ADDRESSING THE MOBILE MARKET WITH

THE MVNO MODEL

SVP ADVISORS

March 2010

RETHINKING│ COMMUNICATIONS
 Contents

1. About SVP Advisors

2. The MVNO model

3. The international experience

4. Successfully launching an MVNO

2
 SVP Advisors in a snapshot

SVP Advisors is a management consulting

firm, which specialises in Regulation and
Business Strategy in the broad telecoms
sector

SVP Advisors’ clients include:

 Int’l Organizations (EC)

 Regulators (TRA UAE, CITC, CMT,

NITA, EETT, AGCOM, OCECPR)

 Operators (Turkcell, Telecom Italia,

Telefònica)

 Financial Institutions (Citibank,

Banco Santander, Inter Development
Bank)
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 SVP Advisors’ experience with MVNO

Client Project Description and Objectives

MNO (EE) • Support in drafting wholesale offer for MVNOs

• Development of MVNO pricing model (retail minus, cost plus)

MNO (EE) • Support in definition of MVNO strategy

• Development of a tool to assess the viability of different MVNO models

Private Equity • Review of 2 MVNO business plans

Fund (WE)
• Assessment of investment opportunity

MVNO (WE) • Support in negotiations with host operator

• Development of an internal costing model

MNO (WE) • Support in lobbying with the Regulator against MVNO access obligation

• Mobile market and competition analysis

Regulator (WE) • Mobile market and competition analysis

• Assessment of impact of MVNO entry in the mobile market

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 SVP Advisors can provide value-added support in different areas

 Assess the MVNO opportunity in new markets

FOR MVNOs

 Develop business case/plans

 Support in negotiations with host networks/MVNEs

 Develop innovative voice and data propositions

 Support in the definition of wholesale and MVNO strategy

FOR MNOs

 Evaluate proposals of candidate MVNOs

 Develop cost-based models to determine wholesale MVNO prices

 Design and implement accounting separation systems

 Mobile market analysis (wholesale/retail)

FOR NRAs

 Assess the impact of MVNOs on market and competition

 Develop bottom-up models to determine MNO’s access costs

 Review regulatory accounts of MNOs

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 Contents

1. About SVP Advisors

2. The MVNO model

3. The international experience

4. Successfully launching an MVNO

6
 Definition of MVNO

 Mobile Virtual Network Operators (MVNOs) are companies providing

mobile services to end users without having their own licensed
frequency allocation of radio spectrum

 MVNOs buy radio access (airtime) from Mobile Network Operators

(MNOs) in order to provide calls, SMS, data and other mobile services

 Depending on their type, MVNOs may also lack additional

infrastructure needed to provide mobile services, e.g. OSS/BSS

 Different to MNOs, MVNOs typically have a narrower range of

services/tariffs plans as they focus on a particular market segment

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 MVNO as a mean to reach different objectives

 The MVNO model can well serve different type of players

• Exploit difference in retail-wholesale prices

1. New Player • Use strong brand to enter a new market
• Exploit existing retail distribution network

• Sell excess network capacity

2. Mobile Network
• Niche products / underserved segments
Operator (MNO)
• Ease regulatory pressure

• Complement offering to existing clients

3. Fixed operator • First low-risk step into mobile
• Counter-attack mobile operators

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 1. The MVNO model for a New Player

 Large corporations, small companies or entrepreneurs can use the

MVNO model to reach mobile customers with:

 Simple and cheap tariffs

 New services

 Innovative voice and data propositions

 Cross-promotions (existing activities)

 Examples:

 Supermarket chains distributing prepaid SIMs with cheap traffic

 Banks enhancing their customers’ experience through mobile

 Media brands providing own content directly to end users

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 2. The MVNO model for established MNOs

 The MVNO is one of two models available to MNOs to target market

segments (the other being launching sub-brands)

MVNO model Sub-brand model

MVNO develops and retains MNO maintains customer

relationship with customers relationship

MVNO develops its own New brand or use existing

tariffs and (in some cases) strong brand to market the
services services

MNO charges MVNO per MNO generates direct

airtime and use of other revenue streams from
elements of the value chain customers

MNO typically hosts several Different sub-brands used to

MVNOs at a time address niche segments

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 3. The MVNO model for fixed operators

 FMC pushes operators to move into each others core businesses

 Fixed operators can effectively enter the mobile market through MVNO

 Quick time-to-market

 Low capex commitment (no license fee, network deployment)

Mobile BB to
minimize F2M
substitution
GSM homezone
4Play to increase solutions to
APRU and reduce bypass fixed
churn network

MVNO
Model

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 An MVNO type could be defined according to the elements it
controls in the mobile services’ value chain

NETWORK CONTENT & OPERATIONS SALES & MARKETING

INFRASTRUCTURE APPLICATIONS

VAS &
Radio Network SIM Card & Sales & Value
Service Billling Support
Spectrum Switching Provisioning Distribution Proposition
Platform

BRAND

LIGHT

FULL

MVNO OWNS MNO OWNS MVNO MAY OR MAY NOT OWN

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 Contents

1. About SVP Advisors

2. The MVNO model

3. The international experience

4. Successfully launching an MVNO

13
 MVNOs presence in the World at a glance

 There are about 500 active MVNOs worldwide (as of March 2010)

