Scott McKenzie, director at Coleago Consulting, discusses the current state of the MVNO market and what the future holds What is your assessment of the MVNO market in Europe currently?

Scott McKenzie: With growing competition in European mobile markets and due to the increase in the number and quality of enabler companies, it has become a lot cheaper and easier to set up MVNOs in Europe in recent times. 

Although it varies by country, overall we have seen growth in the number of MVNOs. Such growth cannot continue indefinitely, however, and there is bound to be a shake out with a phase of consolidation in the European sector.

Successful MVNOs launching now will need to have deep pockets and bring complementary assets if they are targeting a mass market or have a niche focus if they are to make it.

What impact will the launch of 4G LTE services have on MVNOs?

Most MVNOs today are still dependent on voice and SMS for their revenues. The roll out of 4G LTE and development of non-SMS mobile data services is changing the mobile operator business model and this will inevitably affect MVNOs.

What is clear though is that MVNOs will need to become data centric in order to remain successful. It will be interesting to see how currently successful MVNOs, such as Virgin and Tesco in the UK, adapt to reflect this change in the industry. 

However, with mobile operators only just beginning to use the 4G networks that they have heavily invested in it is unlikely that they will be in any rush to have MVNOs also launching competitive 4G offers.

Another potential drawback for MVNOs is that in a data centric world mobile operators have to increase the subsidies for handsets. MVNOs may struggle if operators start competing more on the basis of handset subsidies. Whatever happens, the move to a more data centric world will certainly determine the MVNO winners from the losers.

Where do you see opportunities for new entrants in the MVNO market?

The MVNO market is already crowded and the move to data will mean that not everyone will survive. Although the European MVNO market is currently growing I do not think that there will be a lot of successful new entrants unless they have deep pockets and/or complementary assets (e.g. Sainsbury Mobile in the UK) or are serving untapped niches. Instead, we will more likely see a period of consolidation such as already happened within the ethnic MVNO space.

One area we have heard some interest in recently is in advertising based MVNOs with a number of new entrants targeting this area. Although the business model is challenging the success of advertising business models in other sectors (e.g. internet search, online coupons) has ignited the interest of a number of players.

How do you think a telecoms single market in Europe may affect MVNOs?

If the EU is successful in creating a telecoms single market it will not only affect MVNOs but everyone in the industry. However, I wonder how it will happen in an infrastructure based business like telecoms services.

The national regulators and governments in each country are more powerful than the European Commission (EC) in this area and unless they can get control of it from national governments and plan to break the entire industry down and start again it would be difficult to see how we could have a true telecoms single market across Europe.

It is more likely that the EC will concentrate on less ambitious initiatives such as pushing net neutrality, co-ordinating frequency allocations, reducing EU roaming rates and encouraging governments to set more ambitious fixed and mobile broadband coverage targets.

One of the major successes for the EC has been to lower roaming charges in Europe, an area that many MVNOs such as Truphone have attempted to tackle. If the EC gets its own way by 2015 roaming charges will be almost non-existent across the region. This will make life difficult for roaming MVNOs whose business models will also be threatened by the move towards data.

What is the key for MVNOs to remain successful in Europe in the next five years?

The mobile industry is changing and MVNOs need to embrace the data world and quickly figure out how they can remain relevant to their customers, if they are to survive and prosper. However, the principles of an MVNO still remain the same.

MVNOs often target specific segments to offer their customers exactly what they want. The key to success will still rely on them understanding their customers and having a unique proposition to meet their needs.

It’s going to be hard and the ones that survive will be the ones that have strong distribution in place and are good at targeting end customers with relevant offers. Successful marketing strategies will as always have a large role to play.

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