More often than not, MVNOs have not been particularly successful. We have seen many MVNOs on the market, but most have failed commercially and have sold their customer base to the host-MNO.
So what does it take to be a winner in the MVNO space? Well, let us start by taking some perspective on where MVNOs come from.
What are MVNOs all about?
MVNO are mobile service providers that do not own a GSM or UMTS spectrum licence but partner with an existing mobile network operator, also called host-MNO, and buy capacity on their radio access network. Since their initial appearance in the late 1990s in the Nordic countries and the UK, MVNOs have became widespread in Europe, America and some countries in Asia. They are now emerging in developing countries in the Middle East and Latin America.
MVNOs exist in various forms depending on the depth of their role in the value chain:
- Full-blown MVNOs own the same network assets as an MNO except a radio network. They also have their own Mobile Network Code and own interconnection agreements. This type of MVNO is the exception rather than the rule because MNOs usually consider them to be ‘too big a threat’.
- MVNO-light own basic service platforms (SMSC, VMSC) as well as Billing and CRM systems. Other network assets are provided by the host-MNO (MSC, HLR, Mobile Network Code, Interconnection).
- Branded Resellers resells the products and services of a host-MNO under their own brand and are essentially a marketing and sales channel. They are the most common form of MVNO on the market because they are easy to set-up and regarded as the lowest threat by MNOs.
From an MNO perspective, opening its mobile network to MVNOs makes sense in the following circumstances:
- The MNO is a 2nd or 3rd tier player with a limited market share, typically lower than 20%.
- The MNO brand and/or sales channel are not strong or extensive enough.
- The MNO mobile network is under-utilised: a high level of spare capacity is available in the radio access network, at zero additional cost.
Although there are hundreds of MVNOs worldwide, their success have been mixed. Most MVNOs have targeted niche segments of the market and remained niche businesses with less than 1% market share. The few very successful MVNOs always had a key asset, often a strong sales channel or well-known brand, that they could leverage into the mobile telephony business. This was the case of a number of mass-market retailers who launched low-frill and low-cost offering in supermarkets.
The main challenges for MVNOs have been their lack of differentiation and their often-inflexible contract with host-MNOs, limiting their ambitions technically and commercially:
- These contracts usually do not allow MVNOs to differentiate enough in terms of network functionality and service offering.
- In addition, MVNOs can become squeezed between rapidly changing tariffs levels for voice and SMS on the market and their slow-adjusting, exclusive airtime purchasing conditions.
- Finally, exit opportunities are limiting MVNOs in their ability to sell or migrate their customer base to another host-MNO.
The MVNO opportunity turns the mobile business on its head: tomorrow success will not come from excellent network coverage and best network quality – both taken for granted – but from innovation, branding, marketing, sales, handset and customer relationship management. Next generation MVNOs will need to have better market entry strategies with clear value-added and Unique Selling Proposition, as well as better contractual conditions with host-MNOs.
We expect to see fewer but more successful MVNOs in the future as the existing MVNO market consolidates and the MVNOs currently emerging in developing countries will be better equipped for success.
So what does it take to be a successful MVNO?
Here are our golden rules for becoming a successful MVNO:
- MVNO strategy and strengths that complement the MNO core business, no “frontal” attack
- Essential to buy bulk capacity at affordable price (minimum gross margin 40%)
- Robust change management mechanism with the MNO, including in particular price adjustment, network services
- Clearly defined exit terms including the issue of customer ownership
- In many market: essential to have a partner for handset sourcing and handset management as this can kill the business case
- MVNO Management team that is focused and expert on marketing and sales, not network!