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The changing face of virtual operators

October 20, 2004

Mobile Virtual Network Operators (MVNOs) used to be viewed as challengers to the market share of larger carriers, but this has started to change. Nowadays network owners largely welcome the revenue-generating opportunities of the MVNO sector, which increasingly sees non-telecom companies leveraging their brands into the mobile business too.
A Mobile Virtual Network Operator (MVNO) is a company that independently brands and sells mobile services, but owns no wireless spectrum and often no network equipment either. Instead, an MVNO buys airtime on another operator's network and then resells it to subscribers. This allows the owners of underused networks to indirectly raise subscriber numbers, thereby recouping some of the costs of expensive equipment. And consumers benefit from MVNOs' lower pricing strategies, niche focus and emphasis on customer service.

MVNOs first began appearing in Europe during the late 1990s, providing prepaid voice and SMS services. Since these early days they have taken off on both sides of the Atlantic, and the scope of their activities has grown to include a wide range of voice, data and enterprise services. Perhaps the world's most successful and well-known MVNO is Richard Branson's Virgin Mobile, which boasted 4 million customers in the UK by the end of the second quarter of 2004, along with 1.75 million customers in the USA at the end of August. Virgin Mobile's growth in the UK can to a large extent be attributed to pre-existing recognition of its brand, while expansion in the USA has been driven by a heavy emphasis on youth marketing and a partnership with MTV.

 

Despite such successes, established network operators are still in two minds about MVNOs. On the one hand they see these niche-focused companies as a way of indirectly building market share, yet on the other they worry about cheaper offerings cannibalizing their existing customer bases. But the latter view is largely starting to change, and an increasing number of operators are viewing relationships with MVNOs as symbiotic. This is because they typically target subscribers in markets that larger operators are unwilling to move into, such as the youth or prepaid segments. In this way MVNOs serve as an additional revenue stream for network owners, without the worry of cannibalization.

 

MNVOs' niche focus is likely to become even more relevant as 3G networks increase the speed of data delivery. Cheap prices for voice services alone will not build long-term customer loyalty, but data services do provide an opportunity for MVNOs to reduce churn. Customers are far less likely to switch operators if they are receiving targeted data applications, such as the football scores of their favorite teams, for example. Customer-centric MVNOs are also well positioned to pick up the enterprise data market, as increased bandwidths spark companies into thinking seriously about wireless data solutions.

 

Another feature of the changing MVNO landscape is the emergence of an increasing number of Mobile Virtual Network Enablers (MVNEs), which help companies to launch and run MVNOs. The offerings of MVNEs may include management of relationships with network owners, systems administration, training, subscriber support, billing solutions and content aggregation services. Such services allow MVNOs to concentrate on the marketing and brand building crucial for the niche segments in which many of them operate.

 

In theory at least, MVNEs make it possible for companies or organizations with little or no telecom experience to start MVNOs of their own. Retailer 7-Eleven has done this in the US, with 4200 of its stores offering private-branded prepaid services on the back of Cingular Wireless's network. Similarly, UK supermarket chain Tesco offers an MNVO service over operator O2's network. And recently Universal Music announced the launch of an MVNO with French operator Bouygues Telecom. The future is likely to see even more companies leveraging their brands into the telecom market, as network owners and MVNOs together look for ways to generate 3G revenues.