 5:7<br />
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For the above sample of European Countries (the most mature), full <strong>MVNO</strong>s possess 30% of the total.<br />
Germany that has the higher <strong>MVNO</strong> penetration, the highest price reduction is observed (due to<br />
competition).<br />
<strong>MVNO</strong>s distribution per country and market segment<br />
Europe presents different business models per country. Full <strong>MVNO</strong>s and Service Providers<br />
constitute approximately 69% of the total <strong>MVNO</strong>s number.<br />
Source: Accenture analysis (Nov 2007)<br />
<strong>MVNO</strong> Subscriber Forecast<br />
Western Europe: 13m subscribers in 2005, 47m by 2009<br />
UK: 5.5m <strong>MVNO</strong> subscribers; 13% of UK mobile users, 9% UK mobile revenue<br />
Source: FirstPartner<br />
<strong>MVNO</strong> Market Trends<br />
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Source: FirstPartner<br />
<strong>MVNO</strong>s do not pose a treat MNOs<br />
- MNOs may sell their network extra bandwidth, thus increasing their market share through the <strong>MVNO</strong>s<br />
(selling air-time in bulk).<br />
- The <strong>MVNO</strong>s profit margins (by buying bulk) may aid financially both the MNOs network deployment<br />
investments (UMTS, etc), as well as cover the subscriber acquisition cost (SAC).<br />
<strong>Mobile</strong> Penetration in Europe and Greece<br />
Source: SATPE<br />
<strong>MVNO</strong><br />
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3.6 <strong>MVNO</strong> Adoption in Europe - 151 <strong>MVNO</strong>s<br />
Portugal, Slovenia, Spain, Sweden, Switzerland, The Netherlands, UK Austria, Belgium, Denmark,<br />
Estonia, Finland, France, Germany, Greece, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg,<br />
Norway, Poland<br />
<strong>MVNO</strong>s in Europe have reached different maturity levels and are concentrated in northern Europe<br />
Source: Accenture analysis (Nov 2007)<br />
3.6.1 Fixed telephony <strong>MVNO</strong>s in Europe<br />
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3.6.2 <strong>MVNO</strong>/MNO European Market share<br />
Source: Accenture analysis (Nov 2007)<br />
3.6.3 <strong>MVNO</strong>s in Europe: numerous initiatives, very few successes<br />
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3.7 <strong>MVNO</strong> Adoption in Greece<br />
There are four Larger and a few small <strong>MVNO</strong>s.<br />
3.7.1 The <strong>MVNO</strong>s in Greece<br />
4 Larger<br />
Powered by Cosmote<br />
- Frog<br />
- Ciao (needs of an ethnic group)<br />
Powered by WIND<br />
- Q<br />
- MoMAD<br />
Some Smaller<br />
- AB mobile<br />
- Olympiakos<br />
- Carrefour<br />
Frog <strong>Mobile</strong><br />
- Small description<br />
The new prepaid mobile telephony offers very cheap rates, such as:<br />
• very low rates from the first second<br />
• very cheap SMS from the first message<br />
• very cheap MMS from the first message<br />
- Coverage (the best in the country)<br />
- Services: SMS, MMS, CALL LINE IDENTIFICATION, MISSED CALL NOTIFICATION, CALL LINE<br />
IDENTIFICATION RESTRICTION, CALL DIVERT,<br />
CALL BARRING, EMERGENCY SERVICES, ROAMING<br />
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Ciao<br />
- Small description<br />
This mobile offering targets certain ethnic group by providing:<br />
• Very cheap rates towards all mobile and fixed destinations in Greece<br />
• Cheaper rates for calls towards Greece, USA, Albania and Italy<br />
• Cheaper rates for calls towards CIAO numbers<br />
• very cheap SMS (same price for Greece and abroad)<br />
- Coverage (the best in the country)<br />
- Services: Cheap bundle of voice and SMS towards mobiles of a certain foreign network, SMS, MMS,<br />
Roaming<br />
Q<br />
- Small description<br />
The dynamic prepaid mobile telephony offers very cheap rates, such as<br />
• per second charging (from the first second)<br />
• very cheap national calls<br />
• Cheap rates towards 25 European destinations<br />
• very cheap SMS<br />
• very cheap MMS<br />
• no monthly fees<br />
- Coverage (Country-wide coverage)<br />
- Services: Basic mobile services, Roaming, SMS, e-mail, who-called, MMS, WAP, Value Added<br />
Services, MyQ services<br />
Mo-MAD<br />
- Small description<br />
A pioneering prepaid offering targeting<br />
• Youth<br />
• music lovers<br />
offering unique services in the music and showbiz areas with<br />
• very cheap SMS<br />
• very cheap MMS<br />
- Coverage (Country-wide coverage)<br />
- Services: Ring Me now, MAD MMS news, Daily SMS, MO Portal, Voice Portals, Ringtones, Java<br />
Games, Roaming, Music news, music charts, Happenings, MAD programme.<br />
3.7.2 <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s customer base (June 2008)<br />
Total<br />
Connections<br />
Market<br />
Share (%)<br />
New Connections<br />
(Q2)<br />
Cosmote 6.920.907 40,00 392.412 53,67<br />
Vodafone 5.542.000 32,04 82.000 11,22<br />
Wind<br />
Hellas<br />
4.835.776 27,96 256.638 35,11<br />
Total 17.298.683 731.050<br />
Market Share<br />
(%)<br />
Source: Companies Announcements<br />
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3.7.3 <strong>MVNO</strong> Figures<br />
<strong>MVNO</strong>s <strong>MVNO</strong> Type Total Market Share on total<br />
Subscriptions subscriptions (%)<br />
Cosmote 6.920.907 40,00<br />
FROG Low Cost 692.000 4%<br />
CIAO Community 35.000 0,2%<br />
Vodafone 5.542.000 32,04<br />
OLYMPIAKOS Community<br />
CARREFOUR Low Cost<br />
Wind Hellas 4.835.776 27,96<br />
Q Low Cost 1.000.000 5.78<br />
MoMAD Life Style 519.000 3%<br />
AB Low Cost<br />
Σύνολο 17.298.683<br />
3.7.4 MNOs ARPU and AMOU<br />
ARPU<br />
AMOU<br />
Cosmote 24,2 € 183 Minutes<br />
Vodafone 22 € 144 Minutes *<br />
Wind Hellas 19,9 € 125,4 Minutes<br />
Data refers to Q1 of 2008<br />
* Figure results from data provided by Vodafone for the period April-June 2008, according to which the<br />
total traffic in this network was 2,395 billion minutes and the customer base was 5,542 Million.<br />
Source: Weekly Telecom Magazine (Companies Announcements)<br />
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4. <strong>MVNO</strong>/ MNO/ MVNE Benefits and Drawbacks<br />
4.1 Advantages/ Benefits<br />
For the <strong>MVNO</strong> model<br />
• Significantly reduced time-to-market for launching <strong>MVNO</strong> service<br />
• Accelerated ROI and reduced TCO for both <strong>MVNO</strong> and Wireless Carriers launching a branded<br />
wireless service<br />
• Faster time-to-market with new products and services<br />
• Accelerated ability to launch new campaign and promotions<br />
• Fast-track release process designed to accelerate time-to-market for enhancements<br />
• Accelerated integration of additional partners and applications due to a highly flexible serviceoriented<br />
architecture<br />
Host <strong>Operator</strong>s have traditionally struggled in understanding what their customers want. High "chum"<br />
rates (customers charging operators) is just one indication of a market where customers have little<br />
loyalty to their operator. Host <strong>Operator</strong>s have also generally proved poor at understanding what content<br />
will attract new subscribers. Given the importance of such multimedia services to the future of the<br />
cellular market, using established companies as <strong>MVNO</strong> may be a profitable way of exploiting the<br />
knowledge of others. An <strong>MVNO</strong> can, therefore, exploit factors such as a superior brand, customer<br />
service functions or content to attract new customers who would not necessarily be attracted to the<br />
existing Host <strong>Operator</strong>. The model can be used by cellular operators seeking to expand their geographic<br />
reach as well as by brands which are sufficiently strong to leverage consumer loyalty across markets<br />
(e.g., the UK supermarket chain Sainsbury’s has become an <strong>MVNO</strong> offering a branded cellular service<br />
to its customers). The concept also appeals to operators with fixed capacity as offering the opportunity to<br />
offer a combined fixed and cellular service with one tariff and one bill and discounted rates to customers<br />
who subscribe to both services.<br />
For the MNO<br />
For Host <strong>Operator</strong>s, <strong>MVNO</strong>s offer the possibility that traffic on their network will be increased as they<br />
offer capacity on a wholesale basis. Given the importance of recouping high investment costs this is an<br />
increasingly important consideration. <strong>MVNO</strong>s offer a way of addressing areas of the market which would<br />
not be reached by Host <strong>Operator</strong>s as well as providing innovative services, branding and marketing<br />
expertise.<br />
For the MVNE<br />
The benefit that the MVNE can provide to the <strong>MVNO</strong> is deferral of capital expenditures and/or cost<br />
reductions while allowing the <strong>MVNO</strong> to focus on the customer relationships rather than operations. At<br />
the same time, the <strong>MVNO</strong> is afforded the opportunity to customize its offerings arguably further than an<br />
<strong>MVNO</strong> that is totally reliant on the host mobile network operator. Everything considered equal, the host<br />
operator is satisfied to sell unused capacity, but is not interested helping the <strong>MVNO</strong> differentiates itself,<br />
which could cannibalize host carrier customers. With an MVNE, an <strong>MVNO</strong> could literally use the host<br />
mobile network for only radio and switching infrastructure, outsourcing everything else to the MVNE.<br />
According to Pyramid Research, there are three main categories of MVNEs, according to their <strong>MVNO</strong><br />
solutions:<br />
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• Aggregator MVNEs: these offer consulting and integration services and have bundled all of the<br />
back-office network components through alliances. These promote their ability to quickly provide orderto-cash<br />
solutions to <strong>MVNO</strong>s.<br />
• Aggregator MVNEs with their own platforms: this includes aggregators which have developed<br />
one or more back-office solutions internally, and have complemented them with partnerships to<br />
provide end-to-end enablement services.<br />
• Specialised Enablers: these offer only parts of the back-office network such as messaging<br />
platforms, data platforms and billing solutions. They are not solely focused on the <strong>MVNO</strong> market.<br />
The voice-centric, operationally "light" <strong>MVNO</strong>s of today have generally worked with an aggregator<br />
MVNE that managed the limited back-end operations on behalf of the <strong>MVNO</strong>. The new breed high-end,<br />
strong brand <strong>MVNO</strong> is transforming the dynamics of the MVNE market. Besides leveraging their own<br />
existing assets, they choose to won more of their platforms, particularly their logistics, distribution and<br />
customer care systems. They still work with MVNEs, but they tend to opt for specialised ones with bestof-breed<br />
solutions and a strong reputation.<br />
4.2 Disadvantages/ Drawbacks<br />
For the <strong>MVNO</strong> model<br />
Despite the positive features outlined above, there are a number of recurring issues which have led<br />
many to conclude that this model has significant flaws.<br />
- The most significant problem is the basic conflict which Host <strong>Operator</strong>s face, that by permitting access<br />
to their network they are permitting the creation of a competitor which will lead to a reduction in their<br />
subscriber base.<br />
- There are also clear and understandable security concerns regarding giving an outsider access to the<br />
operator’s most important and expensive asset, its core network.<br />
- <strong>MVNO</strong>s themselves face significant problems in constructing a coherent business case. Some have<br />
found that providing even a "virtual" network is prohibitive.<br />
- Costs of equipment are high and may make the project uneconomical given that volume discounts may<br />
not be available to new entrants.<br />
- <strong>MVNO</strong>s must also develop intelligent billing systems which can accurately charge subscribers and also<br />
split complex financial transactions between the <strong>MVNO</strong> itself, the Host <strong>Operator</strong> and any third-party<br />
content provider.<br />
- The greater degree to which the <strong>MVNO</strong> relies on the Host <strong>Operator</strong> for these services the lesser the<br />
possibility for service differentiation to diminish as the <strong>MVNO</strong> increasingly resembles the operator whose<br />
network it uses.<br />
For the MNO<br />
- There is the fear that permitting <strong>MVNO</strong> "first mover" advantage in the provision of lucrative data<br />
services will mean the Host <strong>Operator</strong> will become a "dumb pipe" starved of these extra revenues.<br />
- <strong>MVNO</strong>s, as a largely unregulated area of the market, will have all the benefits of being an operator<br />
without any balancing licensing obligations.<br />
It is, therefore, a critical prerequisite to success that the Host <strong>Operator</strong> is convinced that the selling<br />
power of the <strong>MVNO</strong> name can be used to increase the number of customers on the Host <strong>Operator</strong>’s<br />
network by attracting new subscribers that the Host <strong>Operator</strong> would not have been likely to attract or by<br />
churning customers away from other networks.<br />
<strong>MVNO</strong><br />
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For the MVNE<br />
- The <strong>MVNO</strong> feels that they are dependent on an external party<br />
- In case of disagreement in the future, in-sourcing of operations by the <strong>MVNO</strong> may cost dearly<br />
Advantages and disadvantages of Discount <strong>MVNO</strong> revealed in the value chain<br />
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4.2.1 MVNE trends<br />
Europe vs. US<br />
• In Europe MVNEs initially provided turnkey solutions<br />
o The “middlemen” -between MNO and <strong>MVNO</strong>–<br />
o Providing airtime as well as billing, customer care, application hosting, provisioning etc<br />
• However, many companies have since adopted the MVNE solution<br />
o Resulting in fragmented market<br />
o Many MVNEs no longer have airtime agreements with the MNOs -<strong>MVNO</strong> left to organise<br />
this themselves<br />
o Only providing part of the solution, making MNO/ <strong>MVNO</strong> integration more difficult<br />
o <strong>MVNO</strong> having to deal with many partners, MNO having to integrate with all of them!<br />
• The US the market is about MNO and MVNE relationships<br />
o MVNEs in the United States provide at a minimum the basic connectivity and<br />
infrastructure that allows an <strong>MVNO</strong> to launch a service<br />
o The MVNE lets the <strong>MVNO</strong> to concentrate on their core competency –marketing to a<br />
targeted customer segment<br />
o MVNE services range from the barebones cookie-cutter model to an elaborate menu of<br />
countless options<br />
• Less fragmentation = smoother integration<br />
o MNO retains control of network integration<br />
4.2.2 MVNE Uses in Europe<br />
The degree to which an <strong>MVNO</strong> will outsource its operational activities depends on what its existing<br />
revenue streams are. The MVNE solution appears very much to be ‘pick and mix’ with <strong>MVNO</strong>s being<br />
able to choose the different elements depending on their own in-house capabilities.<br />
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• Typically MVNE customers are brand owners with little or no telecoms<br />
experience<br />
• Wants to outsource rather than operate the <strong>MVNO</strong> in-house<br />
• The MNO deals with the MVNE, who in turn runs most of the <strong>MVNO</strong> operation<br />
• The key issue is the customer perception<br />
• Customer only sees the <strong>MVNO</strong> brand, not the operational workings behind the<br />
