The MVNO Challenge

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Starting an MVNO has never been easier; making it successful on the other hand is a different kettle of fish. Competitive pressures in a challenging economic environment have squeezed margins and differentiation has never been more important. David Dungay got himself out into the market to find out how the MVNO landscape is looking and what sets the winners and losers apart.

Michiel Van Der Pant, Group Sales Director and Founder of Teleena

Michiel Van Der Pant, Group Sales Director and Founder of Teleena

Mobile Virtual Network Operator solutions (MVNOs) encompass voice, data, SMS, mobile broadband and machine-to-machine (M2M) platforms. These solutions have to span a wide array of offerings and provide end-to-end services to remain competitive in the marketplace. And they have to do it while riding on top of someone else’s network infrastructure – namely, a carrier that is under tremendous strain from the ever-increasing amounts of mobile data due to the explosion in use of smartphones and tablets.

It has never been easier to become an MVNO in the UK. Since the beginning of this year, Transatel has already seen the launch of Phones4U MVNO LIFE Mobile on its MVNE platform in March and two other new post paid MVNOs were launched on the platform in April.

On the growth of MVNO’s Milind Kangle, Group CEO of Lycamobile commented “MVNOs are thriving because – in general – they are building their businesses around their customers, and making lives easier. MVNOs that leverage their economies of scale to deliver a compelling value proposition will continue to drive growth. “

Getting Started

The introduction of the MVNA (Mobile Virtual Network Aggregator) and MVNE (Mobile Virtual Network Enabler) model in the MVNO market has significantly lowered the market entry barriers to launching mobile propositions. MVNA’s have a direct wholesale relationship with the Mobile Network Operator meaning brands no longer have to negotiate direct with the mobile networks. The cost of entry is reduced massively. However not all MVNAs are the same.

Vincent Polson, Mobile Pricing Specialist, Gamma commented “Gamma is a MVNA and working with Vodafone we are empowered to appoint and manage MVNOs. Our MVNOs can manage their own branding, billing, contracts and pricing themselves which uniquely gives them control over the margins they can make. A reseller by contrast has pricing set by the network operator, which places a cap on what they can earn.”

Michiel Van Der Pant, Group Sales Director and Founder of Teleena commented “Teleena took the decision right from the begining to invest directly in its own core mobile network and BSS systems. In simple terms, Teleena only uses Vodafone for the radio access network. This means Teleena has far greater flexibility on the solutions it can bring to market – in turn providing greater functionality and value add to MVNO’s. Teleena sees this approach as next generation MVNA’s.

Michiel continued “Right from the very beginning we had the vision to create solutions for brands to launch a white label mobile network with innovative products and services that make them stand out in the crowd. More of the same in the market will no longer work. It is important to have your own subscribers on an independent platform, rather than have them in the network of a Mobile Network Operator (MNO) as this will lock you in forever. Also the MNO’s like us because we attract new revenue streams while saving them a lot of hassle of managing smaller parties themselves.”

Major MVNO Hurdles

Differentiation:  MVNOs and their partner organisations need to offer propositions which are unique on the market to attract new customers. This could be by addressing a niche segment which has previously been overlooked, it might relate to tariff and pricing which is especially different from the rest of the market, value added services that consumers have not seen before, or whole new business models which have bigger players could never risk trying.

Marketing: MVNOs are often small players or start-up companies, so they need a really effective marketing strategy in order to raise awareness of what’s different about their offer, and why consumers should choose to go with them rather than one of the major networks.

Distribution: Likewise, it needs to be as easy as possible for consumers to go from being an MNO customer to an MVNO customer, and in the case of PAYG MVNOs for their customers to have access to top-up facilities easily.

The Challenge

Vivian Woodell, CEO of The Phone Co-op

Vivian Woodell, CEO of The Phone Co-op

According to Transatel the main challenges on the MVNO market are pricing, differentiation, marketing, and distribution. The MVNO market to date has largely focused solely on price – including low cost international calling, no frills propositions and has allowed fixed resellers to move into mobile. However the market is consolidating and rapidly changing – we are seeing more niche brands entering the space but increasingly we will see innovative new business models. The market also continues to see explosive growth in data.

