Implementation Models of
MVNOs
Presentation to the Information Society and
Media Directorate-General - Unit:
Communication Technologies
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations to host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations ot host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
What is the position of telecom groups
towards MVNO ?
 No common/structured position but a collection of local initiatives:
•
•
•
-
MVNO develop at a different speed within EU members
Big telecom (incumbent) groups have mobile assets in most EU countries:
MVNO is first seen as a threat
When local MVNOs initiatives becomes important in volume/scope, there is an
attempt to harmonize/unify
Most of the time, local initiatives remain ahead of global program
 MVNO or more precisely VNO will become the only means to expand
footprint of telecom groups
• The wave of privatization of former State owned telecom companies are finishing
•
-
All licenses are bought by Middle East countries that have a lot of cash
The mobile licenses are too expensive because less and less based on a beauty
contest
-
All licenses are bought by Middle East countries that have a lot of cash
 But no unified vision of MVNO theory and strategy to date within most
telecom groups within EU
Nov 28, 2006
MVNO and Segmentation…
Same Answer for the Same Issue
 Segmentation appears:
•
When MNO understand they all fought between each other for the same (national)
market with no possibility to make their offers different from the competitor
When MNO segment the market to focus on niches, ethnical communities, loyalty
programs via new brands to avoid cannibalisation
•
 MVNO appears
•
•
•
When an operator decides to attract volumes and traffic to fill the network
When an operator wants to promote new usages or to launch new services
When an operator feels it can address new markets via 3rd parties without
incurring the necessary (marketing) investment.
 Limits between new brands and MVNO blur
•
•
•
MVNO are bought by the MNO
MNO start at the same time MVNO and new brands
More the new brand is independent from the MNO closer it is from a MVNO
because it has its own life parallel to the usual commercial operations (see cases
where the network is outsourced)
Nov 28, 2006
What can bring a MVNO to capture market shares
 Good Surprises:
•
•
•
•
-
MVNO as the first ones to launch web based offers but now copied by MNO
MVNO as the first ones to focus on content (especially in the USA but some
examples in Europe as Universal Mobile)
MVNO as the first ones to make more simple mobile offers and prices
MVNO as the first ones to propose pan European corporate services
Still in development: they exploit the lack of integration of mobile groups that are still an
aggregation of local mobile operators with a local P&L
 Remedy to Competition Problems in Mobile Markets
•
•
•
Access: MVNOs compensate the scarcity of spectrum (evident)
-
MVNO will also exist in any other network economy relying on not replicable assets still
owned by a monopoly operator
Termination: if MVNOs can fix their termination rates themselves (less evident)
-
Attempt in Austria
Roaming: if MVNOs can become member of the GSM Association (less less
evident)
-
(Missed) Attempt in Austria
Maybe remedy will come with yet-to-come substitution products like WiFi, Wimax
Notable exception and real substitution: multi numbers SIM
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations ot host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
INTRODUCTION
 Definition
3rd Party that operates on its own a piece of the mobile value chain with the exception of the
radio access. It controls totally or partly the commercial ownership of the end user (or its
representative)
As an evident consequence: it forces the MNO to break its vertical integration…that is a root
cause of the lack of competition in the mobile market.
 Oligopoly/Guaranteed Income within the mobile sector
Ricardo’s theory
The guaranteed income depends on the market shares (with the exception of UK)
The regulator is forced to maintain a minimum price to help the last entrant to survive (!)
The guaranteed income creates a monopoly effect that the 1st entrant could use to expel the
last entrant
Impact of MVNO on the guaranteed income
 breaks the guaranteed income effect as fix assets do not play any more in the game.
 only the last entrant should host a MVNO otherwise it is another competitor for it !