scenes<br />
4.2.3 <strong>MVNO</strong>-MVNE-MNO Functional Model<br />
<strong>MVNO</strong>s need to control back office costs without sacrificing quality. So regarding:<br />
Cost: Start-up expense should be limited so funding can be used for brand development–Incremental<br />
costs for capacity increases<br />
Quality:<br />
• Support systems should be scalable without lengthy delays to avoid service issues<br />
• Consistent user experience during the upgrade process should be available<br />
• Long-term high volume capability should be ensured<br />
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Reference:<br />
4.2.4 Viability of <strong>Virtual</strong> <strong>Mobile</strong> Players<br />
Overview<br />
The mobile virtual network operator (<strong>MVNO</strong>) model has gained popularity over the past years; more<br />
ventures have followed in Virgin’s path (the model’s pioneer), with the <strong>MVNO</strong> model going through a<br />
number of iterations. Today, concerns about overcapacity and potential consolidation are emerging, in<br />
both the <strong>MVNO</strong> and MVNE spaces.<br />
<strong>MVNO</strong>s financial attractiveness<br />
Based on an analysis by www.wimax-industry.com it was found that the <strong>MVNO</strong> model is a lot less<br />
financially attractive than the hype would suggest. <strong>MVNO</strong>s have to improve one or more of the following<br />
wireless operating metrics in order to make money: CPGA (cost per gross acquisition), CCPU (cash cost<br />
per user), ARPU, and churn. Available <strong>MVNO</strong> data certainly provides enough fodder to question the<br />
<strong>MVNO</strong> model, at least in its initial iterations. Virgin <strong>Mobile</strong> UK is profitable (more of an exception than a<br />
rule) but the company has been in operation since 1999. It is believed that most other <strong>MVNO</strong>s are at the<br />
loss-making to slightly above break-even level.<br />
The future of MVNEs<br />
The future of the aggregator MVNE hinges on the development of small, niche <strong>MVNO</strong>s. If the <strong>MVNO</strong><br />
segment moves towards a fragmented marketplace with dozens of players serving small niche<br />
segments, MVNEs will benefit of such an expansion. If, by contrast, the <strong>MVNO</strong> space is dominated by a<br />
small number of large, Virgin-like players, the future of the aggregator MVNE becomes somewhat<br />
doubtful.<br />
<strong>MVNO</strong> service revenue has been expanding in line with the growth of virtual operator subscriber bases,<br />
but is arguable whether this is enough to sustain the <strong>MVNO</strong> business model.<br />
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4.2.5 Sustainability<br />
Sustainability of the <strong>MVNO</strong> business models will depend on where the company setting up the <strong>MVNO</strong><br />
business, originates from, given that the companies are grouped into three types:<br />
a) Companies originating from outside the Information and Communication Technology (ICT) Industry;<br />
b) Companies originating from inside the traditional telecommunication industry; and<br />
c) Companies originating from inside the ICT industry, but not as a telecommunication network operator.<br />
The three groups are called Retailer, Expander and Integrator respectively.<br />
4.2.6 Brand identity in <strong>Mobile</strong> Services<br />
For a brand to have any value it must mean something to the customer and to do so it needs to be<br />
exclusive. This is not compatible with trying to own all areas, sectors and parts of the market with just<br />
one brand, as most mobile operators do today. Because of this, most mobile operators' brands are all<br />
over this matrix. Note that successful <strong>MVNO</strong>s, like Virgin <strong>Mobile</strong> started as a challenger and are now<br />
becoming brand leaders, whilst minimising any association with the "follower" values.<br />
Regarding the Greek <strong>MVNO</strong> market, the brand identity type classification may look as follows:<br />
Follower<br />
1) Frog <strong>Mobile</strong> as:<br />
o they are housed by an MNO (operational from the past)<br />
o Compete on price<br />
o They don’t have a competitive advantage<br />
o They don’t have a clear product differentiation<br />
<strong>MVNO</strong><br />
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o<br />
2) Q Prepay<br />
o<br />
o<br />
3) AB Prepay<br />
o<br />
o<br />
o<br />
Brand is not distinguishable from competition<br />
Lives on the legacy of Q-Telecom<br />
Competes on price or promotion<br />
Not premium competitive advantage<br />
Not clearly defined customer base<br />
Unclear product differentiation<br />
4) Carrefour Prepay<br />
o Not premium competitive advantage<br />
o Not clearly defined customer base<br />
o Unclear product differentiation<br />
Challenger<br />
1) Ciao mobile as:<br />
o targets a gap in the market (needs of a specific ethnic group)<br />
o strategy focused on customer needs<br />
2) Mo-MAD<br />
o Targets a gap in the market (music funs mobile services needs)<br />
o Identifiable brand (MTV)<br />
o Well defined customer base<br />
3) Olympiakos Prepay<br />
o Targets a gap in the market (football funs mobile services needs)<br />
o Identifiable brand (Olympiakos)<br />
o Well defined customer base<br />
4.2.7 Type of Companies attracted to the <strong>MVNO</strong> Model<br />
<strong>MVNO</strong>s are attractive to companies with strong brands, which usually have not been used previously in<br />
the cellular area. In particular, anyone that can offer innovative services and appeal to different<br />
demographic sections to target niche sectors and tailor services should be attracted to this market.<br />
Some corporations already active in other areas of the telecoms sector are attracted to the model. In the<br />
United Kingdom, some established fixed line and broadband network operators are using the concept to<br />
offer customers bundled cellular services. European cellular companies that were unsuccessful in<br />
acquiring 3G licences and require a pan-European network are attracted to the concept as a costeffective<br />
way of filling gaps in coverage. An example of this was seen in Sweden where the incumbent<br />
2G operator Telia concluded an agreement in January 2001 with Swedish 3G Swedish licence holder<br />
Tele2 AB in order to access this new market.<br />
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4.2.8 VALUE TO MNO<br />
Complexity reduction<br />
- « Plug & play » interconnection<br />
- Outsourcing of <strong>MVNO</strong> business and technical operational management<br />
- MNO focus on its core branded offer<br />
Screen opportunities<br />
- Business development<br />
- <strong>MVNO</strong> candidate education<br />
Refinement of project to adapt MNO objectives<br />
- Market segment<br />
- Distribution channels<br />
- Specific traffic usage<br />
- Differentiated services<br />
4.2.9 VALUE TO MNO & <strong>MVNO</strong><br />
- Easy start<br />
- Economies of scale<br />
- Time-to-market<br />
- Innovation & differentiated services<br />
- Field trial with light integration work for MNO<br />
- Risk reduction<br />
4.2.10 VALUE TO <strong>MVNO</strong><br />
Operational MVNE Platform and team<br />
- Critical mass in expertise & skills<br />
- Agreements with GSM operators<br />
- On the shelves technologies and services<br />
Financial advantages<br />
- Mutualisation of investment between <strong>MVNO</strong>s customers<br />
- Lower upfront and operating costs and investments<br />
Multi-country access<br />
MVNE positioning<br />
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4.2.11 Different approaches to mobile services<br />
The Full <strong>MVNO</strong> model suits businesses that aim to engage fully in the telecommunications industry, to<br />
offer leading edge services and to create and capture new markets.<br />
“<strong>MVNO</strong>” is a potentially confusing term, as it conventionally covers a range of different business<br />
approaches to providing mobile services. There are three emerging and commonly accepted operating<br />
models: the Reseller, the Service <strong>Operator</strong> and the Full <strong>MVNO</strong>, as illustrated in Figure 1. The growth in<br />
<strong>MVNO</strong>s has also created the opportunity for MVNEs, to act as an interface between a Reseller or<br />
Service <strong>Operator</strong> and a host MNO.<br />
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Choosing the right approach<br />
The choice of <strong>MVNO</strong> operating model is complex. The benefits, shown in Figure 2, need to be weighed<br />
against the issues of operator acceptance and infrastructure complexity.<br />
Generally, the various <strong>MVNO</strong> operating models fit with the <strong>MVNO</strong> business models as follows:<br />
• The Reseller model suits an organization that can leverage its existing distribution channels to sell<br />
mobile services, but has little need to innovate in the services it provides or differentiate itself from<br />
other players. Typically this means no-frills voice and messaging services.<br />
• The Service <strong>Operator</strong> model suits those organizations that wish to gain control over the services<br />
they provide, both in terms of pricing and service innovation.<br />
This means the Service <strong>Operator</strong> model suits players that seek to address specific customer segments,<br />
by differentiating themselves from other players in those segments through innovation in pricing or<br />
service content or both.<br />
• The Full <strong>MVNO</strong> suits players aiming to achieve additional differentiation from Service<br />
<strong>Operator</strong>s and MNOs, by offering leading edge products and services, and also achieve a high degree<br />
of independence at the outset.<br />
However, the Full <strong>MVNO</strong> model may be the best approach for some players who would otherwise select<br />
the Reseller or Service <strong>Operator</strong> models and introduce differentiating services into their offering at a<br />
later date. This is because the control provided by the Full <strong>MVNO</strong> model may offer better short term and<br />
long term opportunities.<br />
For example, an <strong>MVNO</strong> may want to introduce an innovative bundle of video call, push-to-talk and other<br />
value added services, with campaign pricing to kick-start the take-up of services. Acting as a Reseller or<br />
Service <strong>Operator</strong> would often mean persuading the host MNO to plan, source, procure and implement<br />
the underlying solutions. This would mean implementing service offerings within the host MNOs<br />
infrastructure but with differentiated billing. Such projects can easily take more than a year, negating the<br />
clear advantage of flexibility, responsiveness and speed.<br />
However, by adopting the Full <strong>MVNO</strong> model, the <strong>MVNO</strong> would have full control of services decisions,<br />
delivery models (for example hosted services) and the project’s timelines. The Full <strong>MVNO</strong> would be in<br />
full control to ensure timely introduction of services, business models, pricing and promotion to the<br />
market.<br />
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As a Full <strong>MVNO</strong>, a service provider can adapt to market changes and obtain a competitive edge, in a<br />
way that a Reseller or Service <strong>Operator</strong> would not achieve. Another key advantage of the Full <strong>MVNO</strong><br />
model for Resellers and Service <strong>Operator</strong>s is the leverage they gain in negotiating wholesale rates,<br />
because they own their customers and can switch networks.<br />
Although this may be a potential barrier from the host MNOs perspective, it is balanced by significant<br />
advantages to the host MNO. More customers may allow the host MNO to make more efficient use of its<br />
Radio Access <strong>Network</strong> (RAN), through the additional wholesale volumes. The Full <strong>MVNO</strong> may also<br />
reduce complexity in the MNOs wholesale interface, because the Full <strong>MVNO</strong> simply requires access to<br />
the RAN and handles all other service aspects, including billing, customer support, provisioning, service<br />
and delivery. This approach may also allow the host MNO to concentrate on developing its core brand<br />
value, without diluting it with multiple service offerings.<br />
There is a gradual evolution towards the Full <strong>MVNO</strong> model by both existing and new third-party mobile<br />
service providers. In addition to the advantages of the Full <strong>MVNO</strong> model already discussed, the gradual<br />
expansion towards a service oriented model focusing on service differentiation and segmentation is<br />
being driven by:<br />
• Market saturation<br />
• Increased end-user and network competition<br />
• A focus on customer differentiation and customer loyalty<br />
• 3G service opportunities and new wireless access technologies<br />
• The separation of access and services<br />
• Regulatory pressure<br />
• The value of service bundles in strengthening competitiveness and dealing with competitive<br />
elements<br />
As a result, Full <strong>MVNO</strong>s are likely to play an increasingly important role in providing mobile services<br />
across several markets.<br />
4.2.12 Execution & Fulfilment<br />
Launching an <strong>MVNO</strong> or MVNE involves many of the practices and processes required to implement any<br />
new business: business planning, confirming the viability of the plan, designing business and technology<br />
systems, implementing the business, and then managing it for growth. However, there are a number of<br />
decisions and processes that are unique to the <strong>MVNO</strong> and MVNE. This section provides an overview of<br />
these items.<br />
4.2.13 Business Planning<br />
Good planning is essential for an <strong>MVNO</strong> or MVNE. Effective planning is built on a solid understanding of<br />
the commercial or consumer mobile telecommunications market and is essential to determine both the<br />
service offering and the appropriate operating model.<br />
Planning the service offering<br />
typically involves:<br />
• Definition of the target market<br />
• Selection of appropriate services and service charges for the target market<br />
• Ensuring, for an existing brand, that the products and services reflect the brand’s core values While<br />
service offering goes a long way towards determining the appropriate <strong>MVNO</strong> model and the required<br />
investment in infrastructure, the level of knowledge and experience within the telecommunications<br />
industry must also be considered. Issues such as service delivery and Quality of Service, assurance,<br />
interconnection management, number portability management and regulatory requirements help to<br />
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determine how much of the Full <strong>MVNO</strong> model should be adopted. While these issues need to be<br />
considered by a prospective <strong>MVNO</strong> they are clearly fundamental for an MVNE.<br />
At the end of this process the business should know what to offer customers and the infrastructure that<br />
is needed. In addition, it is prudent to make a decision about how the infrastructure will be managed,<br />
entirely in-house, in-house but using a managed service, out-sourced but owned by the business, or<br />
purchased as a service from an MVNE.<br />
Targeted pricing plan steps<br />
1. First describe each offer, its targeted segments, and list current competitive benchmarks from<br />
major carriers/competitors (both MNOs and <strong>MVNO</strong>s).<br />
2. Add justification for the offer by identifying a unique value proposition for the targeted segment.<br />
3. Next, estimate the potential market size for the offer.<br />
4. Finally, calculate gross and net subscriber life-time value.<br />
Gross life-time value should take into account only the value of the offer, while net life-time value<br />
