https://www.excelacom.com/resources/blog/attack-of-the-mvnos/

Jan 20, 2015

Attack of the MVNOs

By David Krhut

Just a few decades ago, every object had a purpose. Early cell phones were used to make phone calls, televisions showed basic cable programs, houses were nothing more than a means of shelter, and the Internet only operated through cables and phone lines. Simple functions meant simple business models, and each service provider had its own specific lane.

Then every lane started to merge­– improving convenience for the consumer, and creating competitive war zones for telecom companies.

For years, the Tier 1 telecom operators have feared that the rise of IP-based services would diminish their customer base in favor of "Internets and Gadgets," an evolving platform that offers revolutionary and innovative ways to improve the communication between people and objects around them. The "Internet" allowed the evolution of data communication services, and the "gadgets" allowed communication to be easier and more flexible. This dangerous combination has telecom leaders worried that this spike in Internets and Gadgets could downgrade the importance of these carriers into the role of dumb data-"pipe"-providers.

Recent developments would probably confirm this almost "catastrophic" outlook. Brand new OTT features, independent service providers, and cable companies (suddenly also offering voice services!) are all disruptive elements eating the lunch of the once great telecommunication operators.

But all is not so dark and gloomy in the telecomland – not even for those big players (ok, maybe just a bit ;-)).

For years, the Tier 1 telecom operators have feared that the rise of IP-based services would diminish their customer base in favor of “Internets and Gadgets,” an evolving platform that offers revolutionary and innovative ways to improve the communication between people and objects around them.

The most direct attack on the recently untouchable carrier's profit margins came from a new business model – Mobile Virtual Network Operators, or MVNOs.

The players of this model are the "Enabler" and the "Operators." The Enabler (MVNE) is usually one of the Tier 1 operators that were "lucky" enough to get the license to build one of the first mobile networks in the country. The "Operators" or (MVNOs) are the other companies interested in offering communication services, but who were too late or too poor to join the "mobile party." The Enabler allows The Operators into their network, and sell network capacity (the usual - voice, data, SMS) to The Operators at wholesale prices.

It is then up to the MVNO to hunt (but later also nurture) those subscribers.

The most direct attack on the recently untouchable carrier’s profit margins came from a new business model – Mobile Virtual Network Operators, or MVNOs.

Additional commissions, incentives and penalties (in true "carrot & stick" fashion) are also included into the MVNO contracts to ensure that their subscribers are actually making calls and sending SMSs – not just passively receiving the calls from other carriers or networks.

The actual reasons for the introduction of MVNOs can differ from market to market, and are heavily dependent on the approach of the national telecom regulator. In most cases it is meant as a powerful tool that should spur and ensure higher competition between domestic mobile operators, and lead to lower rates and more diverse service offerings for end-customers.

For example, it is quite common that after the costly purchase of mobile licenses and subsequent construction of the mobile networks, carriers would try to squeeze their subscribers. If there are only a few mobile carriers available, the competition is in such case stifled, and can develop into some sort of a cartel or monopoly in the worst case scenario.

Of course, most of the already established telco players initially oppose such plans, or at least actively try to delay the introduction of the MVNOs in their markets. This ability to delay MVNO integration comes down to the actual strength of the telecom regulator and its readiness to protect the customers, rather than the profits, of those carriers. No one will voluntary allow access of some subversive subscriber-thieving parasites into their core network!

But once the emotions calm down and the companies are able to re-adjust their strategies and perspectives, they soon come to realize that there is still some money that can be made out of it – for both sides.

From the point-of-view of the MVNEs, it is true that MVNOs somehow reduce the MVNE main subscriber base. However, the past years also proved that these first-to-the-party-carriers-turned-enablers will actually never lose a significant part of their subscriber critical mass (and if so, it will never be solely caused by the MVNOs).

But once the emotions calm down and the companies are able to re-adjust their strategies and perspectives, they soon come to realize that there is still some money that can be made out of it – for both sides.

Additionally, in already saturated markets (ex. 2-3 SIM cards per one Revenue Generating Unit), the additional traffic created by the sort of "2nd grade" MVNO subscribers can represent another way how the network capacity is feasibly used; additional revenue is generated, and network operation cost is reduced.

Finally, one might even argue that this is less risky and more easily made money for the MVNE than if the MVNE would try to target the same customer segment with their own comparable offerings.

It is disputable whether the MVNO subscriber is still completely or only "half-lost" subscriber from the MVNE point of view. By missing the access to the subscriber information and data, the carrier is still losing lot of future up-sell and cross-sell opportunities, as well as other important CRM related data. On the other hand, these "missed opportunities" should be compared to the cost of launching new products for these customer groups etc.

From the point of view of the MVNO, it's risky business, but if there is a risk then there is usually also reward when it pans out.

The most usual candidates for "MVNO-ization" are generally companies with already large customer bases that do not have to hunt (very hard) for their subscribers, such as gas/electricity utility companies, major newspapers or sport arenas ("call your friends for free during our games!"). Other companies that might try their luck in this business are those with an already established large distribution network (grocery shops, lotteries, betting companies), or cheap international call services aimed at immigrant minorities.

Furthermore - the cost of entry for all these subjects heavily depend on selected MVNO "modus-operandi." Some might opt for the most expensive, but also most robust implementation of "full-mvno" where the operator manages own exchanges and owns almost the whole OSS/BSS stack, and the enabler provides only the network layer. Others might just go with re-selling or re-branding, or rely on MVNO-hosting aggregators.

The most usual candidates for “MVNO-ization” are generally companies with already large customer bases that do not have to hunt (very hard) for their subscribers, such as gas/electricity utility companies, major newspapers or sport arenas.

But no matter which MVNO flavor these enterprising companies pick, the main advantage of the MVNO model is that they do not have to be bogged down by all those network-specific operational issues; they can fully concentrate on creating specific marketing offers and other revolutionary synergies for their customers.

Finally, the ultimate "icing-on-the-cake" for the MVNOs is the direct access to the customer personal information, spending and communication habits, allowing MVNOs to make additional money from the already available customer base. These days, a lot can be understood and then sold on the basis of this data and thanks to the application of some advanced (e.g. Big Data) analysis.

The MVNO industry continues to stay very active and vibrant in finding new and entrepreneurial ways to invent new business strategies. Interestingly, the MVNO business is much more alive and prosperous in Europe than in US or in fact any other region, but further investigation of this phenomenon would be helpful to further telecom success on a global level.

Thankfully we, at Excelacom, have extensive experience working on both sides of the MVNO/MVNE "fence," and would be glad to provide our services. Email us at marketing@excelacom.com.

 
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