Other Remedy to break the guaranteed income within the mobile sector
 Asymmetric Wholesale Regulation: force the 1st entrant to decrease its wholesale rates
 Asymmetric Retail Regulation: last entrant will suffer from an imposed decrease of rates
Taxation of profits: unfair and difficult to implement
 Commoditization of mobile = open door for 1st generation MVNOs:
Marketing/Distribution
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations ot host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
STRATEGIC MODELS (1)
 Model of Participation (industrial/financial)
Segmentation = Zone 3
Financial Cross-Participation
between the MNO and the MVNO
MVNO consolidation = Zone 1 and Zone 2
JV between MNO and
3rd party
 VIRGIN/T-Mobile
(till 2004)
Spin off of MVNO (new
 MobiLux
brands, network
(agent)
separation,…)
Zone 2
Zone 3
 TMF
 Ay- Yildiz
Commercial Agreement
for the supply of
 TELE2
connectivity and network
capacity
Simple financial
participation
 Telmore
 Tele2
 Carrefour
Cobranding
Zone 1
 TRANSATE
 TELENET Zone 4
Intensity of the connectivity/hosting (supplier)
relationship between the MNO and the MVNO
Nov 28, 2006
STRATEGIC MODELS (2)
 Modèle Fonctionnel n°1: Switchless Mode
• No Mobile Switching Assers managed by the Airtime Reseller
• Focus on the service/integration layers
• Intermediary Stage
International
Interconnect
National
Interconnect
Core
Network
On Net
Radio
Access
Network
MNO
CDRs
Reporting
AR/SP
CRM
Bill
M&S
MVNO
Nov 28, 2006
STRATEGIC MODELS (3)
 Modèle Fonctionnel n°2: Enhanced Service Provide Mode
• Integration of VAS services coming from the enhanced service
provider with an mobile access
• Stimulation of the usage of both mobile and VAS usage
National
Interconnect
Core
Network
On Net
Radio
Access
Network
MNO
International
Interconnect
VAS/IN
CDR
Backbone
Interco
CRM
Bill
M&S
Network
Management
MVNO
Nov 28, 2006
STRATEGIC MODELS (4)
 Modèle Fonctionnel n°3: Full MVNO
• Full Mobile Switching infrastructure owned and brought by the mobile
•
•
operator
Focus on just renting the radio access to the mobile operator
Ultimate stage of a MVNO
National
Interconnect
International
Interconnect
VAS/IN
HLR
HLR
Core
Network
Backbone
Everything except
Radio Access
Radio
Access
Network
On Net
MNO
MVNO
Nov 28, 2006
STRATEGIC MODELS (5)
 Functional Model nr 4: Brand Actor
•Crucial Role of MVNE
•Comparable to new brands created by existing mobile operators
International
Interconnect
National
Interconnect
Core
Network
Reporting
Brand
Actor
CDRs
On Net
Radio
Access
Network
MNO
MVNE
CRM
Bill
M&S
MVNO
Nov 28, 2006
STRATEGIC MODELS (6)
 Operational Model
Each possible should make sure the MVNO has a direct/partial control of the end user or its
representative.
The agent or agency model should be excluded: no commercial ownership/no recognition of
revenues according to national/local regulation/commercial laws.
Agent
Sales
Marketing
Contact Center
(Customer Care)
CRM
Billing/Invoicing
Radio Access
(trafic on net)
Transport (trafic off net)
Operating Support System
(HLR)
X
Airtime
Service MVNO MVNE
Reseller
Provider
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Brand
Actor
X
X
MNO
X
X
X
X
Nov 28, 2006
Role of a MVNE: good for the MNO
and the MVNO
 Use of a MVNE
•
•
•
-
MVNE = Mobile Virtual Network Enabler = Integrator for MVNO candidates
Allows an ‘EBIT=EBITDA’ business model
Divert complexity of one-to-many hosting technical aspects with MVNO to MVNE
that leverage their expertise or even already existing connections
A MVNE is a kind of hosting/connectivity provider to GSM operators
A MVNE wholesale will also
sell mobile connectivity and
airtime to the MVNO besides
its integrator role. So the
MVNO will benefit from the
MVNE existing wholesale
agreements without having to
negotiate with local mobile
operators
MVNE
MVNE
Wholesale
Wholesale
MVNE
MVNE
Co-Marketing
Co-Marketing
MVNE
MVNE
ASP
ASP
End-User
End-User
End-User
End-User
End-User
End-User
MVNO
MVNO
MVNE
MVNE
MVNO
MVNO
MVNO
MVNO
Marketing
Marketing
Partner
Partner
MVNE
MVNE
MNO
MNO
MNO
MNO
The MVNE ASP plays the
role of the MVNO’s integrator
for setting up a MVNO
business/operating model. It
has not other role
MVNE
MVNE
MNO
MNO
Nov 28, 2006
STRATEGIC MODELS (8)
 VNO is future proof versus 3G and NGN
3rd party networks (PSTN, PLMN,….)