discounts the value lost due to cannibalization of existing plans. In the case of offers that are add-ons to<br />
existing plans, it is simply the incremental value of the offer. Also conduct a sensitivity analysis of net<br />
life-time value (LTV) to different price points, cannibalization levels, and retention gains.<br />
4.2.14 Business Design<br />
Once the business plan has been validated and the go-ahead approved, the supporting business and<br />
technology systems can be designed and the detailed implementation can be created.<br />
4.2.15 Business Infrastructure<br />
The business infrastructure that any <strong>MVNO</strong> or MVNE will need to design includes:<br />
• Host MNO selection – A host MNO must be located and contracts drawn up to cover commercial<br />
and technical aspects. Ongoing management of this relationship is vital.<br />
• Core business systems – As well as standard accounting and operational business systems, an<br />
<strong>MVNO</strong> or MVNE will need to manage customer facing logistics, including retail outlets, handset<br />
provision and servicing, management of the customer lifecycle, and the marketing of new services<br />
and offerings.<br />
• Value added services – A service-focused <strong>MVNO</strong> will need to select service platforms and end-toend<br />
solutions for creating a differentiated portfolio of end-user services. A Services portfolio may<br />
consist of SMS and MMS services, as well as richer communications services such as Push-to-talk<br />
Over Cellular (PoC) / push-to-X, Instant Messaging, Email, <strong>Mobile</strong> Blogging, Location Based<br />
Services, <strong>Mobile</strong> TV, Streaming video, Presence and more.<br />
• Content services – Where end-user services involve content delivery, sources for this content and<br />
download platforms must be found. This may involve engineering existing content for mobile,<br />
sourcing existing content from a developer or content aggregator, or locating a developer or designer<br />
to create bespoke content. It may also include systems to manage downloads and billing.<br />
• <strong>Mobile</strong> phones – Suppliers of mobile phones will need to be found, either direct from the<br />
manufacturer or using an established distributor.<br />
• Technical Infrastructure<br />
The technical infrastructure must be identified, including:<br />
• Core network systems<br />
• Service delivery platforms<br />
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• Customer relationship management Systems (CRM)<br />
• Billing systems<br />
• Customer care systems<br />
• <strong>Network</strong> management<br />
These systems must be interfaced with the host MNOs infrastructure, other networks and service<br />
operators, as well as common support systems, such as a number portability platform, legal interception,<br />
interconnection with other networks and roaming arrangements.<br />
Implementation<br />
Once the business and technical infrastructure has been defined, an implementation plan can be<br />
devised and executed. The critical activities will include:<br />
• Service specification and testing<br />
• Interface development and testing<br />
• Hardware and software procurement and installation<br />
• Hardware and software integration<br />
• System, integration, interoperability, interconnection and performance testing<br />
• Data conversion from existing systems<br />
• Delivery system content population<br />
• Live deployment and switch-over<br />
4.2.16 Production Support<br />
Production support includes day-today operational activities such as:<br />
• Hardware maintenance, including both physical maintenance and repair, as well as firmware and<br />
software maintenance<br />
• Performance monitoring, to ensure that the appropriate quality of service is being provided<br />
• Load balancing and other activities to maintain quality of service and optimize use of the<br />
infrastructure. In addition, processes and procedures are required to monitor marketplace<br />
performance to ensure existing services remain competitive and new ones are developed. These<br />
activities might include:<br />
• Competitive analysis, maintaining intelligence on market competitors<br />
• New technology analysis, maintaining intelligence on emerging technologies<br />
• New content acquisition, maintaining a fresh catalogue for content based services<br />
• New services definition and deployment, identifying and implementing new services for<br />
the target market<br />
• Service retirement, retiring old services and ensuring customer migration to new services<br />
Finding the right business partner can be the key to success for an <strong>MVNO</strong> or MVNE. Nokia Siemens<br />
<strong>Network</strong>s is in a unique position to offer support. As a supplier to more than 600 mobile, fixed and hybrid<br />
customers in 150 countries, Nokia Siemens <strong>Network</strong>s’ world-leading experience in all areas of the<br />
mobile industry offers a low risk approach. The key Nokia Siemens <strong>Network</strong>s products and services<br />
include:<br />
• <strong>Mobile</strong> services, innovative and proven solutions for value added services<br />
• Infrastructure hardware, for service delivery platforms and core network infrastructure<br />
• Managed Services, for on-site management of infrastructure components<br />
• Mobility Hosting, for full off-site hosted service of applications and infrastructure<br />
• Convergent online charging, billing and care, flexible and pre-integrated solutions with advanced and<br />
rich connectivity to support interfaces to all networks for MNO and <strong>MVNO</strong> voice and data services<br />
• Consulting services, for business and technical planning, design and implementation<br />
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• Terminal, device and mobile computing configuration management Nokia Siemens <strong>Network</strong>s’<br />
experience in helping businesses deliver successful mobile products and services to consumers<br />
worldwide allows it to:<br />
• Enable fast time to market –<br />
Nokia Siemens <strong>Network</strong>s and its strong, proven partners ease the operational challenges and provide<br />
quick deployment Remove complexity – Marketleading offerings and experience across mobile software<br />
platforms, infrastructure, billing, systems integration and solutions, coupled with familiarity with all the<br />
components within the <strong>MVNO</strong>/ MVNE operation, allow Nokia Siemens <strong>Network</strong>s to ensure the delivery<br />
of optimum solutions<br />
• Reduce risk – Nokia Siemens<br />
<strong>Network</strong>s’ years of industry experience means much lower risk. The ability to call on business and<br />
technical expertise from any discipline within the infrastructure domain helps to avoid roadblocks. Low<br />
OPEX and CAPEX services improve the <strong>MVNO</strong>’s ability to properly manage its business case.<br />
• Build success through strong collaboration – Nokia Siemens<br />
<strong>Network</strong>s build long lasting collaboration with its customers and invests to ensure success for both<br />
parties.<br />
4.2.17 Conclusion<br />
As traditional MNOs concentrate on optimizing their Radio Access <strong>Network</strong> usage and delivering mass<br />
market systems, the scope for <strong>MVNO</strong>s and MVNEs is increasing. Ovum estimated in 2005 that by 2009<br />
around 10% of all mobile subscribers could be served by an <strong>MVNO</strong>, with compound annual growth rates<br />
of between 8% and 20%. While many businesses will be served well by implementing Reseller and<br />
Service <strong>Operator</strong>s <strong>MVNO</strong> models, the Full <strong>MVNO</strong> operating model offers compelling advantages,<br />
regardless of the underlying service offering. With full ownership of the customer, the ability to terminate<br />
calls, and close control over the service, a Full <strong>MVNO</strong> offers the greatest flexibility in going-to-market<br />
and then sustaining long term growth.<br />
To be successful as an <strong>MVNO</strong>, any player must create the right mix of products and services, and<br />
support it with the correct infrastructure. In choosing an infrastructure partner, an <strong>MVNO</strong> or MVNE<br />
needs to consider the depth and breadth of mobile telecommunications skills that their partner brings to<br />
the venture.<br />
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Future Outlook<br />
B<br />
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s<br />
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s<br />
s<br />
P<br />
o<br />
t<br />
e<br />
n<br />
ti<br />
a<br />
l<br />
-<br />
Early<br />
Adopters<br />
Value<br />
Seekers<br />
Followers<br />
Touch-point<br />
Integration<br />
Value added<br />
services<br />
Real-time<br />
processing<br />
2004 2006 2008 2010<br />
A2P2A is mass<br />
application<br />
Powerful competing<br />
technologies<br />
Reference: <strong>Mobile</strong> Economy<br />
4.2.18 MNO Motivations (to host <strong>MVNO</strong>s)<br />
There are three primary motivations for mobile operators to allow <strong>MVNO</strong>s on their networks. These are<br />
generally:<br />
- Segmentation-Driven Strategies – mobile operators often find it difficult to succeed in all customer<br />
segments. <strong>MVNO</strong>s are a way to implement a more specific marketing mix, whether alone or with<br />
partners and they can help attack specific, targeted segments.<br />
- <strong>Network</strong> Utilisation-Driven Strategies – Many mobile operators have capacity, product and segment<br />
needs – especially in new areas like 3G. An <strong>MVNO</strong> strategy can generate economies of scale for better<br />
network utilisation.<br />
- Product-Driven Strategies – <strong>MVNO</strong>s can help mobile operators target customers with specialised<br />
service requirements and get to customer niches that mobile operators cannot get to.<br />
<strong>MVNO</strong> models mean lower operational costs for mobile operators (billing, sales, customer service,<br />
marketing), help fight churn, grow average revenue per user by providing new applications and tariff<br />
plans and also can help with difficult issues like how to deal with fixed-mobile convergence by allowing<br />
<strong>MVNO</strong>s to try out more experimental projects and applications. The opportunity for mobile operators to<br />
take advantage of <strong>MVNO</strong>s generally outweighs the competitive threat<br />
4.2.19 Host MNO Benefits<br />
- Sell unused 3G network capacity through more than 1 <strong>MVNO</strong><br />
- Increase non-SMS Data ARPU<br />
- Wholesale more profitable than retail customers if <strong>MVNO</strong> marketing more cost-efficient<br />
- Enter All-over-IP market with zero risk for MNO brand and core Voice/SMS business<br />
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- Inexpensive international data roaming for M(V)NO subs thanks to Multi-IMSI solution<br />
- Preferred network for international OPEN visitors thanks to Multi-IMSI solution<br />
4.2.20 Host MNO Requirements<br />
- Direct connectivity to OPEN <strong>MVNO</strong>/MVNE<br />
- All-over-IP incl. VoIP – all applications, open ports, no packet filtering<br />
- Revenue Sharing: MNO - 60% : <strong>MVNO</strong>/MVNE - 40%<br />
- Competitive data wholesale pricing<br />
- Target GB retail pricing: 10-15 Euro<br />
- <strong>MVNO</strong>/MVNE with HLR and own IMSI range in each country<br />
- No upfront interconnection payment<br />
4.2.21 Host MNO Wholesale Business Potential (Example)<br />
Even the biggest MNO in Germany could benefit from selling data capacity to OPEN<br />
or other <strong>MVNO</strong>s if customer churn (in and out) was proportional to market share<br />
4.2.22 The MNO Perspective<br />
Reaching more segments, expanding share through non-traditional channels, extracting attractive<br />
subscriber economics and stimulating mobile data take-up and usage are four major drivers behind the<br />
push by <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s (MNOs) to embrace <strong>MVNO</strong>s.<br />
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First, <strong>MVNO</strong>s provide operators with a means to directly reach out to specific segments (e.g. teenagers,<br />
religion minorities, ethnic minorities, university students) with a unique and targeted value proposition.<br />
Such segments do not receive much direct attention from MNOs’ typically mass-market product<br />
development, marketing and distribution strategies.<br />
Second, <strong>MVNO</strong>s may also provide MNOs with access to potential customers via non-traditional<br />
channels such as cable operators and alternative retail stores. Cable providers have the potential to upsell<br />
the quadruple play with integrated services such as Wi-Fi coverage at home, unified messaging and<br />
home surveillance through a mobile device.<br />
Third, <strong>MVNO</strong>s’ utilization of non-traditional retail channels may contribute to attractive subscriber<br />
economics. As seen in Figure 1 (page 4), in some cases the wholesale and retail subscriber lifetime<br />
values of segmented offers are not very different from each other. While retail generally guarantees a<br />
superior lifetime value, the MNO runs a good chance of doing better with wholesale in the long-run, if the<br />
<strong>MVNO</strong> partnership lets it acquire more net customers (after cannibalization) than it would have captured<br />
independently.<br />
Finally, services tailored to niche segments may hold the key to the still-elusive goal of making mobile<br />
data more “sticky” with consumers. <strong>MVNO</strong>s can usually do a better job than MNOs in stimulating usage<br />
of mobile data because they can offer focused mobile data content and applications to target customer<br />
segments.<br />
4.2.23 The <strong>MVNO</strong> Perspective<br />
New growth opportunities, benefits to core businesses, applicability of existing relevant assets and<br />
attractive economics are among the factors encouraging private labels to consider <strong>MVNO</strong>s.<br />
First, wireless continues to be a very strong growth business.<br />
Second, for some companies, <strong>MVNO</strong>s are an opportunity to boost core businesses by stimulating brand<br />
loyalty and enabling cross-marketing for other products and services.<br />
Third, investors may also view <strong>MVNO</strong>s as complementing their other businesses by adding value to<br />
existing offers and leveraging existing assets.<br />
Finally, an <strong>MVNO</strong> that combines a clear target segment and focused offer with a unique value<br />
proposition can yield attractive subscriber economics.<br />
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Example from the US<br />
MNO Retail vs. Wholesale Value and <strong>MVNO</strong> Value for Different Customer Segments<br />
Sample HNO Evaluation Criteria for potential <strong>MVNO</strong>s:<br />
o Large own customer base<br />
o Strong distribution network<br />
o Strong market position<br />
o Low tariff intentions<br />
o Niche market segment<br />
o Economic strength<br />
o <strong>Mobile</strong> competence<br />
o International reciprocity<br />
o Georgaphic submarkets<br />
o Intial Public offering<br />
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4.2.24 <strong>MVNO</strong>s rationales<br />
There are 4 rationales for the launch of an <strong>MVNO</strong> offer<br />
4.2.25 <strong>MVNO</strong>s positioning<br />
Different range of <strong>MVNO</strong>’s exist from the light offer provider to the full <strong>MVNO</strong>:<br />
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The enhanced service provider model is the most prevalent in Europe because it allows focusing on the<br />
product offering and the client relationship:<br />
Four main differentiation strategies have generally been adopted by European <strong>MVNO</strong>s:<br />
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Most <strong>MVNO</strong> communicate on low prices and value for money:<br />
