Apple Global MVNO

Original Article 2007

Apple Global MVNO

Apple deal with operators is a de facto hardware MVNO

It is no secret that a typical MVNO may only manage to get a 10% to 40% margin on calls, onto which it has to add its costs. This is usually OK, as many of these have either already been sunk, written off or are as low as they can go if the MVNO core business is already a “no frills” card calling or other related business. However, it is still said margin before costs. It is, therefore no surprise that the most successful MVNOs so far have been “no frills” MVNOs as reported in by Business week in this article and as per my response below (previous article; RE: Why Europe’s MVNOs sing).

As far back as 2003, when I started writing my next generation MVNO report, I had the hardware MVNO as one of the next big business models. The two main contenders were Apple and Dell. Dell fell victim, in the UK at least, to Vodafone’s deal with Intel to give away 3G data cards with every Centrino laptop in exchange for merely signing a direct debit for the Vodafone SIM inside it. The Apple MVNO, however, has finally come to bear fruit, and in a way nobody could imagine: It is a Virtual, Virtual MVNO, as according to these articles in the Financial Times and the BBC, it has managed to get between 10% and 40% margin for all the iPhones, and on top of it no costs. The extra burden of billing, one of the biggest costs for an MVNO, is borne by the host network operator, as it’s the second major cost: customer care. Furthermore, it has managed to do what very few MVNOs have managed to date, export the model to become a global MVNO. To boot, its business plan manages to overcome the other great hurdle to any MVNO expansion: handset subsidies; as people are falling over themselves to buy an iphone, something to date that only Nokia and Sony Ericsson have managed to do with a premium handset to date (8800, 8210, N95, P800, P900, etc). You have got to hand it to Apple, they have pulled off the biggest MVNO coup to date. There is one final even more surprising fact, no, not that they managed it without my help (apart from buying a copy of my report): The biggest surprise is how they have managed to actually get the MNOs to bid against them, rather than the usual beauty contest that building an MVNO entails. Mobile Network Operators have not been in that seat since they managed to bid UK and Germany 3G licences into the billions. So how have they managed that?  It’s simple, due to the nature of the way networks were set-up, in larger economies there are networks that are predominantly focussed at a certain demographic. In the UK, the larger part of the youth market is on o2. However, it will not have escaped any of the networks that they could have poached a good few of the other’s customers.

So, for the record virtual mobile network operator, means 10-40% plus costs; virtual, virtual mobile operator means 10% to 40% with no costs, well at least if you are Apple.

Orignally posted by Christian Borrman 11:26am 25/09/07

is there still value in MVNOs?

Original article

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 spending $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 thousand 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 opportunity 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 niche 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 subscribers 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.

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

mvno and the brand

MVNO and the Brand

We have heard a lot about the brand MVNO and MVNO and the brand, unfortunately most of it is confined to the conference room and reports.

Brand MVNO

The Brand MVNO is where it all started; Virgin Mobile UK spent a lot of money on promoting their brand, and they were right - look at how much money Vodafone started spending on its brand post Virgin success vs. before! The problem was, Virgin then went to conferences saying: "don't copy us unless you have £50M to spend on your brand" which the MVNO industry unfortunately generally read as "don't spend anything on your brand". The Brand MVNO Model is covered in this post.

MVNO Brand

The Brand is a critical part of every MVNO, from the pitch to the MNO to sales:

1. The MNO is putting its faith in the MVNO ability to access a market - without a brand, how long will that last? Brand is one of your strongest MNO negotiation points!
2. In fact all your MVNO partners will be sizing up the opportunity of your brand when they negotiate with you, as Brand = ability to sell, ability to distribute
3. The brand will determine your your uptake and limit your churn. Remember, Remember that MVNOs live and die on acquiring customers cheaper (than the MNO can) and keeping customers longer, and the Brand is key to this.
4. There is a role for the niche within a niche with brand: Brand helps you compete within even an extremely competitive space such as the Ethnic MVNO market

MVNO Brand as part of Marketing strategy

However, be aware of how you use your brand: see matrix below; many MVNO brands today are in the dangerous "follower" space, especially those that do not have a defined MVNO marketing strategy. Some may try to come in at the Leader level, however this has its problems, the key being that it is expensive to maintain: you can find yourself at a monthly / quarterly review renewing media that just is not effective at selling because it is protecting your brand, you may also be even considering subsidies or at least a large amount of arbitrage/utilisation risk on your bundles to get here...

Virgin mobile entered as the challenger, and did not move into the leader position until maybe 2-3 Million customers when it essentially became and MNO brand of its host, began subsidising handsets, etc, etc.

MVNO Brand Values

Becoming a challenger is not hard: if at first you have defined your product and segmented your market, the brand and its values should not be hard, but check, do those value ring through? An overwhelming feedback in the latest MVNO conference in Paris, from Red Bull, NRJ, Bleip and more leading brand strategy MVNOs commented on one thing: NO SMALL PRINT. If your brand is simplicity, honesty, etc, small print goes against this. Most MVNOs win over the MNO on simplicity, if you look at the MVNO segmentation post. Does your MVNO product reflect your MVNO brand, is what you are doing new, or just rehashing what the MNO does???

Work these simple points out, and not only will your negotiations with your MNO and other partners be simpler, but your MVNO will benefit is acquisition and retention - in this sense, every MVNO is a brand MVNO!

Original MVNO and the Brand support page:

BRAND IDENTITY IN MOBILE SERVICES

For a brand to have any value it must mean something to the customer and to do so it needs to be exclusive. This is not compatible with trying to own all areas, sectors and parts of the market with just one brand, as most mobile operators do today. Because of this, most mobile operators' brands are all over this matrix. Note that successful MVNOs, like Virgin Mobile, started as a challenger and are now becoming brand leaders, whilst minimising any association with the "follower" values. Other Diagrams: Legacy and next Generation MVNO MVNO from the customer perspective  Back to main page  Other Resources: Fixed-Mobile Convergence  Virtuser  Next Generation MVNO Report ©Copyright 2001-2005 Christian Borrman, All Rights Reserved. Reproduction Prohibited