Tony Wilson looks at the developing role of the MVNO and its latest incarnation in the form of the MVNE
It doesn't take a lot to realise that the mobile industry is firmly on the up again; and that it is changing beyond recognition. MVNOs, or Mobile Virtual Network Operators, have once again injected new hope into an industry battling with ever-increasing saturation levels and growing price pressure. What's more, there is renewed expectation that many more major brands will become associated with new converged communications services.
However, the truth is that not every brand has got the technical know-how or the marketing power it takes to succeed. Figures published earlier this year by industry regulator Ofcom revealed that MVNOs now account for 5.5 million phone contracts out of a total 62.5 million in the UK alone. Nonetheless, by 2010, the market for mobile virtual network operators is forecast to generate service revenue of $10.7 billion, according to the Yankee Group. And some very strong brands like Disney have recently announced UK MVNO plans.
So, the question is, what has changed since the first wave of MVNOs to fuel the industry's confidence this time?
Three essential factors have emerged since companies such as Tesco successfully started to compete with traditional operators. While the initial business model of creating new revenue streams without actually having to be an expert in the wireless industry still stands, today's MVNOs are far from being a license to print money. In a saturated market like the UK it is not enough to just resell wireless voice or short messaging services under a new brand name.
Firstly, because successful MVNOs will have to differentiate and offset these threats with new value-added services orientated around customer choice and a personalised customer experience. In order to achieve this, Next-Generation MVNOs, such as content providers and broadband companies, have realised that they need a unique value proposition and a strong brand image in order to remain competitive. Many MVNOs have accomplished this by choosing a particular niche market such as business customers and offering specific mobile services including data, content, gaming or other service innovations that appeal to its targeted customer base.
For example, before launching the service, BT Mobile (part of BT Retail) recognised the market for mobile services was extremely fast-moving and competitive, with corporate users having very different requirements from consumers. It was therefore essential that BT Mobile could tailor its service for business customers and bring to market the new service as quickly and effectively as possible.
Secondly, the recent mergers between NTL and Virgin Mobile demonstrate that convergence has become the new driving force behind the new sophisticated generation of MVNOs. NTL's bold move to acquire Virgin Mobile promises to create a powerhouse in the rapidly converging telecom and media industries. For the first time, a company is able to offer the much talked about quadruple play, combining mobile and fixed line telephone services, broadband and TV. In a similar case, the success of the service for its mobile business customers led BT Retail to launch BT Fusion, its pioneering fixed mobile convergence service, in February 2006.
Last but not least, the concept of the MVNE, or Mobile Virtual Network Enabler, has come of age. They act as intermediaries between the MVNO and the network infrastructure provider. An MVNE can provide the skills and systems to manage both the back office and the relationship with the network provider too.
The intermediary function can go much further. An MVNE can also absorb the burden of interfacing with all of the other organisations including credit agencies, outsourced call centres and banks that are involved in delivering a service. This requirement is likely to increase as MVNOs consider converged services that depend on third party content providers.
Consequently the MVNO is free to focus on where it can add value to the service, whilst the MVNE absorbs all of the operational complexities of running a mobile virtual network business.
Smooth operation of the MVNO ultimately also benefits the operator who is looking for a secure additional revenue stream. They are looking for an MVNO to present a compelling business case that serves a group of customers that the operators don't aggressively market to. The presence of an MVNE with the right skills and experience gives significant reassurance to an operator about how the MVNO can fulfil this potential and maximise its capital investments.
MVNE or not
One of the most important business decisions an MVNO has to make, therefore, is whether or not to use an MVNE. Many companies that are interested in becoming an MVNO lack the time, money, or expertise it takes to run the day-to-day back office processes. Furthermore, many MVNOs are finding that it is difficult to manage all of the third-party relationships needed to successfully run its business.
MVNEs like Martin Dawes Systems, itself a former MVNO, help organise and manage these relationships while also reducing risks and accelerating return on investment (ROI). In the case of BT, who chose Martin Dawes Systems for its business customer mobile service, the company needed to find a partner who could provide the complete span of billing and customer relationship management systems required, as well as bring into the operation the relevant experience and expertise of serving business customers to ensure the smooth launch and then ongoing operation of the service.
The other important decision any potential MVNO has to make is the business model – prepaid/pay as you go or postpaid. Early MVNOs were characterised by pre-paid, low-end customers, often not offering more than voice and SMS services. One of the best examples of this is Virgin Mobile UK which introduced itself with a pre-pay service – a service the mobile network operators were trying to move away from – and returned better revenue per user than most of the operators' subscribers.
However, many of today's Next Generation of MVNOs (e.g. BT Mobile) are targeting more refined niche segments and vertical markets. Convergence offers opportunities to target such customers with innovative bundles that combine free or flat rate broadband with a mobile and fixed line service. This customer base expects and values a paper bill, live customer service, and a wide choice of pricing plans – areas where end-to-end MVNEs can leverage their distribution assets to help their MVNO clients acquire and service customers.
In this respect, MVNEs play a critical role in delivering a high quality customer experience in line with MVNO's brand value and proposition. What an MVNE with the right background in billing and rating processes can do is crack the underlying complexities of getting this task right especially when the MVNO is offering special discounts and deals on a service. The consequences of not getting this right – late or inaccurate billing, delays to implement additional services on a customer account – quickly undermine an MVNO's whole market proposition.
Choosing an MVNE partner is about making a long term strategic decision and having quite clear business goals into the future. Experience of the first MVNOs shows they often start with a very simple business model based on prepaid. This is the foundation for the MVNO to then evolve to post-paid and now more complex offerings. It therefore becomes desirable that the MVNE can take the MVNO through these stages and other changes such as moving network service providers.
The future of MVNOs
Quadruple play, as seen with NTL and Virgin, and initiatives such as BT Fusion, are promising even more revenue generating opportunities for MVNOs. Fixed-mobile convergence opens up the market to the numerous potential MVNO models that emerged previously but never reached their potential.
The requirement to enter markets quickly and effectively is putting pressure on MVNOs that MVNEs are ideally placed to relieve. Outsourcing the complex business of billing and customer care for converged services to an MVNE creates real flexibility for the MVNO. It allows a new service to be tested and rolled out rapidly, whilst always giving the MVNO the option to either curtail or extend the service based on how it performs in the field. Indeed the very best MVNEs are those that give their MVNO clients the opportunity to fine tune their service portfolio and be most responsive to changing market conditions.
MVNEs are becoming part of a maturing eco-system in the converged communications industry. This already includes network providers and the branded service businesses that have a direct relationship with a customer. As these proliferate and seek competitive advantage, the role of the MVNE will grow.
The potential agility gained by partnering with an MVNE could be applied in newer fields too. For example, it is realistic to expect that MVNEs will play a key role following the recent auction of 'mini-GSM' licences. New licence holders who want to bring to market new niche concepts like business-class campus networks are likely to turn to MVNEs with resources, capacity and skills to realise services rapidly.
Naturally, there is a rush of businesses positioning themselves as MVNEs, as well as brands evaluating the MVNO model. The criteria for success in this MVNE field obviously must include assured capabilities in running a network service business. But, as MVNE pioneers are demonstrating, close collaboration between all players is absolutely essential to success. Specialist skills, experience and systems are of little good unless the MVNE has worked out how to share risks and responsibilities with its MVNO client and the other third parties involved. An open relationship with clean demarcations is critical.
Managed carefully and integrated successfully, quite often requiring the support of an MVNE, Next-Generation MVNOs have certainly the potential to cause even more excitement than they already do.