- Price/ minute comparison (2004)<br />
- Communication examples (2004)<br />
- <strong>MVNO</strong>s seldom lower their prices by more than 10 to 15% compared to MNOs, although some<br />
markets have fallen into aggressive price wars.<br />
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Evolution prepaid prices from the introduction of <strong>MVNO</strong>s<br />
<strong>Mobile</strong> operators' key challenges (Source: OECD, Wireless Intelligence, 2008)<br />
In this very competitive market environment, operators are facing many challenges that can have a<br />
direct impact on profitability. Amongst the key competitive factors that can stimulate revenues are:<br />
• Prices: changing price elasticity can provide the right balance between volumes (voice and<br />
data) and price erosion as sudden price drops can lead to a drop in revenue. Rationalising the<br />
portfolio of voice and data services with such price competition has led to widespread large<br />
bundled deals, fixed-mobile substitution and innovative tariffs such as flat rates.<br />
• <strong>Network</strong> coverage: expanding high-speed network coverage nationwide can accelerate the<br />
adoption of mobile broadband and other high-speed data services. In highly penetrated<br />
markets, some operators have set up shared network ownership arrangements to reduce their<br />
cost structure.<br />
• Loyalty schemes: targeted promotions and loyalty programmes are playing an important role<br />
in managing churn and also in migrating users from prepay to contract.<br />
• Quality of service: QOS is playing an important role in customer retention.<br />
• Value Added Services: as voice revenues remain under pressure, data usage is showing<br />
strong organic growth and also acts as a key differentiator amongst operators. Partnerships<br />
with content providers, mobile advertising services and PC to mobile convergence can lead to<br />
fast adoption of VAS that will stimulate non-voice revenues.<br />
• <strong>MVNO</strong>s: maintaining market share through market segmentation where MNVO development<br />
is key.<br />
In addition, main operator groups can stimulate revenues by leveraging international economies of<br />
scale and synergies with their operations in other markets, including emerging markets. Considering<br />
the level of maturity in the region, consolidation in Western Europe is another topic that can also be<br />
expected to have an impact on revenue growth.<br />
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4.2.26 Key challenges faced by <strong>MVNO</strong>s<br />
- <strong>MVNO</strong> must display a light cost structure to deal with operators price per minutes<br />
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5. The MARKET structure & opportunities<br />
5.3 <strong>MVNO</strong> market drivers<br />
• Segmentation<br />
• Regulations<br />
• Competitive intensity<br />
• Heavy 3G investments<br />
5.4 <strong>MVNO</strong> market structure<br />
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5.5 Market size<br />
Ovum estimated in 2005 that by 2009 around 10% of all mobile subscribers could<br />
be served by an <strong>MVNO</strong>, with compound annual growth rates of between 8% and<br />
20%.<br />
While many businesses will be served well by implementing Reseller and Service<br />
<strong>Operator</strong>s <strong>MVNO</strong> models, the Full <strong>MVNO</strong> operating model offers compelling<br />
advantages, regardless of the underlying service offering. With full ownership of<br />
the customer, the ability to terminate calls, and close control over the service, a<br />
Full <strong>MVNO</strong> offers the greatest flexibility in going-to-market and then sustaining<br />
long term growth.<br />
5.6 MVNE value<br />
5.7 Aggregation business model benefits<br />
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5.8 Key Requirements<br />
• Deep understanding of the of <strong>MVNO</strong> market and MNOs concerns and strategy to gain trust<br />
• Value added services delivering capability<br />
• SIM Cards<br />
• Voice mails<br />
• Convergent services<br />
• Mediation<br />
• Billing (postpaid + <strong>Prepaid</strong>) + CRM<br />
• Account management and marketing support capabilities<br />
• Small <strong>MVNO</strong>s not always easy o deal with<br />
• Small <strong>MVNO</strong>s need marketing supports<br />
5.9 Competition is intensifying –mobile premiums decrease<br />
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5.10 Local scale is key to achieving EBITDA margin ambitions<br />
5.11 <strong>Operator</strong>s need to adjust<br />
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5.12 The challenger strategy must be tailored to the market<br />
environment<br />
5.13 Marketing strategies<br />
- Discount or Low-Cost <strong>MVNO</strong>s: provide cut-price call rates to market segments.<br />
- Lifestyle <strong>MVNO</strong>s: like Helio focus on specific niche market demographics.<br />
- Advertising-funded <strong>MVNO</strong>s like Blyk or MOSH <strong>Mobile</strong> build revenues from advertising to give a set<br />
amount of free voice, text and content to their subscribers.<br />
- Community <strong>MVNO</strong>s like Turkuaz-<strong>Mobile</strong> in Germany, Ay Yildiz in Holland or CIAO in Greece<br />
- One specific sector of <strong>MVNO</strong> operations focuses on international, or roaming <strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong><br />
<strong>Operator</strong>s (r<strong>MVNO</strong>). These are distinct from domestic <strong>MVNO</strong> agreements and are intended to<br />
provide transparency of international tariffs<br />
Looking at the Market Strategies from a different view, we have the following:<br />
Three possible models<br />
Low cost garage provider<br />
Co-branding with well-known product in any line of business (i.e. Clothes, cars, planes<br />
etc.)<br />
Economies of scale – born global strategy:<br />
• Multiple countries<br />
• High end technical solution<br />
• Best quality product from day one<br />
What is the company’s risk profile?<br />
Low risk: Low cost provider (low investment)<br />
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Medium low: Average IT solution without co-branding<br />
Medium high: Average IT solution with co-branding<br />
High: Born Global without co-branding<br />
WEB self-service is the Key<br />
Using 100% self service platform integrated with the operator<br />
Has all <strong>MVNO</strong> needed functions and processes for GSM<br />
User friendly<br />
Standard platform that is further developed<br />
5.14 Timing<br />
The market for online is a slow moving thing<br />
Crossing the chasm paradigm<br />
Innovators and early adaptors<br />
Belgium is only just starting<br />
Regulation is in place<br />
Customers are getting used to online<br />
No or low churn<br />
PRICE is important and then easy to use and simplicity<br />
Offline distribution cases show that the majority sticks to what is familiar<br />
DK shows that it will change over time<br />
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5.15 Provider Selection criteria<br />
5.16 <strong>MVNO</strong> Services<br />
For now <strong>MVNO</strong> services have been limited, but analysts from EMC Research have predicted that as<br />
wireless services grow, so will the availability of niche <strong>MVNO</strong> applications. For instance, in the future a<br />
cell phone user may be able to subscribe to a network operator plus multiple <strong>MVNO</strong>s for specific data<br />
services over the same phone. One <strong>MVNO</strong> could provide sports news, another weather and traffic and<br />
still another could provide instant messaging capabilities.<br />
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In this way, each <strong>MVNO</strong> and the network operator could focus on their own niche markets and form<br />
customized detailed services that would expand their customer reach and brand.<br />
Voice<br />
Messaging<br />
Data Calls<br />
Voice Mail<br />
International Calls<br />
Billing<br />
Refills/credit<br />
Usually free or next to nothing for on net/ flat rate off-net nationally<br />
Very cheap on-net/ Follow the competition for off-net<br />
Cheaper than MNOs<br />
Cheaper than MNOs<br />
Cheaper to certain targeted destinations<br />
National Calls: Per second<br />
International Calls and Roaming: per minute<br />
Availability of a variety of refill cards is a must<br />
Provider Types in Europe<br />
The types of providers in Europe can be:<br />
- <strong>Virtual</strong> <strong>Operator</strong>s<br />
- Internet Based <strong>Virtual</strong> <strong>Operator</strong>s<br />
- MVNE based <strong>MVNO</strong>s<br />
- "International Calls &roaming" <strong>MVNO</strong>s<br />
Ethnic <strong>MVNO</strong> propositions<br />
According to research of Piran Partners, Ethnic minorities represent a source of new, high quality mobile<br />
phone customers, much needed in a market so characterised by churn. Therefore, more and more<br />
<strong>MVNO</strong>'s develop propositions focussing on this segment. Piran Partners has compared these<br />
propositions to other <strong>MVNO</strong> propositions and reveals that these <strong>MVNO</strong>s are on average more profitable<br />
and deliver quicker results. In Holland, this market segment is represented by Lebara, Lyca, IDT,<br />
Chippie, Ortel and Ay Yildiz.<br />
European Ethnic Migrant Population<br />
(There are 32 Million people in Diaspora in Europe)<br />
Reference: Lycatel <strong>Mobile</strong><br />
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Companies to allow <strong>MVNO</strong> set up (by Sonopia)<br />
Sonopia, a US based <strong>MVNO</strong>, allows companies a white-label concept whereby companies can launch<br />
their own-branded mobile phone service. Sonopia will rent network space from Verizon Wireless and<br />
give the client companies mobile phones, billing, and Web sites for their new subscribers. Sonopia<br />
claims that customers can set up a new mobile service in roughly 15 minutes.<br />
It is almost universally agreed that successful <strong>MVNO</strong>’s will have some combination of scale, branding,<br />
and or a particular important niche. DATA <strong>MVNO</strong>s, some times referred to as Machine-to-Machine or<br />
“M2M” <strong>MVNO</strong>’s facilitate communications between various machines with the help of a wireless network.<br />
Applications supported by M2M <strong>MVNO</strong>’s are many and varied including telemetry, monitoring, remote<br />
asset management, and more. In a world of expanded M2M communications, we believe that Data<br />
<strong>MVNO</strong>’s will evolve from a successful niche business into a booming opportunity for vendors and service<br />
providers alike.<br />
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6. <strong>MVNO</strong> BUSINESS SETUP<br />
The process starts with developing a strong business case and negotiating a viable wholesale<br />
agreement. However, even with a strong business case, a potential <strong>MVNO</strong> (which usually lacks mobile<br />
expertise) has a major challenge in designing the right entry strategy, and developing and executing the<br />
launch plan. A very feasible <strong>MVNO</strong> can fail due to an undifferentiated market entry strategy or poor<br />
launch execution.<br />
6.1 Setting-up Strategies<br />
Three strategies exist to setting up an <strong>MVNO</strong>:<br />
- Build on a well known brand<br />
- Establish a price-winning formula<br />
- Bundle together premium content or other services<br />
Of the three strategies mentioned above, bundling is probably the most attractive to many businesses,<br />
but it is also the most risky as it has yet to be proven on a large scale. It is always dependent on the type<br />
of implementation, however the bundling option seems to present significant importance.<br />
Finally, the market segment for any of the options of strategy has to be selected very carefully.<br />
The last strategy above for setting up a successful <strong>MVNO</strong> is the one that bundles together mobile with<br />
other services. Typically these services (e.g. music, video, photos, etc) can be consumed on a mobile<br />
device but there could also be other telecom services such as fixed-line calls or Internet access. Also<br />
most of the bundling experiments in telecom world have been realized for media companies destined<br />
primarily for wired/fixed Internet communication channels (e.g. ADSL) while most mobile operators sell<br />
content over their networks over the last years, as well.<br />
There is a feeling among many media companies that the large revenue percentage taken by MNOs is<br />
unjustified. Some of these companies would like to move up their value chain by creating their own web<br />
portals and a few are now being set up by their own <strong>MVNO</strong>s. They have however viewed cautiously by<br />
many operators that see potential competition with a strong brand-based offering, particularly from the<br />
more aggressive media organizations (e.g. Rupert Murdoch’s empire).<br />
By bundling media content together with voice and data traffic, a media <strong>MVNO</strong> can avoid price<br />
competition and gain significant customer loyalty without the need for extensive marketing of the<br />
products.<br />
In some cases, the content services may not even be owned by the media company that starts the<br />
<strong>MVNO</strong>.<br />
6.2 Key Issues <strong>MVNO</strong> players are faced with<br />
• Is the <strong>MVNO</strong> market sustainable?<br />
• Is FMC a long-term driver of the <strong>MVNO</strong> business - will FMC players develop or acquire their own<br />
cellular infrastructure and what are the pros and cons of the respective approaches within the<br />
<strong>MVNO</strong> environment?<br />
• Where are the next potential growth markets for <strong>MVNO</strong> growth?<br />
• What are the most developed <strong>MVNO</strong> markets and which will be in the future?<br />
• What <strong>MVNO</strong> approaches are sustainable long-term?<br />
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• How does an <strong>MVNO</strong> go about successfully launching in this evolving and challenging market?<br />
• What type of approach is most likely to succeed and what are the strategies to ensure their<br />
success?<br />
• Is the <strong>MVNO</strong> market sustainable?<br />
• Is FMC a long-term driver of the <strong>MVNO</strong> business - will FMC players develop or acquire their own<br />
cellular infrastructure and what are the pros and cons of the respective approaches within the<br />
<strong>MVNO</strong> environment?<br />
• Where are the next potential growth markets for <strong>MVNO</strong> growth?<br />
• What are the most developed <strong>MVNO</strong> markets and which will be in the future?<br />
• What <strong>MVNO</strong> approaches are sustainable long-term?<br />
• How does an <strong>MVNO</strong> go about successfully launching in this evolving and challenging market?<br />
• What type of approach is most likely to succeed and what are the strategies to ensure their<br />
success?<br />
6.3 Issues per player<br />
<strong>Operator</strong>s<br />
• Evaluate and quantify opportunities in various strategic roles from service provider and partner to<br />
competitor<br />
• Identify threats and ramifications of current market developments and understand their wider<br />
strategic impact<br />
• Anticipate market as it moves forward and formulate strategies to tackle it<br />
Potential <strong>MVNO</strong>s<br />
• Evaluate the opportunities and challenges<br />
• Analyse potential strategic approaches to implementation<br />
• Assess business models of specific industries including, brand owners, retailers, business<br />
service providers, content providers and many more<br />
• Evaluate specific business approaches, including discount, niche, business, 3G only, community<br />
orientated and many more<br />
Device and component manufacturers<br />
