MVNOs and MVNEs - Analyzing the Viability of Virtual Mobile Players

SUMMARY

Overview

The mobile virtual network operator (MVNO) model has gained popularity over the past 2- 3 years; more ventures have followed in Virgin's path (the model's pioneer), with the MVNO model going through a number of iterations. As the MVNO market continues to expand, a new category of players, MVNEs (Mobile Virtual Network Enablers), has emerged, riding on the coattails of strong MVNO growth. Today, concerns about overcapacity and potential consolidation are emerging, in both the MVNO and MVNE spaces. In a bid to ascertain whether such concerns are justified, this report focuses on answering:

Are MVNOs Making Money?

Our analysis has found that the MVNO model is a lot less financially attractive than the hype would suggest. MVNOs have to improve one or more of the following wireless operating metrics in order to make money: CPGA (cost per gross acquisition), CCPU (cash cost per user), ARPU, and churn. Available MVNO data certainly provides enough fodder to question the MVNO model, at least in its initial iterations. Virgin Mobile UK is profitable (more of an exception than a rule) but the company has been in operation since 1999.We believe most other MVNOs are at the loss-making to slightly above break-even level.

Are MVNEs Here to Stay?

The future of the aggregator MVNE hinges on the development of small, niche MVNOs. If the MVNO segment moves towards a fragmented marketplace with dozens of players serving small niche segments, MVNEs will ride the coattails of such an expansion. If, by contrast, the MVNO space is dominated by a small number of large, Virgin-like players, the future of the aggregator MVNE becomes somewhat doubtful. MVNO service revenue has been expanding in line with the growth of virtual operator subscriber bases, but is that enough to sustain the MVNO business model? This report examines MVNO profitability and the MVNE business model, opportunities and future landscape for their services. We ask - and provide answers to the following questions:

• Are MVNOs making money?
• How are MVNOs key performance indicators doing? (ARPU, CCPU, CPGA, etc.)
• What is the profitability potential of the next generation MVNOs, such as Mobile ESPN, Helio and Amp'd?
• How do we see the future of the MVNO?
• What is an MVNE?
• Do MVNOs need MVNEs? Is the MVNE model here to stay?

Target Audience

Mobile Operators

Quantify the long-term revenue potential of the wholesale market to support decisions whether or not to work with MVNOs and MVNEs. The MVNO profitability calculations help you to benchmark your performance against MVNOs.

MVNOs

Develop your strategy using our objective long-term analysis of the MVNO market. Benchmark your costs and profitability against industry averages and other key players. Determine whether MVNEs will strengthen your service and increase your profit based on our analysis.

MVNEs

Understand the long-term market potential and MVNO perception of MVNEs. Determine an optimal strategy to attract MVNOs (end-to-end solutions vs. specific expertise). Assess key competitors and benchmark your positioning against them.

Vendors

Assess the MVNE opportunity for a long-term strategic entry (partnerships or acquisitions), determine if MVNEs are competitors or complimentary and if there is an opportunity beyond applications hosting. Quantify the long-term equipment and service opportunity in the MVNO space based on revenue, profitability and subscriber forecasts.

Financial Institutions

Assess the viability of MVNOs and MVNEs to support a decision to finance MVNOs/MVNEs (or not). The MVNO profitability calculations (NPV, CPGA, CCPU and ARPU) help you to benchmark existing and proposed MVNO costs and profitability.

Virtual Players Analyzed

MVNO

• Virgin
• Tracfone
• Telmore
• Mobile ESPN

MVNE

• Visage Mobile
• Telcordia
• mPortal
• Versent Mobile
• TynTec Limited

TABLE OF CONTENTS

Executive Summary

Section 1: MVNO Landscape and Profitability Analysis

• 1.1 The Correlation Between MVNO Operational Models and Profitability
• 1.2 MVNO Growth: More than 100m Subscribers by 2010
  • 1.2.1 MVNO Global ARPUs and Revenue Evolution
• 1.3 Are MVNOs Making Money?
  • 1.3.1 Bringing Down CPGA:The Case Against Handset Subsidies
  • 1.3.2 Facing the CCPU Challenge
  • 1.3.3 MVNOs, the Churn Argument, and the ARPU Challenge
  • 1.3.4 MVNO NPV Analysis
  • 1.3.5 The Bottom Line: An Unattractive Segment
  • 1.3.6 The Future of the MVNO
  • 1.3.7 How Next Generation MVNOs Plan to Turn the Model on Its Head
  • 1.3.8 Mobile ESPN: Counting on Fanatics to Drive up ARPU
• 1.4 Profitability Case Study: Tracfone Wireless, Inc.