On pricing, Polson from Gamma said “There are two principle parts to a pricing proposition. Firstly, can you design a package that is both attractive to the end user and one in which they can see value and secondly, you need to know that the numbers work for you as a profitable proposition to offer. For most partners that want to become an MVNO this is a new concept because as a mobile reseller they are accustomed to a retail minus £% model and as a result there is likely to be no pricing specialist within their organisation to design the mobile offering in terms of end user cost.”

Phillippe Vigneau, VP Business Development of Transatel stated “Now that the mobile market has reached maturity, churn has become a real issue for MNOs and we have seen them all lower prices aggressively to compete. Not only has this taken a lot of the value out of the market, but has also left consumers with a lack of choice as most of the MNO offers are very similar. MVNOs face this same challenge of course, as they need to get their strategy right in order to be competitive, but what is clear to us is that this challenge can also be a benefit to MVNOs, as consumers are searching for something different and MVNOs are capable of offering unique and innovative value added services which consumers cannot find with the major operators.

Duncan Laker of Welcome Telecom added “Inevitably many cost conscious customers will not recognise the advantages of using an involved, open and trusted smaller supplier; their purchasing will remain solely based on price. Some deals, often the larger ones, will be lost to the networks who will, in effect, buy the business using their immense resources that many MVNOs will be unable to compete with.”

Vivian Woodell, CEO of The Phone Co-op, commented on challenges “MVNOs also don’t have the ability to switch traffic between networks, and are often tied into onerous contracts. It is quite common practice for network operators to demand that MVNOs buy exclusively from them, further restricting their commercial leverage and reducing competition.”

Charles Grant, Commercial Director for Cellpak Solutions added“How and where to distribute to end customers is a big challenge. Traditional wholesale distribution channels are crowded with competitors, with commissions payments ‘challenges’. Retailers and distributors will often push the products that provide the biggest commission on sales or top-ups. It is not unknown for the distribution channel to top-up SIMs to gain the commission and then sell as pre-loaded or similar.”

Staying flexible

The flexible way in which minutes, data and SIM can be purchased means that MVNOs can approach sales in the same way as fixed and hosted services. Laker comments “Usage is reported by daily cdrs, which include SMS and data use and can be bundled (or not) and billed along with existing services. Many resellers provide value to their end users, rather than simply selling on cost, and by bringing this de-commoditised approach they are in a position to offer their business customers a very different service when compared to the networks. This transparent and flexible approach will appeal to forward thinking organisations, the very businesses that are likely to be existing customers, so there is a great cross selling opportunity which can increase the value of any reseller. It also gives the reseller a new route to market by tailoring mobile offerings to meet the requirements of new business, which then, in turn, offer the cross selling of other products.

Laker added “There are also advantages to the channel of any reseller, although some education may be needed to demonstrate the benefits. No longer need the mobile dealer be only as good as their last deal. By moving from a one off payment model to one that delivers ongoing revenue the MVNO is in a position to supply guaranteed monthly payments that, over the customer life cycle, will deliver greater earnings than networks pay out. It is also easier for dealers and consultants from non- telecoms industries, such as IT and office movers, to add mobile to the services that they can offer to their customers, widening the channel as well as deepening it.”

When Dariush Zand was looking to set up OVIVO –Mobile Virtual Network Operator that offers free calls, texts and data each month – he needed a customer contact centre to handle inbound calls from customers, as well as supporting outbound calls to contact customers and prospects. The cost, performance and success of such a business critical front-end to the OVIVO operation would prove key factors in the company’s development.

“The consumer mobile phone market is crowded – but there was a clear gap that I wanted to capitalise on,” explains Dariush. “When setting out to launch OVIVO my ambition was to build the company’s reputation on first class UK customer service, combined with our distinctive free, no commitment offering paid for by non-intrusive mobile advertising. Having worked in the industry for a number of years, I felt that there was a clear opportunity to provide a lower cost offering where customers didn’t have to compromise on service quality – I wanted this to be OVIVO’s competitive differentiator.”

Regulation needed?

Woodhall has been calling for regulation for quite some time in the mobile market. “The network operators have been permitted to combine their network infrastructure, so that effectively there are only two networks in the UK, operating five brands. This renders the concept of competition on grounds of coverage more or less obsolete.

