MVNO Opportunity Everywhere but Romania?

Summary Overview MVNO Types MVNO MNO Relationship

MNO Perspective
Cannibalization Conclusions

Overview
A

MVNO is a company that provides mobile phone services but does not have its own licensed frequency allocation of radio spectrum, [] - Wikipedia Almost one third of mobile subscribers in the Netherlands are customers of virtual operators - Dutch analyst house Telecom Paper The MVNO business continues to exceed expectations. In 2010, the four alliances combined nearly doubled their contribution to the total Celcom revenue, [] - Source: Axiata 2010 Annual report

Overview
Current status on Eastern European countries
MVNOs' share in Bulgaria, Hungary and Poland rather small MVNOs unable to compete with MNOs in terms of pricing, service offering and quality - In Poland, MVNOs struggle with churn and high mobile termination rates - In Hungary, bundling of mobile with fixed, cable TV and Internet helped reduce churn.
Infocom

Overview

Asia Pacific, 12% Latin America, 3%

Western Europe, 45%

550 Active MVNOs with over 85 million subscribers

Global MVNO markets will reach 186 million subscribers by 2015

North America, 21%

Middle East, 2% Africa, 2% Eastern Europe, 14%

Source: Informa Telecoms & Media

Highest growth in Western Europe & LATAM;

MVNO Types
Expats/ foreign workers

Religious interests

Enterprise verticals

Segmentation

Ethnic Captive audience

VAS

Lifestyle

Distribution

Existing customers for other products

Brand

M2M apps

Differentiation
Data/Content

POS Roaming

MVNOs Challenges
Top business challenges
What are the top business challenges for MVNOs?
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Source: Informa Telecoms & Media

MVNOs Challenges
Business challenges

Thin Margins (10%-40% of price)

80% of the success is dependent on the MNO buy price

MVNO agreements complex

Convergence and Bundling

favor large operators

MVNO MNO Relationship

Value for MNOs through well managed partnerships
Contract period and exclusivity Prepaid, postpaid or both Equity participation and cost-sharing Minimum revenue commitment Infrastructure leasing / outsourced back-end support SIM card production Portal and 3rd-party content development and sales Guaranteed Traffic / Usage levels Distribution channels and commissions Inbound and outbound roaming Service level agreements Dispute resolution framework Numbering blocks

MVNO MNO Relationship

Radio Access

Core Network

Application and Services

Billing

Customer Care

Marketing

Sales

MNO MNO
MNO MNO MNO
Service Provider MVNO
Enhanced Service Provider Full Infrastructure MVNO (Thick/Heavy MVNO)

Reseller (Thin/Light MVNO)

MVNE MVNE

MVNO

MVNO

MVNO MNO Relationship

Whats in it for MNOs?
Broaden the customer base and/or increase volume: Address untapped niche markets (sell additional MOU's) without costs Use an alternative distribution channel or a different brand Expand in other countries starting from an MVNO Overcome IT bottlenecks Drive revenue to offset the enormous cost of building 3G/LTE networks Opportunity to partner with profitable MVNOs with strong brands and distribution channel to turn unprofitable customer segments into profitable ones Use multiple brands to address different segments New revenue streams: focus on profit from MVNOs success rather than ARPU Focus on personalization (large operators usually offer one size fits all packages) Gain strength from non telco MVNOs customers segments, content, brand loyalty and possibly more money to invest in building future mobile networks and applications infrastructure

MVNO MNO Relationship MVNOs cannot enter the market by force!

Nowhere did the regulators manage to force operators accept MVNOs against operators will!

MVNO as opportunity
MNOs increasingly see the marketing value that well chosen MVNOs bring to them
Increase in market size through better targeting / segmentation Incremental revenues in weak segments for the MNO

The economics of mobile data are incentivizing more network sharing

Spectrum scarcity is an issue for successful MNOs, leading to more network sharing (inc. active) This may well lead to the de facto virtualization of many MNOs

Successful MNOs are starting to see the benefit of MVNOs for growth MVNOs can increase market size with products targeted to specific audiences

Cannibalization. Reality or just a myth?

MVNOs carry strategic risks and advantages for host MNOs
Rewards
Address impenetrable market

Reach customers outside the Operators core markets without damaging own brand Reach customers who would never become your customers, for whatever reason

Attack competitors key segments more effectively

Attack new segments without costly development of new sub-brands Drive net additions, revenue and traffic without high acquisition costs

Cannibalization of existing customers

Ineffective targeting or fencing of MVNO propositions may lead to mass churn Intentional abuse of loopholes by partners to attack beyond agreed segments

Overall margin erosion

Risk to stimulate competition by other MNOs, resulting in Operators rate reductions Additional CAPEX and OPEX may be required to successfully support MVNOs

Risks

Cannibalization. Reality or just a myth?

Use case: Major SE Asian Operator weaknesses

The operator has strong position/high segment market share MVNO partnership not suitable given
small potential and opportunity costs

The operator currently has low segment market share Small base but high ARPU, requiring
customized propositions, marketing and channels

The operator currently has high segment market share Only consider if MVNO can reduce cost to serve and increase margins, with impositions of tight controls The Operator currently has low segment market share Large opportunity and ideal for MVNOs if the operator is truly unable to effectively capture using own brands

Cannibalization. Reality or just a myth?

Use case: Major SE Asian Operator weaknesses

Will compete directly with the Operator and may not be worthwhile given limited returns Offer basic reseller model with very low margins Partner must have strong segment expertise and differentiated services Offer flexible model depending on type of service (e.g. voice, VAS, IDD) and inherent partner strengths High risk of cannibalization requires the Operator management and back end control JV model for control with low margins to MVNO Attack MVNOs, requiring compelling propositions and strong segment focus Strong fencing to avoid churn from high risk segments; JV model for management control

Why not Romania?

Price war? No regulation? No trusted partners? No real interest from entrepreneurs? How can someone else do this better than the big ones?

Opportunities

Conclusions
MVNOs can bring a completely new perspective to the market MVNO cannot succeed without full support from MNOs MNOs cannot give support to MVNOs unless they believe in this business model Regulator can ease the licensing but cannot force MVNOs setup Hopefully there will be some MVNOs in Romania in the next 5 years

MVNO OPPORTUNITY EVERYWHERE BUT ROMANIA?

Thank you!
ioana.serban@computaris.com www.computaris.com