• Understand the <strong>MVNO</strong> business proposition from the service provider perspective<br />
• Identify key players and scope for partnerships<br />
• Recognise evolving roles and opportunities in the <strong>MVNO</strong> service provisioning value chain<br />
Vendors<br />
• Understand the MVNE value proposition and platform/software providers role within it<br />
• Identify opportunities for service provisioning and support<br />
• Formulate service provisioning strategies for clients based on best-case approaches<br />
Consultants, analysts and venture capitalists<br />
• Provides unbiased, reasoned hard facts free from industry hype<br />
• Provide clients with clear business intelligence to support recommendations and investment<br />
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6.4 Targets per player<br />
<strong>Mobile</strong> operators: To quantify the long-term revenue potential of the wholesale market to support<br />
decisions whether or not to work with <strong>MVNO</strong>s and MVNEs. The <strong>MVNO</strong> profitability calculations will help<br />
benchmarking the MNO performance against <strong>MVNO</strong>s.<br />
<strong>MVNO</strong>s: Need to develop a strategy using external help (a consulting firm) with objective long-term<br />
analysis of the <strong>MVNO</strong> market. Also benchmarking of costs and profitability against industry averages<br />
and other key players is definitely required. Finally, determination whether MVNEs will strengthen the<br />
<strong>MVNO</strong> service and increase their profit (could be based on external analysis).<br />
MVNEs: Need to understand the long-term market potential and <strong>MVNO</strong> perception of MVNEs. Also<br />
determination of an optimal strategy to attract <strong>MVNO</strong>s (end-to-end solutions vs. specific expertise), is<br />
needed. Finally assessing of key competitors and benchmarking of the MVNE positioning against them,<br />
will help.<br />
Vendors: Must assess the MVNE opportunity for a long-term strategic entry (partnerships or<br />
acquisitions); Also determine if MVNEs are competitors or complementary, and if there is an opportunity<br />
beyond application hosting. Finally, quantify the long-term equipment and service opportunity in the<br />
<strong>MVNO</strong> space based on revenue, profitability, and subscriber forecasts.<br />
Financial institutions: Need to assess the viability of <strong>MVNO</strong>s and MVNEs to support a decision on<br />
whether to finance <strong>MVNO</strong>s and MVNEs. The <strong>MVNO</strong> profitability calculations (NPV, CPGA, CCPU, and<br />
ARPU) will help financial institutions to benchmark such data against existing cases.<br />
6.5 Business Case Structure<br />
The traditional values of brand, functionality and quality will be more important for the <strong>MVNO</strong> than any<br />
mobile technology. This is worth bearing in mind, since the benefits of mobile data services may vary<br />
greatly by applications area and segment. The mobile market is changing from an environment<br />
dominated by voice to one where mobile data services are equally as important. This is not an easy<br />
transition, as it requires adaptation to new services concepts and new technologies. It also demands<br />
cross-industry partnerships and new business models, accompanied by a re-organization of the value<br />
chain.<br />
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6.6 <strong>MVNO</strong> Business Guide<br />
Few key questions for the business case include:<br />
• What are the effects or different pricing schemes?<br />
• Which mobile data services take more capacity?<br />
• What are the effects of revenues share arrangements?<br />
• Which mobile data services have the highest contribution?<br />
• How mobile data services and price plans complement each other?<br />
• How mobile data services and price plans capture from each other?<br />
<strong>MVNO</strong>s who can proactively address thre questions and manage their revenues and investments in key<br />
functional areas will be successful in this competitive market place. They will also maximize their return<br />
on investment and share holder value.<br />
6.7 The <strong>MVNO</strong> Business: High Entry Barriers and Risks<br />
Despite the attractiveness of wireless, setting up an <strong>MVNO</strong> is a daunting task. The wireless business,<br />
though potentially lucrative, possesses entry barriers and launch risks that are high enough to<br />
discourage most outsiders from making the plunge alone. <strong>MVNO</strong>s must manage a wide array of<br />
responsibilities and relationships, which increase in number and complexity as one moves up the<br />
different steps of the wireless service delivery chain, from network leasing to channel development.<br />
As seen in the figure below, an <strong>MVNO</strong> requires a network leasing agreement with one or more MNOs.<br />
Next steps include the selection and integration of back-office systems and processes, and the selection<br />
and integration of mobile data platforms. Design of an offer, including custom mobile content and user<br />
interfaces, and the selection of handsets, follow. The final steps are brand and channel development.<br />
Each of these steps is linked with potential obstacles and partnership dependencies that could derail an<br />
<strong>MVNO</strong>’s launch plans.<br />
6.7.1 Barriers<br />
Lack of wireless skills and expertise, economies of scale and high peak funding are among the major<br />
barriers to entry faced by potential <strong>MVNO</strong>s. Prospective <strong>MVNO</strong>s often have little<br />
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elevant experience to guide them through the different steps of the wireless service delivery chain.<br />
Even <strong>MVNO</strong>s that successfully combine internal resources and partnerships to navigate these<br />
challenges and risks will still be disadvantaged to existing players due to economies of scale.<br />
<strong>MVNO</strong>s need scale to negotiate favourable pricing terms on network leases with MNOs and handset<br />
contracts with OEMs.<br />
Once in the business, most <strong>MVNO</strong>s will face a few years in the red before they can break even. Launch<br />
can be preceded by six to nine months of start-up costs, and post-launch subscriber acquisition costs<br />
range from € 65 for a low-end pre-paid offer to over €360 for a high-end post-paid service (based on<br />
MNOs current CAC –Customer Acquisition Cost).<br />
These costs can delay an <strong>MVNO</strong>’s EBITDA breakeven and require considerable investment (in the<br />
range of millions) in peak funding.<br />
6.7.2 Launch Risks<br />
Potential <strong>MVNO</strong>s also face a number of launch risks, including risks associated with the selection of<br />
partners, and risks related to the execution of the launch.<br />
The first class of risks belongs to the selection of the appropriate partners, and the negotiation of<br />
partnership terms and conditions. An <strong>MVNO</strong>’s long-term prospects depend largely on whether the<br />
selected MNO places strategic and not only financial value in the <strong>MVNO</strong>’s target segments and<br />
proposed offer. If the <strong>MVNO</strong> can demonstrate strategic value to the MNO partner, the <strong>MVNO</strong> can<br />
extract a more favorable deal that is not just based on volume of subscribers. In addition, <strong>MVNO</strong>s need<br />
to partner with individual backoffice systems/process providers, MVNEs and mobile data platform<br />
providers, as well as content providers and handset OEMs to profitably deliver a differentiated value<br />
proposition to their target segments. Finally, <strong>MVNO</strong>s must identify and form relationships with the<br />
relevant distribution partners<br />
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in order to cost-effectively reach their target segments.<br />
Execution of launch opens the field for a second class of risks. <strong>MVNO</strong>s managing their launch programs<br />
have to execute, coordinate, keep track of and monitor progress and risks of hundreds of<br />
interdependent milestones cross each level of the wireless service delivery chain. <strong>MVNO</strong>s that fail to<br />
exhibit a strong execution and program management discipline in the launch phase could end up<br />
suffering from long delays or developing a value proposition that is not differentiated enough to attract<br />
customers in their target segments.<br />
6.8 The future of <strong>MVNO</strong>s<br />
MVNEs are increasingly relieving the pressure that <strong>MVNO</strong>s continue to experience as they seek to enter<br />
markets quickly and effectively. Outsourcing the complex business of billing and customer care for<br />
converged services to an MVNE creates real flexibility for the <strong>MVNO</strong>. Indeed the very best MVNEs are<br />
those that have given their <strong>MVNO</strong> clients the opportunity to fine tune their service portfolio and be most<br />
responsive to changing market conditions or new technologies.<br />
MVNEs are becoming an integral part of a maturing converged communications industry. This already<br />
includes network providers and the branded service businesses that have a direct relationship with a<br />
customer. As these proliferate and seek competitive advantage, the role of the MVNE will grow.<br />
Naturally, there is a rush of businesses positioning themselves as MVNEs, as well as brands evaluating<br />
the <strong>MVNO</strong> model. The criteria for success in this MVNE field obviously must include assured<br />
capabilities in running a network service business, however close collaboration between all players is<br />
absolutely essential to success. Specialist skills, experience and systems are of little good unless the<br />
MVNE has worked out how to share risks and responsibilities with its <strong>MVNO</strong> client and the other third<br />
parties involved. An open relationship with clean demarcations is critical.<br />
Managed carefully and integrated successfully, quite often requiring the support of an MVNE, Next-<br />
Generation <strong>MVNO</strong>s have certainly got the potential to cause even more excitement than they already<br />
do.<br />
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6.9 Implementing an <strong>MVNO</strong><br />
Understanding the <strong>MVNO</strong><br />
The <strong>MVNO</strong> is a business, not a network, and should never be driven by the network. The whole point of<br />
wholesale is the resale of excess capacity, to create extra capacity is to completely misunderstand the<br />
underlying concepts of <strong>Virtual</strong> and Wholesale model, and to completely underestimate the complexity,<br />
expense and overheads required of running a mobile network. Those who fall quickest into this trap are<br />
existing fixed or other operators. Wholesale mobile is vastly more complex than wholesale DSL, fixed or<br />
other telecoms models running an <strong>MVNO</strong> is also vastly different from running an MNO. To successfully<br />
pull of an <strong>MVNO</strong> you need to keep costs to a minimum, which means having staff that understand the<br />
whole end-to-end process of delivering a mobile service and a call.<br />
<strong>Mobile</strong> and therefore <strong>MVNO</strong> is vastly different from other wholesale and even other telecoms models, in<br />
that and MNO or <strong>MVNO</strong> owns and/or manages the very complex and expensive customer equipment<br />
(handset and SIM). in the DSL world this would be the equivalent of the DSL provider not only providing<br />
a DSL line and a wireless modem/router, but also the first, second and third line support on behalf of the<br />
manufacturer, as well as the authentication, passwords and the process of the user being able to use<br />
anyone else's wireless modem router in the same way as they do at their own home or office. <strong>Mobile</strong> is<br />
never to be underestimated, and the <strong>MVNO</strong> requires a very different skill set than managing a fixed<br />
network, where you are only generally responsible for part of the end-user process, not all. It is also far<br />
different from running an MNO; with an <strong>MVNO</strong> you need a small group of people who understand the<br />
whole process and service, as the <strong>MVNO</strong> model cannot support delegation to masses of employees,<br />
and the host MNO cannot support the <strong>MVNO</strong> delegating this to its staff.<br />
Finally, this brings us on to the most important fact of understanding wholesale and the <strong>MVNO</strong>. the<br />
model should bring value to both parties and be mutually profitable. A follow-on to the buzz-word "Brand<br />
<strong>MVNO</strong>" loved by those who aimlessly follow trends from the back-seat, now seems to be the "low-cost<br />
<strong>MVNO</strong>". The low-cost <strong>MVNO</strong> does not offer the host operator any value. an MNO can cut prices or<br />
launch a budget service whenever it likes. The only way a low-cost <strong>MVNO</strong> can offer value to an MNO is<br />
if the <strong>MVNO</strong> takes customers that are so low value that only the <strong>MVNO</strong> running a much leaner business<br />
model could make money from them. This is obviously a finite market and one which could fin itself in<br />
serious problems if and when the operators engage in a price war. Selling on cost also only acquires a<br />
customer with cost as the only value, which paves the way for someone else prepared to offer an even<br />
worse service even cheaper, and as Ruskin said, they are his lawful prey.<br />
Mvno and the regulator<br />
So far <strong>MVNO</strong>s have not been regulated in any country. The ITU has received several requests to study<br />
the issue, specifically to provide input on whether government intervention is necessary to allow <strong>MVNO</strong>s<br />
to offer services and applications at a lower price to consumers. This would help to ensure a more<br />
efficient use of the spectrum but some incumbent providers argue that the market is already competitive<br />
and intervention is not necessary.<br />
There are arguments from both sides as to whether the <strong>MVNO</strong> model will bring otherwise unreachable<br />
revenue or unwelcome competition to the MNOs. For instance, the GSM Association, which represents<br />
more than 500 GSM operators and key mobile vendors around the world, is cautious about regulation<br />
surrounding the <strong>MVNO</strong> model. It is keen to see legislation that helps companies provide and take<br />
advantage of the financial potential of <strong>MVNO</strong>s, but it is equally keen that network operators should not<br />
be legally required to open their networks to anyone wanting access. At the same time, some UMTS<br />
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licence-holders, particularly in Germany, are fighting the regulatory authorities for the right to share their<br />
spectrum.<br />
The universally held view on regulation of the <strong>MVNO</strong> is that it should be defined by commercial<br />
agreements and not regulatory intervention. Whilst this is wise on the one hand, on the other it has also<br />
been an excuse for some regulators to wipe their hands of the <strong>MVNO</strong> and any regulatory issues it may<br />
have. This is very unwise; as whilst the <strong>MVNO</strong> may reach a mutually beneficial commercial agreement<br />
with one MNO, it is still essentially or potentially even a competitor with it, and most certainly a<br />
competitor of the other MNOs it did not reach a commercial agreement with. To boot, this <strong>MVNO</strong> will<br />
almost certainly have shared important commercial and strategic information with these competing<br />
MNOs before reaching an agreement with its chosen host MNO. It goes without saying that the <strong>MVNO</strong><br />
requires regulatory assistance and support from these MNOs and indeed even other <strong>MVNO</strong>s.<br />