The market currently suffers from asymmetry in that it is much easier for mobile network operators to enter the fixed line market than it

Phillippe Vigneau, VP Business Development of Transatel

Phillippe Vigneau, VP Business Development of Transatel

is for fixed line service providers to enter the mobile market.

The incumbent four network operators still control the vast majority of the market and their pricing is often similar enough to lead one to conclude that competition is not fully effective.

It is surely time to re-regulate the mobile market, along the lines used to break up BT’s monopoly. We are close to a duopoly in mobile, and the market is mature and arguably declining, so the rationale for granting a licensed oligopoly (encouraging investment to create the networks in the first place) is no longer there.

I argued for this in a talk given at Comms Provider in 2008, suggesting that the mobile networks should be combined from a technical point of view into a single infrastructure (although different ownerships could remain) and that any operator who met the technical standards should be able to build infrastructure.”

Adding Value

Duncan Laker went on to talk about the importance of taking a holistic approach, “Like Welcome most MVNOs will have other products in their portfolio. By taking a holistic approach to customers Comms/IT requirements and collaborating if necessary with other suppliers it is nearly always possible to find the right, integrated products for any potential customer. Transparency, responsiveness and flexibility add value that the big boys just cannot compete with and MVNO status offers just those attributes to your mobile offering. By including MVNO mobile everyone can benefit, the MVNO/reseller, the channel and, most importantly the end user.”

Gavin Sweet, Director at Skyrack Telecom, thinks there are some big opportunities out there for resellers, “The real opportunities for

Gavin Sweet, Director at Skyrack Telecom

Gavin Sweet, Director at Skyrack Telecom

resellers and CP’s in terms of additional revenues are not simply in being another mobile bundle “me too” player, or another re-branded SIM card player. Though this can clearly be effective for some channels, the operators themselves will always have a better deal and users may end up just “SIM surfing” your proposition like any other … you want to differentiate a little, add services to standout.

We believe that being able to add specialised, integrated mobile services that deliver “proper FMC” are where the opportunities lie. This means being able to bring to the mobile things like PBX services, call recording, common billing etc – importantly, via the SIM which is a far more easy and reliable method compared to soft clients with their inherent technical and user experience complexities. These enterprise class business features can all be delivered now, including full international roaming and porting capabilities.

We believe that the challenges of packaging and integrating mobile services into FMC propositions can be easily overcome without having to do it all yourself now. But you need to choose the right partner who has sorted the integration into the fixed voice world, and avoid doing the technology yourself. We think that that is where the skyrack Mobile-X service really offers value as an off the shelf service.”

On adding value Jim Machi, Vice President of Product Management for Dialogic, said “Well, first of all, they (MVNO’s) can put some of their own infrastructure in place to help manage the congestion. This is possible through utilising optimisation technologies that preserve voice or video quality while at the same time reducing the bandwidth required to run the business (hence reducing the amount of leased lines required from the wireless network operator or utilizing the extra capacity to offer an enhanced service quality).

Secondly, the MVNO’s can differentiate their offerings through offering unique value-added services that cater to the MVNO target audience, such as mobile payments, location based services, video ring tones or video conferencing.  Dialogic has partners that offer these and other mobile value-added service (VAS) offerings.”

Looking Ahead

On the future of MVNO’s Michiel Van Der Pant said “MVNOs will need to continue to identify niche applications in vertical sectors and to capitalise on the growth in data and other areas such as M2M. The future is about connecting machines to machines and not just connecting people.

The Internet of Things (IOT) and the data explosion will create whole new business models and huge opportunities for the channel. Converged solutions around multi-play including mobile, fixed, broadband and TV services, is also an area of focus as the market consolidates.

MVNAs must also continue to innovate and invest in network capability directly or through partnerships to help MVNO’s realise this potential. Teleena aims to further invest in infrastructure in 2013 in order to stay ahead of the pack.”

Ed Says…

The MVNO market is still very much alive and kicking and we are seeing new players entering the market every year. Differentiation is absolutely key but not going to get you anywhere unless your brand is strong and trusted. Opportunities will continue to present themselves to those that manage to overcome major obstacles in the market. We expect competition in the MVNO space to hot up considerably over the next twelve months!


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