Study: The advent of MVNOs (Part I)
A Mobile virtual network operator (MVNO) offers mobile voice and data services without owning any spectrum or infrastructure. Basically it leases network from a Mobile network Operator (MNO). It uses the leased capacity to sell retail services to consumers under its own brand name leveraging assets such as a strong brand, loyal customer base, exclusive content or an extensive distribution channel. At one extreme the MVNO can adopt as “pure reseller” position, where in it re-brands MNO’s service using its own brand name and sells it through its distributor channels. On the other hand, it could adopt a “pure MVNO” position, providing value added elements in its offering. The decision to adopt a given business model is governed by several factors including the targeted scale if business, level of in house telecom expertise, extent of initial investment the MVNO is willing to make and the level of risk the MVNO is willing to undertake.
The schematic given above is a representation of the US MVNO markets.
The earliest MVNO in the US market was Virgin Mobile and Qwest, who had their processes and platforms to complement the MNO network. They did this by either purchasing platforms or operating them in-house or through dedicated partnerships. At the next level with multiplication in MVNOs, the market started migrating to parties who could provide relevant BSS/OSS processes and platforms.These service providers whose core competence was the platform and they build the mobile services around this platform are referred to as the Mobile Virtual Network Enablers (MVNEs).
With increase in Market complexity, there emerged a class of Mobile Virtual Network Aggregators who acted as intermediaries between multiple MNOs, handset providers and back end platform providers with the MVNOs. Hence these were the experts in the field who served to reduce risk and time to market and lower the risk profile of launching an MVNO.
In saturated and high mobility markets, with excess capacity, MNOs have a choice of acquiring retaail consumers to fill up the network or filling up the network on whole-sale basis to a MVNO reseller, or a combination of both. The decision should/is influenced by the idea of maximizing Average Margin per Minute (AMPM). The AMPM is determined by factors such as
1. Price charged per minute
2.Subscriber cquisition costs
3. Costs of serving a customer (Cash Cost per user CCPU). The CCPU depends upon network related costs and other non network related costs.
As the markets mature, the AMPM shrinks due to increasing price competition, increasing acquisition costs, increasing costs of providing servicing and support and other factors such as change in mix of services, loss in share of high margin services etc. In such situations, the MNOs may find that AMPM asociated with wholesale minutes is higher than their averages. In addition to that, there could be niche, smaller markets, where the MNO may consider an investement to be unviable (given its operations). MVNOs could be used to address those specific niche markets and consumer segments.
Highly penetrated markets with limited competition between mobile network operators may lead to a situation where some customer segments are likely to be “underserved” in specific aspects of mbile experience. The dissatisfaction could come from either poorly tailored products and services or other brand intangibles. This is a classic case of short comings of the “One Size Fits all” strategy –> MNOs have scale benefits and lower operating costs but miss out on the Customer satisfaction bit.