The recent massive investment in third generation (3G) mobile licences throughout Europe has focused the attention of the large players in many industries on the opportunities offered by the mobile sector. While many such players would hesitate to take on the highly technical and complex task of building and operating a 3G network, they might perhaps be more attracted to taking a position in the market, particularly in order to participate in the emerging m-commerce business.
Becoming mobile virtual network operators (MVNOs) will let them do just that. It will allow them the opportunity to develop and market m-commerce services without having to take on the role of the network operator.
It sounds like a profitable, problem-free venture. However, it's not quite that simple. When discussing the role and development of the MVNO there are five key questions that should be considered:
- What constitutes an MVNO?
- Why would a network operator support MVNOs?
- How might the forthcoming value webs support MVNO operation?
- What sort of organisations can we expect to become MVNOS?
- What are the key issues that MVNOs face in implementing operations?
Over the past few months the term MVNO has been defined in a number of ways. These range from a purely commercial arrangement, involving little more commitment than that expected of a service provider, right through to taking on the role of a quasi-network operator, a situation in which a portion of the licence holder's spectrum is 'sub-let' to the MVNO. But the core of the MVNO's role is as a wholesale purchaser of airtime.
This position may be supported by the MVNO's owning a limited amount of infrastructure. This could be as small as a billing system and service provision platform, or as large as a backbone network and most of the core platforms, with radio provision effectively outsourced. These different options are summarised in the following diagram.
The key element that defines an MVNO's relationship with an operator is the wholesaling of airtime. While the operator will need to provide a discount rate to the MVNO it will also gain a number of benefits from licensing a complementary portfolio of MVNOs.
In fact, given the price of 3G licences and the costs involved in building 3G networks, both operators and MVNOs will find themselves in a good position. Operators need to look for a number of creative new approaches to deliver against their business plans, a need MVNOs can help them fulfil. There are a number of reasons for this. These include:
- sharing the risk of success with the licensed network operator
- speed of access to customer bases that the operator might take considerable time and money to acquire
- delivering immediate revenue streams
- providing access to niche markets (which the operator might find unprofitable to target directly)
- providing access to market segments that the operator might not want directly associated with his brand.
All of this means that operators which are building big brands focused on volume market segments - and those which have small customer bases and wish to share the revenue risks associated with 3G - should seriously consider licensing MVNOs; this is perhaps particularly relevant for new 3G licensees. In addition, operators may wish to hold a portfolio of MVNOs (including some where there is an equity stake), some will be competitive, and some will be complementary, but independent.
Division of ownership
When m-commerce comes into the equation, multiple value webs will be needed. MVNOs can benefit from this. Third generation services particularly lend themselves to the division of ownership of network equipment because of the increasing number of IT and system platforms that are required to deliver the value of m-commerce services. This situation becomes clear when an assessment of the individual user experience and value chain for each of the m-commerce services is examined in detail. The following example illustrates this.
The new Wireless Walkman is currently being promoted in a number of countries. It allows the user access to a wide range of music while on the go without having to carry CDs or MiniDiscs. It is on sale in conjunction with a special offer; the price includes a $17 music voucher. The shop assistant takes payment and activates the unit by contacting My Music Ltd via the till. When this is authorised the user is issued with a PIN.
On power-up, the button takes the user through to the MyMusic website. A menu structure takes him through to his personal storage area. This will only contain welcome messages and sample tracks but by using a PC with the bundled 'ripper' software - this allows the users to take tracks from a CD and transfer them into MP3 format - the user can transfer a range of CD tracks on to the computer. Using a Bluetooth connection, tracks are downloaded to the Walkman; this can store up to two hours of music. The MyMusic website also has a visual interface and a storage area where each user can store up to 100 hours in the music box. Also available is a comprehensive cataloguing and search facility.
The user can then transfer sample tracks from a huge collection direct to his music box. If he likes them the user will log on later and buy the full versions via the My Music Shopping Channel. The user can also upload the songs he 'ripped' earlier into his music box. Meanwhile the shop is running a 'two for the price of one' special promotion on all e-music purchases. He chooses what he wants and pays for it with the 'money-off' voucher. The shop assistant asks for the details of his music box and then sends the purchased tracks to it.
It usually takes about half an hour for the transaction to filter through, so My Music also provides a Bluetooth download service via the point of sale terminals so that customers with a Wireless Walkman can get immediate access to the music they have purchased.
The trading model needed to deliver Wireless Walkman to the market involves the development of a number of new relationships and roles within the value chain (see diagram below). This trading model is a good example of how complex the situation is going to be for a number of next generation mobile services, especially those that involve the delivery of valuable content.