Section 2: Breaking Down the MVNE Opportunity

• 2.1 MVNEs: Selling Today's Picks,Axes, and Shovels
• 2.2 What Is an MVNE?
• 2.3 MVNO Value Chain:Where the MVNE Fits
• 2.4 Why (some) MVNOs Need MVNEs
• 2.5 MVNE Business Model and Revenue Opportunity
• 2.5.1 MVNE Revenue: A US$100m+ Opportunity
• 2.6 The Future of the MVNE
• 2.7 MVNE Profiles
  • Visage Mobile mPortal
  • Versent Mobile (enablement division of DBS Communications)
  • Telcordia
  • TynTec Limited

Appendix

List of Exhibits

• Exhibit 1: MVNO Operational Models
• Exhibit 2: MVNO Target Market Mapping
• Exhibit 3: MVNO Global Subscriber Base and Share of the Mobile Market
• Exhibit 4: MVNO Share of Market by Region
• Exhibit 5: Pre-paid Share of MVNO Subscriber Base in Selected Markets , 2005
• Exhibit 6: MVNO Service Revenue by Region
• Exhibit 7: Economic Levers of Different MVNO Categories
• Exhibit 8: MVNO vs. MNO CPGA
• Exhibit 9: Sample MVNO Gross Margins
• Exhibit 10: Subscribers per Employee: MVNOs vs.MNOs
• Exhibit 11: Estimated MVNO CCPU vs. MNO CCPU
• Exhibit 12: MVNO Churn vs. MNO Churn
• Exhibit 13: MVNO ARPU vs. MNO ARPU
• Exhibit 14: NPV Sensitivity Analysis
• Exhibit 15: MVNO vs. MNO EBITDA Margin
• Exhibit 16: MVNO Net Contribution per Subscriber vs.ARPU
• Exhibit 17: Mobile ESPN's Pricing Plans
• Exhibit 18: Tracfone Wireless Subscriber Forecasts and Growth, 2001- 2010
• Exhibit 19: Tracfone Wireless Quarterly Minutes of Use, 2001- 2005
• Exhibit 20: Tracfone Wireless Churn Rates, 2001 (3Q05 YTD)
• Exhibit 21: Tracfone Wireless ARPS, 2001- 2005
• Exhibit 22: Tracfone Wireless' OPEX and OPEX to Revenue Ratio, 2001 (3Q2005 YTD)
• Exhibit 23: Tracfone Wireless'Airtime Costs as a percentage of Its Airtime Revenues, 2001- 2005
• Exhibit 24: Tracfone Wireless'Airtime Costs as a percentage of Its Total Revenues, 2001- 2005
• Exhibit 25: Tracfone Wireless'per-minute Wholesale Pricing, 2001- 2005
• Exhibit 26: Tracfone Wireless' Revenues and EBITDA Margins, 2001 (3Q05 YTD)
• Exhibit 27: MVNE Value Chain, with Key Supplier and MVNE Positioning
• Exhibit 28: MVNE Segmentation Map and Key Players
• Exhibit 29: MVNE Necessity vs. MVNO Operational Model
• Exhibit 30: MVNE Services Revenues in Western Europe and the US Market (based on low-end recurring fees)
• Exhibit 31: Visage Mobile Services
• Exhibit 32: Visage Mobile's Reported Partners and Alliances
• Exhibit 33: mPortal's MVNO Customers
• Exhibit 34: mPortal Software & Services
• Exhibit 35: Versent Mobile's Services
• Exhibit 36: Positioning Telcordia in the MVNO Value Chain
• Exhibit 37: Telcordia Partners in MVNO Enablement
• Exhibit 38: TynTec's Product and Service Offerings
• Exhibit 39: TynTec Partners
• Exhibit 40: MVNO's Alternatives to Offer SMS Services