Additionally there is the issue in the EC of an <strong>MVNO</strong> in one member state, like any other business within<br />
one EC member state, having the right to freely move goods and services and even set-up in other EC<br />
Member States... there are still large, practical barriers to this that need addressing and regulatory<br />
support, beyond reaching commercial agreements with a host operator in each member state.<br />
- the <strong>MVNO</strong> market is still closed in several European countries<br />
- In other countries, carriers accept <strong>MVNO</strong>s but restrict that agreement to Reseller <strong>MVNO</strong>s, not the full<br />
<strong>MVNO</strong> model<br />
Full <strong>MVNO</strong>s have the ability to create services and innovate because they own certain core network<br />
nodes such as the GMSC and HLR. These services include:<br />
- advanced roaming solutions that will drive roaming costs down<br />
- The Full <strong>MVNO</strong> can establish its own roaming agreements and this enhancement will be translated<br />
to consumers<br />
- Global <strong>MVNO</strong>s can even leverage their footprint and create multiple <strong>MVNO</strong> agreements in multiple<br />
countries<br />
Effect on Consumers and the Way Forward: Regulation on international roaming tariffs will, in the<br />
short term, push prices down; however, it will slow innovation and decrease the health and longevity of<br />
the mobile market. Such regulation only focuses on prices and carriers. It is obligatory to consider the<br />
processes affecting pricing, service innovation, and all mobile telephony players.<br />
Regulation for opening the market to competition through full infrastructure <strong>MVNO</strong>s will definitively<br />
reduce roaming and long distance tariffs and, at the same time, encourage innovation of new services,<br />
benefiting subscriber productivity and increasing the health of the industry. In the long term, this strategy<br />
will benefit all consumers and players in the market.<br />
Traffic Management<br />
International traffic should be managed to ensure that customers get the best possible combination of<br />
quality and service:<br />
- 24 x 7 monitoring helps ensure reliability<br />
- High quality connections maintained by the routing and switching teams (own or the MNO’s)<br />
- Low costs guaranteed through global carrier agreements<br />
Thus international calls should be switched to international destinations via the optimal route<br />
Core <strong>Network</strong> Elements<br />
The core network should typically be made up of the following components:<br />
- International gateway, based on the latest technology<br />
- Several carriers interconnects (to choose from)<br />
- Secure routers, gateways, tunnels & IP networks<br />
- Intelligent networking ensuring reliability & quality<br />
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- 24x7 <strong>Network</strong> Operations Centre<br />
Mvno and the SIM<br />
The SIM is the single most important part of the ownership of the customer. This is an often overlooked<br />
element of the <strong>MVNO</strong> that the <strong>MVNO</strong> will often try to neglect in preference to just taking the MNO SIM<br />
and rebranding it. This is not necessarily wise, as there are many ways to differentiate a service via the<br />
SIM. The SIM buying model of the host MNO is often dictated by different parameters like and driven by<br />
issues such as volume and even the fluctuating and expensive nature of silicon at the time most MNOs<br />
set-up. Since then the market has moved on, with Java SIMS and Java toolkits being much more<br />
suitable and flexible for the <strong>MVNO</strong> and even cards with embedded flash memory on the horizon.<br />
<strong>MVNO</strong> and the handset<br />
The handset and the SIM are the key to the success of mobile and are therefore key to the success of<br />
the <strong>MVNO</strong>. The handset is becoming less and less the huge thorn in the side that it used to be, mainly<br />
as the market is no longer dominated to such an extent by those manufacturers who also had a core<br />
business in mobile operator infrastructure and maintenance, and the obvious conflicts that arise form the<br />
situations that mobile operators form 99+% of these companies' business. However, things are changing<br />
with more competition, more open operating systems, more intelligent handsets and finally the rise of<br />
ODM and OEM handsets that will soon mean an <strong>MVNO</strong> can potentially design and launch its own<br />
handset from a reference design.<br />
Mvno and FMC<br />
Fixed-mobile convergence opens up the <strong>MVNO</strong> market to the numerous potential <strong>MVNO</strong> models that<br />
emerged previously but never reached their potential. Some of these include Telematics, machine to<br />
machine (M2M) and even the vertical telecoms data and voice <strong>MVNO</strong>s that will shape the market in<br />
coming years.<br />
Mvno and IMS<br />
IMS allows an <strong>MVNO</strong> or even MVNE to provide multiple, differentiated services on the same platform<br />
and even the same phone. This model allows the same phone but a different service to be provided on<br />
the same infrastructure, and most importantly allows customers to move between these differentiated<br />
services. This would allow, for example, a school or university phone to also form the basis of another<br />
<strong>MVNO</strong> targeting the "parent phone" or be passed on to become the "parent" phone or even follow the<br />
customer to become a "work" or "lifestyle" phone. This can all be done remotely with IMS or even SIM<br />
applications.<br />
<strong>MVNO</strong> and the brand<br />
A commonly held misconception of the <strong>MVNO</strong> is that it was all about the brand. Apart from not being<br />
true, this concept was heavily promoted both by <strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong>s of the reluctant variety,<br />
maybe in order to discourage the evolution of the <strong>MVNO</strong>. Regarding Services, should mean more to<br />
customers than just making calls. It is very important for customers to stay in touch & that’s why brand<br />
values such as those listed are important in everything an <strong>MVNO</strong> does:<br />
- Always give customers value for money<br />
- Ensure all connections are of great quality<br />
- Make products easy-to-use & prices easy to understand<br />
- Give customers the convenience of direct-dial international mobile calling<br />
- Make sure all relationships are built on trust<br />
- Always be empathetic to the needs of diverse communities<br />
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<strong>MVNO</strong> fraud exposure<br />
<strong>MVNO</strong>s are more vulnerable than an MNO towards fraud since:<br />
Due to limited head count (at least initially for cost-cutting reasons), there are few or no people<br />
dedicated to fraud and revenue assurance<br />
The <strong>MVNO</strong> may try risky business cases/ scenarios, while the expected revenues most of the times are<br />
limited<br />
In the case of the <strong>MVNO</strong> being engaged in post-paid market, again for economical reasons, credit<br />
checking may not be strong enough<br />
The above reasons may in turn bring about certain Implications for both the <strong>MVNO</strong> as well as for the<br />
host operator:<br />
The subscribers are indirectly MNO subscribers<br />
Less revenue for the <strong>MVNO</strong> means less revenue for the MNO also<br />
Depending on the collaboration agreement, dispute handling sometimes may be unclear, with the risk of<br />
MNO losing the <strong>MVNO</strong><br />
Solutions and recommendations (For Fraud)<br />
Regarding domestic fraud, a number of actions can be taken to counter this problem, such as:<br />
• CDRs available more frequently<br />
• Possibility to shut down a line on a 24x7 basis<br />
• Fraud Management System tailored to the <strong>MVNO</strong>s needs<br />
• Fraud Management reports<br />
Regarding Roaming fraud (case where <strong>MVNO</strong> core business is offering the roaming service), the<br />
implementation of the NRTRDE solution, via which:<br />
• Send NRTRDE files to <strong>MVNO</strong>s (IMSI splitting feature)<br />
• IMSI provisioning<br />
• File Splitting and naming of new files created<br />
• Distribution of file to respective Service Provider<br />
• Reporting on splitting activity<br />
• Fraud Management System tailored to the <strong>MVNO</strong>s needs<br />
• Suspicious Dialed Digits (SDD)<br />
• Pattern Matching<br />
• Suspect Equipment<br />
• High Usage<br />
• Premium Rate Service<br />
• <strong>Mobile</strong> Data Evaluation<br />
Note: However NRTRDE is mandatory for MNOs, its implementation is expensive (300K €)<br />
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6.10 Modeling <strong>MVNO</strong>s: The Big Picture<br />
Areas to be dealt with are:<br />
Contract management<br />
Following issues are to be covered in the contract management phase:<br />
Numbers, own number space or part of MNO space<br />
SIM card production / logistics, how to be arranged<br />
<strong>Network</strong> Infrastructure, Systems, location and interfaces<br />
Billing, Invoicing, Reporting issues<br />
Software programs and their administration<br />
<strong>MVNO</strong> service package (basic / options)<br />
<strong>MVNO</strong> activation / set-up project<br />
All relevant items in the contract to be executed, e.g. deployment, site set-up,<br />
both <strong>MVNO</strong> and HNO side.<br />
Sales and technical support<br />
Sales Outlets, SIM card logistics<br />
Support, Customer Care / CRM<br />
<strong>MVNO</strong> life-cycle management<br />
Changes and modifications in <strong>MVNO</strong> portfolio<br />
Agreement updates / extensions / phase-out<br />
<strong>MVNO</strong> deregistration / transfer of customer base<br />
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Provisioning<br />
The provisioning module is one of the key areas that enables activation of users on the network and<br />
management of network settings. So provisioning arranges the link between the telephone number to a<br />
SIM (IMSI) and the activation of this combination on the network (IN/HLR). SIMs can be activated realtime<br />
or through customer care. For postpaid propositions, a credit check must be integrated into the<br />
activation process. Provisioning should allow users to change certain important service settings.<br />
Mediation, Rating & Billing<br />
Mediation: is performed to create a general CDR format from different formats (for instance fixed and<br />
mobile).<br />
Rating: is performed in different steps. First, every CDR is pre-rated (to enable fraud detection). If all<br />
CDRs pass the exception rules, they should be stored as non-rated and formatted until a bill-run is<br />
performed. In this bill run the final rating of CDRs must be performed. Rating is based on the rate plan,<br />
the subscriber bundles and the discount models.<br />
Billing<br />
After rating an invoice can be generated, using several threaded parallel bill cycles. After a bill is<br />
generated, it should be send in regular paper format or by e-mail. Mediation, rating & billing is an<br />
important process; as they enable <strong>MVNO</strong>s to make modifications to rate plans within short timelines,<br />
enabling flexible propositions to the market.<br />
Customer Care<br />
Customer care features, should be easily integrated in existing call center environments. Such features<br />
may include:<br />
• ticketing & progress management;<br />
• case & queue management;<br />
• detailed customer information including CDRs;<br />
• task management;<br />
• finance management;<br />
• customer automated e-mail interaction;<br />
• sales management & order tracking.<br />
Using such features the <strong>MVNO</strong> Customer Care environment, is enabled to perform their own customer<br />
care services (outsourcing of these services is always a possibility).<br />
Self Care<br />
The Self Care function (automated customer service) may decrease the amount of calls on the customer<br />
care department. Such a function is usually easily integrated with existing websites and could<br />
offer services such as the following:<br />
• change personal details / moving;<br />
• upgrade/change contract;<br />
• vew/download invoices;<br />
• request/track status of number porting;<br />
• request/track status of SIM swap;<br />
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• change services;<br />
• download settings through OTA.<br />
Distribution & logistics<br />
Connectivity providers often are concerned with distribution / logistics operations when products are sold<br />
through customer care or online sales. Products like SIMs, handsets etc need to be transferred from the<br />
warehouse to the end-customer and in some cases needs to be installed on-site (fixed).<br />
The possibility to fully integrate the distribution of products in the BSS* environment should be<br />
investigated. In this way, customers or customer care agents are always able to obtain real-time status<br />
information about orders.<br />
Business Support System (BSS)<br />
A Business Support System (BSS) is a platform that a telephone operator, <strong>MVNO</strong>, MVNE or ISP uses to<br />
run its business operations. BSS and OSS (operational support systems) platforms are linked in the<br />
need to support various end to end services. Each area has its own data and service responsibilities.<br />
The role of Business Support Systems in a service provider is to cover four main areas:<br />
o Product Management<br />
o Customer Management<br />
o Revenue Management<br />
E-Commerce<br />
An e-commerce functionality that is fully integrated with online payments and distribution & logistics<br />
should be sought. In the online shop not only physical products should be offered, but also service<br />
products (for instance a paper bill), which could be paid using Credit card payments, Pay-Pal, Direct<br />
Debit, etc. A credit check can be integrated into the payment process if necessary.<br />
The shop can thus be integrated with distribution, self care, customer care and can be<br />
seamlessly integrated with existing websites.<br />
Revenue Assurance<br />
Revenue assurance takes place on the field of collections, e-commerce and fraud detection.<br />
Collections<br />
Can be obtained through standard interfaces to third parties who can offer collections services.<br />
Additionally, the possibility of offering SMS alerting or sending paper reminders may be adopted.<br />
Fraud Detection<br />
The basic fraud detection has to do with high usage. When usage amounts of postpaid customers<br />
exceed a specific level, the system should inform certain users of the system. Additionally via interfaces:<br />
to the OSS system that can trigger events (for instance e-mail) or to BSS reps in case of a fraud event.<br />
Vouchering<br />
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Vouchers are relevant for prepaid propositions or specific marketing events (discount codes). The<br />
possibility to import voucher batches from a third party and distribute these to dealers and agents should<br />
be available.<br />
Dealer Support<br />
The dealer support enables the connectivity provider to:<br />
• manage dealers;<br />
• manage volume discounts and bulk ordering levels per dealer;<br />
• perform order approval for dealer orders.<br />
Dealers can use the dealer module to:<br />
• sell products and perform in store activation of products and contracts;<br />
• perform credit checks<br />
• place bulk orders<br />
System Management<br />
System management should provide information about running tasks, imports, services, users, loggings<br />
etc. In configuration management (as a part of system management), settings should be changed for<br />
prices, actions, interfaces etc.<br />
Number Porting<br />
The number porting is specifically required for <strong>MVNO</strong>'s, fixed and VOIP suppliers. Using porting, the<br />