 They control an estimated 2% of the total c.4.8bn mobile connections

 Their presence outside WE and the US is still largely underdeveloped

31 MVNOs

72 MVNOs 311 MVNOs

c. 10% share c. 10% share

4 MVNOs
<1% share
27 MVNOs
<1% share
7 MVNOs
<1% share

4 MVNOs
<1% share
42 MVNOs

Note: MNOs’ owned MVNOs and sub-

brands not included in the chart

14 Source: GSMA Wireless Intelligence, Telegeography

 MVNOs presence in Western Europe

>20% SHARE

NED 10%-19% SHARE SWE

41 MVNO 6%-9% SHARE 7 MVNO

<5% SHARE

BEL FIN

24 MVNO 5 MVNO

UK DEN

28 MVNO 36 MVNO

FRA GER

30 MVNO 65 MVNO

POR AUT

5 MVNO 3 MVNO

SPA ITA

25 MVNO 14 MVNO

15 Source: SVP Advisors estimates, GSMA Wireless Intelligence

 Overview of MVNO models [1]

MVNO MODELS DESCRIPTION EXAMPLES

Ethnic Targets international communities providing

cheap calls to home countries

Discount “No frills” simple and cheap mobile services

targeting price sensitive customers

Retail Offered by retailers with strong distribution

network targeting the mass market

Telecom Mobile services offered to landiline customers

in addition to existing services

Media/Youth Value added music and video content

targeting young people

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 Overview of MVNO models [2]

MVNO MODELS DESCRIPTION EXAMPLES

Banking Targets existing customers providing

additional services such as mobile banking

Data MVNOs that provide only mobile data and

broadband access (no voice)

Business Targets corporate customers with tailored

voice and data solutions

Web Offers innovative services e.g. call filtering,

personalised voicemail and online inbox

Advertising Free calls and SMS subsidized by targeted

advertising to subscribers

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 Current trends in the international MVNO market

 In mature MVNO markets (e.g. Northern Europe) mass market

generic MVNOs are losing ground to niche MVNOs targeting specific
segments or offering innovative services and solutions

 Several MNOs are becoming increasingly active in the MVNO market

 Buying MVNOs hosted in their network (e.g. Sprint-Virgin Mobile)

 Launching sub-brands

 As mobile markets approach maturity and regulation promotes

competition, MVNOs are expected to appear in many new countries

 The market characteristics, the business initiative and the strategy

of MNOs will drive the process in each country

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 Contents

1. About SVP Advisors

2. The MVNO model

3. The international experience

4. Successfully launching an MVNO

19
 The different phases of an MVNO launch

1. Selecting the 2. Setting-up the 3. Preparing for

MVNO model business launch

Negotiations Branding
Regulation
with MNOs

Market & Value

Agreement
competition proposition
with host MNO
review

Selection of Sales &

Gap analysis the enabling distribution
platform strategy

Preparation of Marketing
Positioning
business plan

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 The selection of the model is driven by the market opportunity and
the positioning of the MVNO
ILLUSTRATIVE

MARKET/GAP ANALYSIS POSITIONING MVNO MODEL

• Limited competition on price DISCOUNT

Simple, cheap
RETAIL
mobile services
• Significant retail-wholesale gap

• Competitive market Competitive offer ETHNIC

tailored to target BUSINESS
• (some) underserved segments segment YOUTH

• Poorly differentiated offer Innovative MEDIA

service & WEB
• Limited availability of VAS/data applications BANKING

• Mature telecoms sector Extend fixed

TELECOM
service offering
• Fixed-mobile convergence DATA
to mobile

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 The selection of the MNO and the consequent agreement is a
fundamental step in the MVNO launch

 Identify MNO which fits better with the selected MVNO model

 Overall market positioning

 Target segment penetration

 Put first on the list candidate MNOs:

 With clear wholesale/MVNO strategy

 Seeing MVNO as a partner (not a competitor)

 Use “regulatory” threat in case of:

 Hostile approach by all/most MNOs

 Excessive wholesale rates

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 The pricing model is the single most important element of the
wholesale agreement

Works well in
case of MNO
and MVNO
working well as
Commercial partners

Margin risk for Retail Minus Cost Plus Max flexibility

the MVNO as it for the MVNO
is dependent on to compete on
MNO’s moves cost and
differentiation
-

Retail Minus and Cost Plus are often imposed by Regulators

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 Selection of the Enabling Platform: the role of MVNEs

 MVNOs owning the elements in the mobile value chain relating to

infrastructure and operations can either

 Develop these in-house

 Outsource them to a Mobile Virtual Network Enabler (MVNE)

 An MVNE is a company whose mission is to facilitate MVNOs market

their services, acting as:

 A “One-stop-shop”, providing the whole back-end enablement

(including the airtime)

 A provider of specific applications/services required by the MVNO

(e.g. service platform, billing, customer care, VAS, etc…)

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 Preparing for launch

• Brand should reflect MVNO’s mission and positioning

Branding • Use existing strong brand (if available)
• Consider partnership with existing brand

• Should be tailored to target customers’ needs

Value proposition • Differentiated from other mobile players
• Commercial implications should be taken into account

Sales & • Coverage very important especially for prepaid

distribution • Consider partnership with host MNO (or other retailers)
strategy • Local regulations should be taken into account

• Define strategy for launch (brand awareness)

Marketing • Define ATL and BTL mix based on budget
• Consider innovative low-cost mechanisms

• Focus not only on acquisition but also on retention

Other • Exploit synergies with existing operations (if applicable)
• Maximize efficiency in all operations

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 Any questions? Please contact:

Dimitri Kallinis
Partner
dimitri.kallinis@svpadvisors.com

Company Address (main offices):

THANK YOU C/ Almagro 15, 5th floor

28010, Madrid
Spain

Telephone number:

+34 91 310 2895

Fax number:

+34 91 141 28 11

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