Is there value in MVNOs?

The Model has taken some stick, but the wholesale model does not die easily

I have received an email from Pyramid with this title. It is amazing, two year's after publishing "next generation MVNOs" that Pyramid finally ask if there is still value in the last generation MVNO... Well no; there was no value in them anymore in 2004 when I began writing the report, nor was there in 2005 when it was published, and there is less still today. Today's MVNO is a much leaner operation that its forerunners like Virgin. As successful as Virgin was, it was created in the late 90's when spedning $20Bn on a 3G network weemed like a good idea. Today's MVNO should have now got down to a T the ideas I put forward in 2005, and the key to a successful MVNO or Mobile Virtual Network in 2007 and 2008 will be:

• Handing over "legacy" cost bases to the host MNO or even the handset manufacturer. MNOs handle huge risk every month: every month the UK MNOs and even handset sellers put forward their forecasts for sales. To give an idea, Nokia UK typically sell 500,000 handsets every month in the UK, their best month was 2 million handsets... so even a few hundred throusand handsets up or down on a mobile network operator's book, or even a large manufacturer like Nokia, well is not a huge issue. However, put this discrepancy into every MVNO business plan I have seen, and I have seen most that have passed the UK MNO, consultancy or investment market, and the business model runs into problems. The MVNO opportiunity today lies clearly in new markets, lots of niche markets the MNO and even handset manufacturer cannot / do not directly capture or target. If they want these markets, they can either sponsor a music festival or two at the cost of a few million, or they could spend the same or less managing handsets for nich MVNOs with direct sales as a result.
• Niche, Niche and Niche; The MNO brand will only stretch so far, niche MVNOs can capture new markets or keep existing users.
• MVNA: the MVNE will not punt on small players, MNOs will not punt on anyone but "the next Virgin", however there are millions of subscrivbers in the UK alone who have very strong ties with major brands, events, social movements, clubs and other would be MVNOs, who 10,000 subscribers here, 30,000 subscribers there, add up to 100,000s of subs put together. They may all be different, but they do have a few things in common: simpler tariffs, smaller handset selection, more focussed customer care. The MVNA is just around the corner.
• Cost reduction; gone are the days of warehousing branded phones with custom software; the clever MVNO will "brand" the handset Over the Air (OTA), either with an On Device Portal or an OTA software upgrade

DIY MVNO. US company Sonopia are offering user the ability to set up an MVNO in 10 minutes and receive 5% of the revenue. While this article, reported on The Register suggests that this model may not be popular in Europe, where the handset, then the tariffs, not content, which I agree with, it does propose an interesting trend: That MVNOs should compete on something other than on handset or tariff to e competitive, and that network generated income should be a revenue stream, not the sole source of revenue for the MVNO business model. Having written, contributed to, carried out due diligence on many MVNO business models over the last 8 years, and in light of the failures of EasyMobile, it is clear to me that the post Virgin and Tesco MVNOs will need to leverage their brand, content and or other much more effectively, to counter the fact that economies of scale in this market are a thing of the past. Realistically, going forward MVNO need to base their business model on breaking even on 10,000s of customers, not the millions or 100,000s that the many jumping late on the MVNO bandwagon seem to band around. Competing on handset and tariff is the domain of the MNO, not the MVNO. Added to this, it will not be long before people realise how expensive network subsidised phones actually turn out to be and look to source their phone separately, to then focus on a "network" that offers them the content, services, or simply just the bitpipe for voice and text that the individual wants.

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posted by Christian Borrman 06:50am 05/04/07

Related Articles:

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Glossary

Glossary of terms on Christian Borrman's blog

links

MVNO Definition on wikipedia
Virtuser MVNO Consultancy
Diagrams:
Mobile and the brand
MVNO from the customer perspective
Legacy and Next Generation MVNO models
Other Resources:
Fixed-Mobile Convergence
Next Generation MVNO Report..

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