connectivity provider can manage the porting process, creating an overview of all number porting<br />
requests & status and the possibility to modify these.<br />
It should be possible to outsource the number porting process to third parties, provided there are<br />
standard interfaces to existing parties which offer these services.<br />
Reporting<br />
Reporting must offer real-time standard reports, which can be exported to various formats (HTML, Excel,<br />
CSV, PDF or Word), creating the possibility to analyse the data. On request, additional user-specific<br />
reports should also be possible to be generated.<br />
Time to market<br />
The actual implementation duration depends on:<br />
• number of interfaces<br />
• proposition (prepaid, Postpaid, hybrid or flat fee);<br />
• Availability of third parties and <strong>MVNO</strong>.<br />
A typical implementation could become operational within a timeframe of 3-5 months.<br />
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Pricing (When buying a ready solution – from an MVNE)<br />
Pricing is usually based upon three components: license fee, implementation fee and support &<br />
maintenance.<br />
One time fee<br />
- license fee, depending on modules purchased;<br />
- setup & implementation;<br />
- setup & implementation infrastructure (in case of own environment)<br />
Yearly costs<br />
- license fee (a percentage of the initial fee - could be around 15%);<br />
- functional maintenance (during office hours or 24x7);<br />
- technical maintenance (again during office hours or 24x7);<br />
Maintenance fee is usually based on the number of subscribers in the base.<br />
To become an <strong>MVNO</strong>, one should cobble together a partnership that consists of a connectivity of a<br />
regular telco, a customer base, and a sales channel. Most important, they need unique and compelling<br />
data services.<br />
6.11 Critical Success Factors<br />
Generic<br />
• Identify latent opportunities<br />
• Create innovative services<br />
• Flexibility to provide customer-centric solutions<br />
• Spread awareness of enterprise mobile messaging<br />
• Ease of use<br />
1st generation <strong>MVNO</strong><br />
Despite their success so far, today <strong>MVNO</strong>s are not differentiating much from each other by (new) value added<br />
services. For those that have enjoyed success for far, this has been based on all or most of the following:<br />
- Having efficient distribution channels<br />
- Enjoying marketing skills<br />
- Owning a strong brand or focusing on niche markets<br />
- Proposing innovative content<br />
Operational requirements to develop an effective <strong>MVNO</strong> business<br />
• Critical points for a successful launch<br />
– Back office what can and should the <strong>MVNO</strong> do and what can MNO and MVNE handle<br />
– Evaluating the cost of providing and managing the various aspects of back office operations and<br />
infrastructure<br />
– How can <strong>MVNO</strong> be smarter then MNO when it comes to cost and flexibility<br />
– Is prepaid THE optimum solution for an <strong>MVNO</strong>, is the cost significant lower than postpaid.<br />
• Minimum time to market and a flexible operation<br />
- MNO access especially the ”new” countries:<br />
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o Time, services and set up is not always free of choice<br />
- Timeline: What is YOUR deadline, this have a serious impact on your choise of modell<br />
- Focus on simple robust start up products<br />
- Keep the number of interfaces to a minimimum to start with<br />
• Back office what can and should <strong>MVNO</strong> do and what can MNO and MVNE handle<br />
o Actual possibilities?<br />
• Legal<br />
• MNO<br />
• Competence<br />
o Business case?<br />
• MNO – trafic margin<br />
• Cost for the different scenarious<br />
• Be aware of all the ”extra” cost from the MNO<br />
o Can you find a flexible solution?<br />
• Enabler<br />
• Outsourcing partner<br />
• As little as possible at least from day 1<br />
• Only tasks that is business critical for your overall mission<br />
• Only tasks that make financial sense from day 1<br />
• How can <strong>MVNO</strong> be smarter than MNO when it comes to cost<br />
o<br />
o<br />
o<br />
Evaluate what you must own and what you can rent - go on “pay as you go” to keep your<br />
operational options open and your fixed opex and capex costs to a minimum<br />
Keep your dependencies to complex system at a minimum<br />
You do not need to control everything – but be in control<br />
• Is prepaid THE optimum solution for an <strong>MVNO</strong>? Is the cost significant lower then postpaid?<br />
o<br />
<strong>Prepaid</strong> upsides:<br />
– Better Cash flow<br />
– “No” bad debt<br />
– Pre-provisioned<br />
– No or lower billing cost<br />
– Transaction cost low<br />
– Often first service deployed for <strong>MVNO</strong> from MNO<br />
o<br />
<strong>Prepaid</strong> downsides<br />
– Worth of customer database lower<br />
– Churn higher<br />
– Residebntial ”only”<br />
– Channel cost high<br />
– Arpu lower (30-50%)<br />
– Services available<br />
• Roaming<br />
• GPRS<br />
• MMS<br />
• Content<br />
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• No it is not the optimum solution but it is quick, releases cash<br />
• With your own IN you can keep quite flexible products<br />
• Roaming is coming<br />
• The cost will be lower but probably lower ARPU, higher churn and less “Value”<br />
• Postpaid is an option you shall consider from the business case side especially if you already<br />
have postpaid/Direct debit customers<br />
6.12 Closing remarks<br />
New players are making their move: <strong>MVNO</strong>s are entering the wireless market because of its revenue<br />
potential, the large pool of churn customers, emerging broadband wireless technologies and compelling<br />
economics.<br />
With the increasing number of <strong>MVNO</strong>s, concerns are growing about the dangers of excess competition<br />
and price commoditization. These worries are unfounded. A new business model in the wireless industry<br />
is emerging in which consumer spending on telecommunications and entertainment will merge, then<br />
expand, to create a much larger and more profitable market. There will be casualties, but virtual<br />
operators and network carriers have the best chance of survival. <strong>MVNO</strong>s will have the dual benefit of<br />
making the market more efficient on the cost side and turbo charging the adoption of services on the<br />
revenue side. While individual performance will vary, <strong>MVNO</strong>s will change the structure, economic flows<br />
and culture of the wireless industry for years to come.<br />
Once an <strong>MVNO</strong> has partnered with a network operator and acquires a certain number of customers, it<br />
becomes difficult to move these subscribers, thereby locking the <strong>MVNO</strong> customer to the network.<br />
Separating from the carrier is not impossible, but a painful exercise. This highlights the importance of<br />
crafting a solid <strong>MVNO</strong> contract that includes margin protection to reduce business risk for the <strong>MVNO</strong>. If<br />
not undertaken correctly, this contract can become the weal link in the <strong>MVNO</strong> model, while if done well,<br />
it can power a strong value-creating business.<br />
Carrier choice will vary by <strong>MVNO</strong>, with a decision based on variables such as network protocol, network<br />
quality, wholesale price and <strong>MVNO</strong> operational-support capabilities. Each carrier will be strong in some<br />
categories and weak in others. An intimate understanding of these elements is essential for <strong>MVNO</strong>s.<br />
Aside from the carrier selection and deal negotiation, new <strong>MVNO</strong>s will need to craft an engaging value<br />
proposition for their target customers, supported by a business case built on assumptions and based on<br />
deep wireless expertise. This expertise is readily available from outside providers. The same is true fro<br />
back end support structures (customer care, billing) where expertise is widely available, to help<br />
determine the course of action to be taken. The key here is the decision to either do-it-yourself or<br />
leverage through a third-party. Such decisions, to some degree, determine the risk-reward profile of the<br />
venture.<br />
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7. Conclusions<br />
7.1 Conclusions & Lessons to be learned<br />
To be Adopted<br />
Try to turn the market from offline to Online<br />
There is low cost setup implementation (in doing this)<br />
Have a strong technical platform with no or minimal maintenance or service failure<br />
Avoid fraud<br />
Utilize Outsourcing as it works better than in-house<br />
Partners DO contribute with their core knowledge<br />
Make sure that Supply chain is 100% solid and work with NO errors<br />
Arrange Risk sharing with MNO and/or MVNE<br />
Focus primarily on sales<br />
Make sure that Online marketing is available<br />
Approaching Communities is easy<br />
To be Avoided<br />
It is hard to get into the market (existence of strong players)<br />
<strong>Operator</strong>s know how to compete<br />
o Long binding periods<br />
o Free minutes and SMS<br />
Regulation is non-existent or slow and ineffective<br />
Turning the market from offline to online is hard and takes time<br />
E-payment is not user friendly and it takes time for the user to get familiar with it<br />
The market is not as price sensitive as usually expected – even 30% lower prices is not<br />
enough<br />
Physical distribution is hard to beat online if you’re not patient<br />
o Is needed<br />
Viral marketing is misused by everybody in the Telcomarket<br />
• Launching a low-cost proposition using an established brand is a key element for being prepared<br />
to the increasing level of aggressiveness and price pressure<br />
• Brand compatibility makes the difference, especially when it is possible to combine best-price<br />
image with quality reputation<br />
• Being the first makes also the difference<br />
• Being the cheapest makes also the difference<br />
• <strong>Mobile</strong> telephony offer is a good opportunity for extending a fashioned product line of a retailer<br />
• <strong>MVNO</strong> or not <strong>MVNO</strong> is not the question : the best partnership must be the goal<br />
• Considering a strong partnership rather than just one singular revenue sharing model opens door<br />
for other future interesting co-operations…<br />
Standard <strong>MVNO</strong>s Tips<br />
• <strong>MVNO</strong>s should focus on branding and growing their business NOT the back office.<br />
• <strong>MVNO</strong>s should partner with an MVNE<br />
• With an end-to-end solution<br />
• With experience<br />
• With features and functionality that add subs to drive profit<br />
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• With on-demand scalability<br />
• With the ability to deliver speed-to-market<br />
• The right MVNE can deliver profitability to both the <strong>MVNO</strong> and the host operator.<br />
Data <strong>MVNO</strong>s Tips<br />
• Data Content <strong>MVNO</strong>s need all the same things as MNOs and other <strong>MVNO</strong>s, PLUS<br />
– Distinct and unique content<br />
– Highly topical content (rapidly changing)<br />
– Depend on their MVNE<br />
• MNOs need Data Content <strong>MVNO</strong>s<br />
– Drive more traffic<br />
– Control loss to alternate networks<br />
– But MNOs are poorly positioned to serve Content <strong>MVNO</strong>s<br />
• Challenges for Content <strong>MVNO</strong>s high<br />
– Content <strong>MVNO</strong>s need MVNEs to handle the “details”<br />
– MNOs need to open networks<br />
Beware<br />
• end-users have already experienced the deregulation activities in declining prices and simplified<br />
pricing schemes<br />
• many <strong>MVNO</strong>s have entered the market to learn the business and prepare themselves for the<br />
emerging, more content and data-based 3G market, but in several cases that was fatal<br />
7.2 Conclusions regarding the future<br />
Referring to telecoms, It is because telecommunications are by essence a network economy that the<br />
market is inefficient from a competition point of view, as:<br />
There is a guaranteed income due to the monopoly or oligopoly that popped up because the 3 or 4 GSM<br />
national licenses were not awarded at the same time.<br />
The GSM operators are vertically integrated and so can behave independently from upstream and<br />
downstream, even in a non collusive way<br />
As within most network economies, the limiting factor for a fully efficient market is the owning of a rare<br />
resource not easy to replicate (the local loop in fix telephony, the spectrum in mobile telephony).<br />
The limited spectrum allows - per country - only 3 or 4 operators with a radio access network; if the first<br />
entrant can exploit the spectrum ahead of its competitors, the market shares it acquires during that<br />
period create this guaranteed income typical in an oligopoly market.<br />
The <strong>MVNO</strong> brings a solution as it forces the mobile operators to unbundle its vertical integration and<br />
multiply the number of players. As such they are a remedy at least for the access/origination market.<br />
Also, the termination and the roaming market could benefit from <strong>MVNO</strong> as a remedy. The <strong>MVNO</strong> model<br />
can in fact apply to any network economy with a technological context and with assets not easily<br />
replicable.<br />
The <strong>MVNO</strong>s of today are customers centric. However, it is expected that the emergence of new (agile)<br />
wireless techniques will create new kinds of mobile operators not relying on GSM or UMTS. These new<br />
operators will need the GSM network to complete their coverage and so will need to become <strong>MVNO</strong>.<br />
These new operators operating a different radio access networks will eventually become <strong>MVNO</strong><br />
between each other. IMS has as an objective to create services that are irrespective of the underlying<br />
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adio access network. When IMS will be standard, the need to run a service on several networks will<br />
become natural and the service provider will have to become a <strong>MVNO</strong>.<br />
7.3 Three improvement suggestions<br />
1. Implement <strong>MVNO</strong>s with fixed interconnection cost and the network capacity bought<br />
virtually from nowhere<br />
− <strong>MVNO</strong>S implement the cost leader strategy<br />
− significantly lower capital (approx. 20% of MNOs costs) and operational expenditures<br />
− fixed interconnection prices determined by the game operator<br />
− restricted set of services a <strong>MVNO</strong> can offer<br />
2. Introduce means for negotiation, the network capacity is bought from actual players<br />
− network capacity is bought for a certain period of time<br />
− switching costs for a <strong>MVNO</strong> due to investments to the network infrastructure (e.g. VAS<br />
servers, billing and charging systems, integration costs)<br />
− wholesale pricing options for MNOs who decide to sell excess capacity<br />
3. Give the players a possibility to act as <strong>MVNO</strong>s with different strategies<br />
− service leaders must select a service mix they intend to offer<br />
− requires for modelling financial flows based on service demands per customer group and<br />
actual costs to produce a certain service<br />
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8. References<br />
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o<br />
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o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
o<br />
Personal Interviews with <strong>Mobile</strong> <strong>Operator</strong>s Higher Management<br />
Deloitte Surveys (www.deloitte.com)<br />
Business plan Pro<br />
EUROSTAT<br />
http://www.statistics.gr<br />
http://www.mobilevirtualnetwork.co.uk/<br />
