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The world of MVNOs is growing, with 2011 seeing the launch of many more of these businesses, plus more MVNAs coming to the fore, despite, or perhaps because of, current tough market conditions. Here, Heather McLean asks why it is becoming easier to start an MVNO, what is driving the growth in this market, and how MVNOs add value.
Mobile virtual network operators (MVNOs) have existed in the UK for over ten years now, moving from the initial trend for large MVNOs such as Virgin, Tesco and BT, to a more distributed model using the mobile virtual network aggregator (MVNA) approach, as the opportunities in the market became smaller and the market more congested.
The reason for this move is that in the early years, mobile network operators (MNOs) liked to maintain as much control as possible, contracting only with large players who could commit to significant volumes. As the opportunities became smaller, the MNOs looked for alternative delivery mechanisms to address the markets demands.
Jacques Bonifay, CEO at MVNA, Transatel, states that through the MVNA model, MNOs have reduced the cost to launch an MVNO, which means that in the B2B space, existing fixed line providers can now competitively launch mobile services. “This enables them to protect their base against the fixed services now offered by the MNOs. Also in the ethnic space, which is the
other growth area, existing calling card providers now need to launch mobile services, as their fixed calling card volumes are falling, following the success of players such as Lebara and Lycamobile.”
Like all businesses and markets, the main elements driving growth in the MVNO market is consumer demand and business opportunity. For MVNOs, success is about taking the network and technology as an enabler, and transforming it into a distinct and specific value proposition that a target group of consumers want and need.
Andrew Monnery, chief strategy officer at MVNO, Lebara, states that initially, one of the most successful MVNO models was the standard low cost proposition, but he says that is now becoming increasingly difficult to sustain. “Real value is now increasingly been delivered through the ability to deliver additional products, services, or distribution channels that can differentiate an MVNO from an MNO.”
Sticky customers
The UK mobile market is mature and highly saturated, and as such has evolved into one where telcos are looking to add value and increase loyalty through product and service differentiation. This means moving away from simply growing subscriber bases, and towards increasing the value and stickiness of customers.
Jason Bellman, director of MVNOs at Everything Everywhere, explains that MNOs view MVNOs as an opportunity to achieve this stickiness and take advantage of the fact that potential MVNO partners might have specialist market and distribution knowledge, and so are able to reach targeted customers directly, more easily and cost effectively than an operator can. “Hence MNOs have become increasingly willing to facilitate the growth of MVNOs and help lower the barriers to entry for high value, low cost partners that can be introduced quickly to markets.
“Growth is coming from various segments of the market. Firstly there is continued demand from the ethnic, SME and niche markets looking to further extend their propositions. In addition, mature developed businesses with an existing customer base and loyalty to their brand see mobile services and the mobility proposition as a growth and revenue opportunity, which has the added benefit of further extending the relationship with their customers and increasing loyalty.
“Finally, demand for innovation and new services are helping to drive MVNO growth, for example through new regulation in an industry such as the financial sector, which requires compliance,” adds Bellman. “With MNOs and MVNOs able to form such mutually beneficial relationships in a competitive and crowded market space, growth in this area should not be a surprise to the industry. Everything Everywhere has been an advocate of MVNOs from inception, our first being Virgin Mobile which was signed to T-Mobile in 1999.”
While Nick Parbutt, director of wholesale at Vodafone UK, states: “We see MVNOs as an important part of the mobile market, creating competition and customer choice and allowing MNOs to gain access to markets that previously were not open to them. As such, we are not selling excess capacity on the network; we are looking for partners that can build sustainable businesses that drive mutual benefit for customers, our partners and ourselves. We work closely with our MVNO partners to forecast their capacity needs to ensure ongoing high performance of our network, and we have a whole team dedicated to supporting the network services we offer.”
MVNA madness
On a wider scale, the biggest single move by MNOs in facilitating the birth of MVNOs is the aggregator strategy. Bellman says that one of Everything Everywhere’s key MVNA partners, Transatel, was one of the first in the market. It has removed the complexity, time and cost to market for all its MVNOs, having made its own significant investment in the Everything Everywhere network and infrastructure.
Everything Everywhere has also signed up Viacloud as an MVNA Partner, which offers alternative product and commercial routes and benefits to market. “The model we use allows Transatel and Viacloud to launch more MVNOs in any given time period, and provide a flexible cost model based on growth, rather than requiring the MVNO to make a large upfront investment,” adds Bellman.
Parbutt says: “Traditionally MVNAs haven’t been that successful, and I suspect that was due to a focus on just the launch phase of their MVNO partnerships. Despite bringing a large number of small MVNOs to market, they may have only enjoyed short term success. Our strategy is not just on launching new partners, it is about making them successful. The more recent breed of MVNAs are the first to build a sustainable business for themselves by ensuring long term success for their MVNOs as well. The new business models take into account customer usage leading to a far more virtuous relationship.”
Parbutt states that all major operators now have a clear wholesale strategy and many are turning to aggregators to facilitate growth and bring smaller partners to market. Vodafone has three aggregators each targeting specific markets: Gamma to focus on the business market; Cognatel to focus on niche prepay sector; and Teleena, which has a very flexible infrastructure that allows fast, low cost bespoke MVNO solutions.
He adds: “The recent expansion of the MVNA route to market has enabled the MVNO market to expand at a rapid pace, certainly in terms of speed to market. We have carefully chosen our aggregator partners to target growth in specific areas, and enabled them to roll out the technical capability and support packages to meet their customers’ needs. We operate the same ethos with the MVNA partners as our direct MVNO partners. Vodafone’s philosophy is not just about launching a new partner. For us, building long term success with them is as important.”
