Strategies for MVNOs

SUMMARY

"Since its first inception in the mid-1990s, the MVNO model has been often used as a low-cost entry model into the mobile market and has continued to gain in popularity in the past two years. However, not all MVNOs will succeed". Emma Buckland, Analyst

Until recently, most MVNOs were similar and offered simple, no-frills services, often based on prepaid voice at prices undercutting the incumbents' offerings. A number of companies made a success of this business model and there is still scope for it to be used efficiently in some markets, especially by organisations such as large retail groups with well-known brand names. However, some new MVNOs have shunned the no-frills business model altogether and are concentrating on offering data and content services to niche markets. At the same time, fixed and cable operators are increasingly choosing to extend their service portfolios by using the MVNO model to enter the mobile market.

Strategies for MVNOs answers your key questions:

• What is an MVNO and what does its business model look like?
• What are the regulatory and market conditions most likely to make MVNOs succeed?
• Which have been the most successful MVNOs and why? Which have failed and why?
• What does the future holds for today's MVNOs?

The report provides a number of case studies for MVNOs, including the following companies Tesco Mobile, Tchibo, easyMobile, Helio, Amp'd, NRJ Mobile, M6 Mobile, Transatel, Tele2, Neuf, and Virgin Media.

Who should read this report

• Would-be and existing MVNOS: decide which countries and services present most opportunities
• Retail companies with well-known brands, and other non-telecoms operators: understand the drivers of an MVNO business
• Content providers: gauge opportunities to launch as an MVNO or rely on an operator to distribute content
• Investors and analysts: understand the different strengths and weaknesses of a number of MVNOs and the impact of technological changes on their viability.

TABLE OF CONTENTS

0. Summary

1. The MVNO business model remains popular

• 1.1 MVNOs and SPs rely on a host network but have some scope to offer differentiated services
• 1.2 In the early 2000s, most MVNOs offered no-frills services
• 1.3 A new breed of MVNOs has emerged since 2005
• 1.4 MVNOs can be short lived

2. External factors can determine success

• 2.1 Compared with the MNO business model, MVNOs need less capex, but generate lower margins
• 2.2 Favourable regulation is a key enabler for MVNOs
• 2.3 MNP is also important for MVNOs
• 2.4 Specific market dynamics will benefit MVNOs
• 2.5 Certain services, such as roaming, provide lucrative opportunities

3. Large retailers use their brand and logistics to cross-sell products

• 3.1 Retailers have the opportunity to exploit the strength of their high street presence
• 3.2 Mobile services offer retailers the opportunity to build on brand loyalty and cross-sell other products
• 3.3 Retailer distribution chains can complement those of network operators

4. Specialist MVNOs need to keep their offerings unique

• 4.1 New US MVNOs have put their unique features at the core of their offerings
• 4.2 For French content MVNOs, the voice offering remains important
• 4.3 Other specialist MVNOs offer a unique service for their niche segment

5. Non-mobile operators launch MVNOs to extend their footprints and portfolios

• 5.1 Tele2 focuses on countries with favourable conditions to offer an affordable fixed, broadband and mobile bundle
• 5.2 Quadruple-play operator Neuf Cegetel was first to market with a hybrid WiFi/mobile service
• 5.3 Virgin Media will be the only quadruple-play operator in the UK

6. Technological and competitive challenges are likely to threaten the existence of many MVNOs

• 6.1 Are MVNOs sustainable in the long term?
• 6.2 Falling margins threaten the viability of no-frills MVNOs
• 6.3 FMC and dedicated networks may also pose additional risks to MVNOs
• 6.4 Mass adoption of mobile VoIP will oblige MNOs and MVNOs to redefine their strategies

List of figures and tables

• Figure 1.1: Market distribution by active subscriber numbers in the UK, 1999- 2005
• Figure 1.3: Market distribution by active subscriber numbers in Denmark, 1999- 2005
• Figure 2.1: Capex as a proportion of revenues for Virgin Mobile UK and other UK MNOs, 1999- 2005
• Figure 2.2: Virgin's breakdown of operating costs in 2003
• Figure 2.3: EBITDA as a proportion of revenues for Virgin Mobile UK and other UK MNOs, 1999- 2005
• Figure 3.1: Number of sales outlets of major UK retailers and MNOs, 2006
• Figure 3.2: Mobile voice usage versus the premium of mobile calls over fixed calls in Western Europe, 1Q 2006
• Table 1.1: The main characteristics of LSPs, ESPs, MVNOs and MNOs
• Table 2.1: Market characteristics in a selection of countries
• Table 5.1: Tele2's MVNO business in Europe
• Table 5.3: ntl:Telewest positioning in the UK communications market at 1Q 2006