http://www.ovum.co.uk/<br />
http://www.siia.net/<br />
www.3gnewsroom.com<br />
www.analysysmason.com/<br />
www.mobilevirtualnetwork.co.uk/<br />
http://www.wimax-industry.com<br />
http://www.kpmg.com.au/<br />
http://www.atkearney.com/<br />
http://www.thebesengroup.com<br />
http://www.tescomobile.co.uk<br />
http://www.atosorigin.com/<br />
http://www.3G.co.uk<br />
http://www.eurocomms.com/<br />
http://www.gsmworld.com/<br />
http://www.mobilein.com/<br />
http://www.mvnodirectory.com/<br />
http://www.pyr.com/<br />
http://www.transatel.com/<br />
http:// www.effortel.com/<br />
http://www.takashimobile.com/<br />
9.<br />
<strong>MVNO</strong><br />
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Annex 1 - Case Study – Western Europe Cellular revenues<br />
Total Revenues generated by mobile operators in Western Europe reached EUR155.1 billion in 2007,<br />
3.32% growth from 2006. In EU15 countries, cellular revenues represent 1.5% of Gross Domestic<br />
Product. Our key finding is that in most countries, mobile revenues have been growing faster than<br />
GDP which demonstrates that the telecom sector has proven to be resilient to the general economic<br />
downturn. In 2008, we expect to see a similar relatively healthy growth in mobile revenues.<br />
Non-voice revenues appear to be driving growth as voice revenues remain under strong pressure. As<br />
market penetration continues to rise, mobile operators are turning their strategies to increasing<br />
revenue share and focusing on customer retention.<br />
Western Europe recently passed the 500 million cellular connections mark and the most highly<br />
penetrated region in the World (120% on average). Greece and Italy have registered penetration<br />
rates above 150% in early 2008. Most countries are now home to 3-4 mobile operators, and in a time<br />
of general economic slowdown, competition is getting tougher.<br />
In Western Europe, the top 5 operator groups (Vodafone, Orange, T-<strong>Mobile</strong>, Telefonica O2 and TIM)<br />
generated revenues of 106.6 billion Euros, or 69% of the total revenues for the region. In markets<br />
such as Germany, Italy, Belgium, Switzerland and Austria, cellular revenues have decreased year on<br />
year, partly due to: new European roaming regulations, domestic regulations (Bersani Decree in<br />
Italy), weakened ARPU, and decline in effective voice price per minute.<br />
<strong>Operator</strong>s are now focusing on revenue stimulation and fighting churn through key competitive<br />
factors such as: price elasticity, network coverage, loyalty policy, quality of services, value added<br />
services and market segmentation which includes <strong>MVNO</strong> development.<br />
Western European mobile operator revenue<br />
Western Europe cellular market has reached a level of maturity that is intensifying the level of<br />
competition amongst mobile operators. Total revenues in the region reached 155.1 billion Euros in<br />
2007, which equates to a 3.32% growth year on year. Keeping the right balance between CAPEX and<br />
profitability is sure to be a key challenge for service providers that operate in the region.<br />
Figure 1: Western Europe <strong>Mobile</strong> <strong>Operator</strong>s Total Revenues vs. Penetration Rate<br />
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Source: Wireless Intelligence, 2008<br />
The seasonality in revenue figures has remained unchanged since 2006: 24% in Q1, 24.8% in Q2,<br />
25.7% in Q3 and 25.5% in Q4. This shows that the second half of the year is the period when<br />
operators generate the highest revenues. Q3 holds the summer holiday season and is the<br />
battleground of prepay campaigns whilst Q4 is characterized by strong activity during the<br />
winter/Christmas holiday season. Whilst there is nothing new in this, those two quarters have always<br />
ruled the market dynamics, what has changed is that operators are now primarily focusing on<br />
customer retention instead of customer acquisition. By default, it also means that market leaders are<br />
turning their strategies to increasing revenue share instead of customer share.<br />
In terms of the dominance of major operator groups in the region, Vodafone, Orange, TIM, Telefonica<br />
O2 and T-<strong>Mobile</strong>’s operations in Western Europe altogether reached 106.6 billion Euros last year,<br />
representing nearly 70% of the total revenues in the region. The remaining 30% is left to local<br />
operators and smaller groups such as Telenor, KPN, or 3.<br />
Figures 2 and 3 show the top 10 fastest and slowest growing operators in terms of total revenue<br />
growth in 2007 along with their average quarterly connections growth. It is interesting to note that a<br />
few markets have rapidly changed over the last two to three years mainly due to high penetration<br />
rates and new regulatory initiatives.<br />
For instance, Germany and Italy are showing signs of a high level of maturity that may lead to a<br />
plateau of development throughout 2009. T-<strong>Mobile</strong> Deutschland (2.7% revenue growth) and<br />
Vodafone Germany (7.1%) have reported negative growth in their total revenues from 2006 to 2007<br />
although their connections base grew by an average of 2% last year. This is partly due to pressure on<br />
voice pricing, weakened ARPU and the implementation of cuts in termination rates. Although both<br />
operators reported an increase in their installed base, they were unable to offset the consequences of<br />
price pressure. O2 Germany, in contrast, has reported a higher revenue growth (15.9%) over the<br />
same period.<br />
In Italy, the same rules apply for Vodafone and TIM. Both operators have reported a decline in total<br />
revenues of 5% and 2.3% respectively between 2006 and 2007. The decline is also justified by the<br />
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implementation of the Bersani Decree which requires operators to eliminate top-up charges from all<br />
the rate plans and all top-up channels. As the Italian market is home to 90% prepaid users, the<br />
Bersani Decree had a substantial impact on revenues generated by operators since its<br />
implementation in March 2007.<br />
Figure 2: Top 10 fastest growing operators: Revenue growth vs. average quarterly connections<br />
growth, 2007<br />
Source: Wireless Intelligence, 2008<br />
Figure 3: Top 10 slowest growing operators: Revenue growth vs. average quarterly connections<br />
growth, 2007<br />
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Source: Wireless Intelligence, 2008<br />
Data usage drives revenue growth<br />
Recurring revenues have been estimated at 90% of the total revenues in Q4 last year. Voice revenues<br />
represent 78% of the recurring revenues and non-voice revenues hold the remaining 22%. Non-voice<br />
revenues show substantial growth of 18% from Q4 2006 to Q4 2007, demonstrating the take off of data<br />
usage. Voice revenues are under clear pressure in most markets as efforts from operators to stimulate<br />
voice usage have led to a decline in effective price per minute.<br />
Despite the competitive environment in Italy, Vodafone and TIM have registered strong growth in nonvoice<br />
revenues, with 25.8% and 22.2% growth respectively between Q4 2006 and Q4 2007. In Austria,<br />
Mobilkom reported that non-voice revenues represented 30% of its total recurring revenues in Q4 2007<br />
compared to 24.1% in Q4 2006. T-<strong>Mobile</strong> Austria non-voice revenues represent 22.6% of its recurring<br />
revenues in Q4 last year against 15% in Q4 2006. In Portugal, the situation is similar with Optimus and<br />
TMN reporting high growth in non-voice revenues over the same period with 25% and 40% growth<br />
respectively (20% of their recurring revenues in Q4 2007).<br />
Italy, Austria and Portugal all have high penetration rates (over 120%) and have seen a fast adoption of<br />
high-speed services. WCDMA Family (WCDMA + WCDMA HSPA) connections already represent just<br />
over 15% of the total connections of Mobilkom Austria, T-<strong>Mobile</strong> Austria, TMN, and TIM. Optimus is<br />
already set at more than 30% and Vodafone Italy at 24%.<br />
The adoption of mobile broadband along with good network coverage have been key to fast adoption of<br />
data usage to drive an increase in non-voice revenues. It is interesting to note that data usage growth is<br />
mainly driven by the sales of USB-dongles, and more recently HSPA-enabled laptops. Along with the<br />
widespread of unlimited data plans (an average of 20 Euros per month in Western Europe), such offers<br />
tend to dilute ARPU but generate incremental cellular connections and incremental revenues for<br />
operators. Currently, mobile broadband services are only available to contract users but introducing<br />
such services to the prepay market (around 60% of the total connections in the region) will generate<br />
higher gains for operators and speed up the adoption of high-speed services.<br />
<strong>MVNO</strong><br />
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<strong>Mobile</strong> Revenues as a share of GDP<br />
According to the OECD (Organisation for Economic Co-operation and Development), the average yearly<br />
growth in GDP in 2007 was set at 2.6% in Western European markets (EU15 countries). Over the same<br />
period, mobile revenues accounted for 1.5% of GDP.<br />
Figure 4 shows mobile revenues as a share of GDP for the EU15 countries, and compares it to revenue<br />
growth and GDP growth in 2007. It shows how disparate Western European countries are and the<br />
difficulty in correlating cellular revenues growth and GDP growth. However, we came to the conclusion<br />
that in most countries, mobile revenues are growing faster than GDP. We can identify some groups of<br />
countries that seem to follow similar patterns and profiles:<br />
Greece, Finland, Ireland, Spain and Netherlands: all 5 markets have reported a growth in mobile<br />
revenues faster than GDP growth. In those markets, the average penetration is around 120% (a part<br />
from Greece already at 165%) and GDP growth in 2007 is around 4%.<br />
United Kingdom and Sweden: both markets have reported mobile revenues growth faster than GDP.<br />
The average penetration is around 120%, GDP growth in 2007 is around 3%.<br />
Portugal and Denmark: both markets have reported mobile revenues growth (around 6-7%) faster than<br />
GDP growth. The average penetration is around 120%, GDP growth in 2007 is around 3%.<br />
Germany, Belgium, Switzerland and Austria: average penetration is around 110%, GDP growth in 2007<br />
is around 3%, but all four markets have reported a decline in mobile revenues in 2007.<br />
France and Italy: two exceptions.<br />
France is showing a market penetration below the 100% mark (82%) and GDP growth below the 3%<br />
average in 2007. Although it is reporting a 3.1% growth in mobile revenues last year, the market is<br />
lagging behind in terms of high-speed network coverage.<br />
Italy is highly penetrated (153%) and is reporting the slowest GDP growth amongst those countries<br />
(1.4%) in 2007. Its decline in mobile revenues is mainly due to implementation of new European and<br />
domestic regulations as well as price pressure amongst operators.<br />
Figure 4: <strong>Mobile</strong> Revenues as share of GDP, 2007<br />
Source: OECD, Wireless Intelligence, 2008. GDP figures have been extracted from the OECD online database on the<br />
02/09/2008.<br />
<strong>MVNO</strong><br />
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10.<br />
<strong>MVNO</strong><br />
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Annex 2 - <strong>MVNO</strong> Experience<br />
The highly competitive Nordic<br />
• The customers are harder to get then planned<br />
• The internal procedures and the amount of work needed is underestimated<br />
• Everything takes time and even though it is a ”light” solution many interactions has to be solved =<br />
You have to work in parallell<br />
• Keep as much as possible simple and standard<br />
• Telogic track record is 28 days – from start to commercial launch<br />
Conclusions<br />
1. There is price flexibility also in the mobile communication sector<br />
2. Brand diversity is new in the mobile communication sector–but a recipe for success in many<br />
other lines of business.<br />
<strong>MVNO</strong><br />
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3. Customers are not prepared to pay for everything that is technically feasible<br />
<strong>MVNO</strong><br />
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Annex 3 - Glossary<br />
3G<br />
3 rd generation mobile system<br />
3GPP<br />
3rd generation partnership program developing global specifications<br />
BSC<br />
Base Station Controller<br />
BTS<br />
Base Transceiver Station<br />
Core <strong>Network</strong> The systems that control traffic flowing to and from the RAN<br />
CRM<br />
Customer Relationship Management<br />
CS<br />
Circuit Switching<br />
GPRS<br />
General Packet Radio Service<br />
GSM<br />
Global System for <strong>Mobile</strong> Communications<br />
HLR<br />
Home Location Register<br />
ICT<br />
Information/Communication Technology<br />
IMS<br />
IP Multimedia Subsystem<br />
IMSI<br />
International <strong>Mobile</strong> Subscriber Identity<br />
IN<br />
Intelligent <strong>Network</strong><br />
IP<br />
Internet Protocol<br />
ISN<br />
Intelligent Service Node<br />
IT<br />
Information Technology<br />
MGW<br />
Media Gateway<br />
MMSC<br />
Multimedia Messaging Service Center<br />
MNC<br />
<strong>Mobile</strong> <strong>Network</strong> Code<br />
MNO<br />
<strong>Mobile</strong> <strong>Network</strong> <strong>Operator</strong> (host)<br />
MSC<br />
<strong>Mobile</strong> services Switching Center<br />
MSS<br />
<strong>Mobile</strong> Switching Solution<br />
MVNE<br />
<strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> Enabler<br />
<strong>MVNO</strong><br />
<strong>Mobile</strong> <strong>Virtual</strong> <strong>Network</strong> <strong>Operator</strong><br />
NGN<br />
Next Generation <strong>Network</strong><br />
OSS<br />
Operation and maintenance subsystem<br />
OTA<br />
Over-the-air technology<br />
PLMN<br />
Public Land <strong>Mobile</strong> <strong>Network</strong><br />
Service Delivery Platform A platform used to deliver non-voice services to a mobile customer<br />
SGSN<br />
Serving GPRS Support Node<br />
SIM<br />
Subscriber Identity Module<br />
SMSC<br />
Short Message Service Center<br />
SS7 Signaling System no 7<br />
UMA<br />
Unlicensed <strong>Mobile</strong> Access<br />
UMTS<br />
Universal <strong>Mobile</strong> Telecommunications Services<br />
VMSC<br />
Visited <strong>Mobile</strong> services Switching Center<br />
VAS<br />
Value Added Services<br />
VoIP<br />
Voice over IP<br />
VPN<br />
<strong>Virtual</strong> Private <strong>Network</strong><br />
WAP<br />
Wireless Access Protocol<br />
Total revenue: Total operator reported revenue, including all recurring and non-recurring<br />
revenues.<br />
Recurring revenue: Revenue generated by subscriber use of the network including voice,<br />
messaging, data, interconnection and roaming but excluding revenue from<br />
handset sales and connection fees, and any other revenue not generated<br />
directly by network subscribers.<br />
Non-recurring revenue: All revenue reported that is excluded from recurring revenue. Commonly<br />
includes revenue from equipment.<br />
Voice revenue: Recurring network revenue attributable to voice services.<br />
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Non-voice revenue: Recurring network revenue attributable to non-voice services including<br />
messaging, downloads, Internet browsing and other data services.<br />
GDP: Gross Domestic Product, at constant prices. GDP data has been sourced from the OECD<br />
online database on 02/09/2008.<br />
EU15 countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,<br />
Netherlands, Portugal, Spain, Sweden, Switzerland and United Kingdom.<br />
<strong>MVNO</strong><br />
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