The extended value web contains a number of new roles, most critically that of My Music, the m-commerce service provider. Since the business model for this service depends on the bundling of airtime with the purchase of the content, this is a role that could be fulfilled by a number of players. In the example, My Music could be a division of the mobile network operator or it could be an MVNO started by either a content supplier or a retail chain.
Which industry players then could become MVNOs? They will in fact develop from many different types of industry players. Going into the MVNO business is likely to be an especially attractive option for a company that can leverage a particular requirement of the m-commerce service. The key requirements are likely to be: large relevant customer bases; ownership of key content; provision of key technologies; ownership of internet access or back haul networks; and a position in the market as a large corporate provider which is seeking low-cost deals for its business value web.
As noted above, companies with large customer bases may seek to develop themselves as service providers. Retail chains are a particularly relevant group in this regard. They have the requisite large customer bases, and through loyalty cards have been able to develop an understanding of these customers. They will thus be able to specify services that are particularly attractive to their customers. For example, a car company may well want to keep the service provision, airtime supply and customer interface elements of their service as part of their core proposition for their vehicles.
Also well positioned to become MVNOs are companies that own significant content. In the earlier example, the companies which own the rights to the recorded music are well positioned to take advantage of an MVNO deal.
Specific demands
Key technology providers will be well placed to become MVNOs. For example, handset manufacturers, which have the capability to develop handsets to meet specific demands, could develop into MVNOs. Any companies providing communications services and internet access will have the capability to route and deliver many of these services. They may leverage their assets by wholesaling their backbone capacity to the network operators, or may set themselves up as MVNOs, bundling the 3G services with their existing fixed offerings.
A large corporate may also find it worth considering the MVNO option. Clearly, if this is an organisation that can deliver its products or services over the new mobile medium, then traffic may well be large enough to justify taking an MVNO position. Large multinationals, not delivering a service through 3G, but looking to leverage the technology for improvements in business performance, may well set themselves up as virtual private MVNOs, similar in shape to the virtual private networks (VPNs) in the fixed domain.
So advantages and opportunities clearly exist. What then are the challenges? Implementing an MVNO operation raises a number of key issues, both from the perspective of the licensee network operator and from the viewpoint of the MVNO.
These issues fall into three key areas:
- technical operating issues, such as quality of service, coverage and availability of network management information
- customer issues, including ownership of a differentiated customer base, differentiated brand positioning and customer 'stickiness'
- service production issues. These include: availability of key service construction information e.g. location; tariffing consistent between operators and MVNOS; customer care ownership; and channel management sales and support through own channels rather than the operator's existing channels.
The technical operating issues could be the first bone of contention between the network operator and the MVNO. For example, the MVNO might expect a certain quality of service within a particular geographic region. Should the operator make the necessary network investment on the basis of MVNO commitment, what will be the penalties for failure to provide this coverage and quality of service, and how will this be monitored?
In addition, in order to provide a satisfactory service an MVNO will probably want network management information. How much is the operator prepared to give and how quickly?
MVNOs will need to be carefully selected in order to support the operator's overall business objectives. MVNOs with clearly differentiated brands and target customer bases will therefore be an attractive option. In many countries operators have distinctly differentiated market positions themselves, so aspiring MVNOs should think carefully about which operator to approach.
There will also have to be some agreement about customer churn, particularly if handsets continue to be subsidised. Signing up for a deal with an operator and then churning to the MVNO's service will need to be managed to allow the operator/MVNO combination to keep the customer while sharing the costs of the initial acquisition.
In addition, MVNOs and operators will need to co-operate on many of the issues surrounding the construction of the services. Keeping tariffs in line, to prevent sharp users from creating their own opportunities, will be important. Making key information –for example on subscriber location – available at a fair price and in a timely manner will be important to the MVNO. Customer support will also need careful consideration, a fair share between operator and MVNO of channel and customer education costs and customer support may therefore need to be negotiated.
Looking to the future, it seems highly likely that a number of different types of MVNO operations will emerge naturally in each market and that some will have a sustainable position in the forthcoming 3G market. Emergent MVNOs will include specialists in sectors, specialists in content, some multi-national corporations and players in key lifestyle or community niches.
Synergistic relationship
In each case, owning the customer and some of the key infrastructure equipment will be necessary to support a sustainable position. General 3G services will probably still be best handled through the traditional network operator business. From the licensee's position, MVNOs will be a vital additional channel to build revenues fast enough to cover the network and license investment. The best MVNOs will have a synergistic relationship with their parent network operator and be perceived both by them and their customer bases as co-operative rather than competitive.