Gamma signed an MVNA agreement with Vodafone earlier this year, which creates an opportunity to exploit the unique access Gamma has to the UK small and medium sized business market via its channel partners. It has now signed up 64 channel partners as MVNOs since its launch as an MVNA in July. “We are seeing a massive interest from channel partners who want the benefits of full customer ownership that a full MVNO deal gives them, but without the time and cost of trying to sign up directly with a MNO,” states Rob Davis, head of mobile services at Gamma.
However, Davis notes that becoming an MVNO can be both expensive and time consuming. “MVNAs, such as Gamma, can make this far quicker and easier and we allow our channel partners to become full Gamma MVNOs in just a few weeks. We do this by providing a single, real time channel partner portal for the provisioning and ongoing management of all of Gamma’s fixed and mobile products as well as accessing the daily CDRs.”
Challenges of going virtual
With the right support from their MNOs, MVNOs can be launched with speedy, cost effective and feature rich delivery, Bellman says. “However, we need to be sure that an MVNO has a sustainable business plan underpinned by a solid sales and marketing strategy that clearly addresses the target market with a compelling proposition, pricing and brand. In addition, there must be a relevant, widespread and efficient distribution network in place to ensure an MVNO has the necessary reach to achieve sales. The holistic customer experience – from marketing to product use – is also critical to success, and for long term survival and profitability, MVNOs must always be carefully monitoring their performance in this area.
“These strengths work to create scale and to ensure sustainability,” continues Bellman. “The nature of the business is such that it is important to be constantly innovating and differentiating services and product offerings, otherwise competitors will overtake, removing the slower players from the market eventually.”
Monnery notes: “A key challenge for MVNOs is that a single product proposition is unlikely to deliver a successful strategy any more. MVNOs need to be able to work across multiple ecologies and market themselves effectively to succeed. Although an MVNO might be strong in one area, if its customers demand capability in a range of areas, the MVNO will not be able to fulfil its customers’ demands.”
Davis agrees an MVNO must be able to work across the board to satisfy customer requirements: “An MVNO is only part of the demand out there for communications services. Services are being increasingly delivered for fixed and mobile, covering both voice and data. The challenge for an MVNO is to make sure they can deliver the full range of these services so that they all work together for the customer. To do this, they need the backing of a good network and supportive MVNA.”
Continues Monnery: “There is a difficult balance for MVNOs between working with lower margins than MNOs, while delivering high customer value and successfully managing the different and complex systems related to each service and product, including subscription, customer service, back office management and so forth. The MVNOs do however have the advantage of generally having fewer legacy systems, and being able to take decisions and implement services more quickly than larger MNOs.
Understanding customers
“The real challenge that MVNOs need to tackle is to understand their customers and their niche at all times and to keep studying their target market; this in turn is how MVNOs can add value to the overall market and again complement their host MNOs,” says Monnery. “Lebara has a real advantage in its large customer base because it allows us to continue talking to our customers and to gain a better understanding of their needs. It can be difficult for a new entrant to understand a customer’s genuine behaviour, and for this reason it is important that MVNOs continuously concentrate their efforts on customer dialogue and customer service.”
The main issues for rolling out an MVNO and keeping it going are always sales, marketing, and distribution, says Bonifay. “Despite the comparatively low set up costs of launching a mobile offer with an MVNA, service providers still need to focus on a strategy that clearly identifies a segment and addresses a genuine need for customers. It needs to be able to develop distribution channels that make their products and services easily accessible to end users.”
Successfully launching an MVNO is not simply about achieving the best pence per minute from your network carrier from the outset, comments Parbutt. He says anyone can strike a deal to launch an MVNO, but in such a fast moving industry, ensuring long term success of that MVNO is not always easy. “Most MVNOs fail because of a lack of ongoing support, whether that be operationally, getting the right distribution network in place, understanding their customers or developing the right products and propositions. I firmly believe it takes commitment from both sides to make that partnership a success,” Parbutt says.
“In terms of market saturation, we don’t see that as an issue,” continues Parbutt. “The role of MVNOs is to reach markets and sectors that traditional MNO offerings might not resonate with. For example, we don’t see Lebara cannibalising our share of the market as it is diverting traffic from the fixed calling card market. We also have relationships with Amazon and TomTom which are purely around data. With Amazon, Vodafone supplies a data-only MVNO, for downloading books to all markets outside the US. This is addressing a new market as the mobile connectivity is replacing the traditional postage revenues. Potentially these new breeds of data MVNOs could be the next big opportunity given the success seen recently in the North American market. This presents a whole new revenue stream to Vodafone.”
Dealer time
And for the channel, MVNOs can be a real boost to the bottom line, claims Bonifay, who states: “The key challenge for dealers is always to generate long term value in their businesses, rather than focusing on the short term commissions that are available for new connections and upgrades. The MNOs always try to tie dealers in to their networks with incentives for more volume, so I guess they are less keen on the competition.
“However, working with MVNOs gives dealers access to more innovative packages for their customers, and makes them less reliant on one source of income, which is always good for a business,” Bonifay notes.
While Parbutt concludes: “By working with various operators, dealers get the ability to sell a broad range of products to suit their customers. I would argue that the markets both complement and compete with each other in some cases. The MNOs provide mass market offers, backed up by trusted well established brand names, which will obviously appeal to some customers. The MVNOs, however, bring to the market more relevant products to suit a niche market.”
Ed Says:
This market is really booming; MVNAs are popping up in the news more often, with the likes of Gamma becoming one for B2B sales. And more MVNOs are opening all the time, and doing well; there’s Sainsbury’s, which announced it would become an MVNO in November, taking on MVNO rivals Tesco and Asda, and Dialog Vizz, a UK-based MVNO targeting Asian communities living in Britain, which is now running at 10,000 activations a month after launching less than a year ago. It’s all go, and 2012 is going to see a continuance of this exciting activity.