6 possible layers to share the infrastructure
HOsting operator
MVNO
HLR
GMSC
Services
Location
Control
Transport
Access
CRM
Call Setup
IP on
Fibre Optique
ATM
Switching Access Netowrks
(PSTN, ISDN, GSM)
Content
QoS
Voice Mail
Authentication
TDM
Billing&
Invoicing
HLR
GGSN
MSC
VLR
Rating&
Billing
Broadcast
GMSC
SGSN
RNC
Node
B
Node
B
Packet Access Networks
(UTRAN, ADSL, Ethernet, WLAN)
Nov 28, 2006
GGSN
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations to host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL (1)
 Aim: define cost and access price to the network: 3 methods/2 approaches
Cost Plus - Retail Minus – Benchmark
Top Down – Bottom Up (closely linked to Cost Plus)
 Retail Minus
Pa= Pr-Cr
Pr = Retail price
Cr = Cost of Sales (Cr is the ‘retail minus’ part)
Avoid squeeze out (predatory pricing eg: TELE2 - ORANGE) but not adapted if cross
subsidiation exists
 MVNO is forced to address the same market as the hosting operator
 Allows the MVNO to be more efficient if it has a smaller Cr for a specific market
Not adapted if the objective is to bring more competition via ex ante regulation (not pressure
on costs)
 Cost Plus
LRIC ou FDC/FAC
LRIC= Long Run Incremental Cost including fix costs (and sometimes joint cost, which is not orthodox)
Adapted in case of strongly integrated operator
MVNO is forced to address markets not yet addressed by MNO
Financial risk is on the MVNO not on the MNO (all minutes are sold with a gross margin)
 Benchmark
Nov 28, 2006
MNO should favour « Cost Plus » models to host
one’s MVNOs with payback of interco revenues
 « Cost Plus » Avoid Price Wars:
•
•
MNO takes no financial risks as any subsidization is avoided
MVNO can not copy its MNO’s retail prices as its cost to address the same market
is higher (no economy of scale)
MVNO is forced to focus on its own markets (where its own subsidisation policy
will be the most efficient)
MVNO is forced to be innovative
See What happened to the first Service Providers of the early days of GSM
•
•
•
 But takes more time to take off
•
•

Not easy for new MVNO entrant to understand the subtle subsidization
mechanisms
So also the reason why MVNO simplified their offers
Limited risks for MNO to be accused of earning too much money with termination
revenues
-
As wholesale prices can be higher than corporate offers
As « Cost Plus » is normally based on a accurate cost model of the network
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL(3)
 Step 1: Definition of wholesale services to be proposed to MVNO
Acess/Origination of Calls, Termination and Roaming
Cost Driver Concept (Subscriber/Coverage/Traffic)
Helps to determine the network parts and elements that are really used by each wholesale
service (MNO is too much vertically integrated towards an end-to-end approach)
‘Traffic’ Cost Driver: is the only relevant one for a MVNO hosted by a MNO in European Union
(roll out of GSM network completed for a long time, saturating market).
‘Subscriber’ Cost Driver: is relevant on some very specific services (HLR capacity, voice mail
capacity,…).
Average/Marginal/Incremental Cost Concept
Joint cost is linked to the coverage: not relevant for a MVNO hosted by a mobile operator in the
European Union.
Marginal Cost should be avoided otherwise MVNO will always be considered as an opportunity
business and not as a sustainable business.
 Step 2: How to determine pricing to be proposed to MVNO ?
Average Cost should be preferred to Marginal/Incremental Cost
Avoid to treat MVNOs as opportunity business without long term plans
How can we anticipate the contribution of MVNO within 2 years and let’s use it….
Comparison EPMU/RAMSEY
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL(4)
 Link Cost Driver – Network Component
Susbcribers
MNO
Coverage
MVNO
MNO
Traffic
MVNO
Spectrum
BTS
TRX
x
x
BSC
Fix part of Radio
Access Network (BSS
ou RAN)
MSC
x
Network Management
HLR
x
x
x
Interco Billing
x
MVNO
x
x
x
x
x
x
x
x
VLR
AuC
MNO
x
x
x
x
x
x
x
x
x
x
Link Wholesale Service – Cost Driver
Access/Origination
Subscribers
Traffic
Coverage
x
x
x
Termination
x
x
Roaming
x (Marginal)
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL(5)
 MODELLING OF WHOLESALE SERVICES AND COSTS TO BE
CONSIDERED
3rd party Network
(Fix Mobile or
International)
MNO
MNO
3rd party Network
(Fix Mobile or
International)
MVNO end user
MNO
MVNO end user
Other end user
ACCESS/ORIGINATION
OF ON NET CALLS
MVNO end user
ACCESS/ORIGINATION OF
ON NET CALLS + TERMINATION
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL (6)
 MODELLING OF WHOLESALE SERVICES AND COSTS TO BE
CONSIDERED
Visited
Network
MNO
Reporting to MVNO
MVNO end user
Roaming
 LINK NETWORK ELEMENT – WHOLESALE SERVICE (via COST
DRIVER)
BTS
BSC
MSC
NMC(central)
Termination
1
1
1
1
Off Net Call (origination)
1
1
1
1
Local On Net Call (origination)
2
1
1
1
National On Net Call (origination)
2
2
2
1
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL (7)
 RESULTS: Off Net Calls Origination/Termination without GPRS
Cost to be removed from Interco Revenue for the off net Termination
Average/Marginal
Cost for
thel'Emission
Origination
& Termination of Off
Coût
Moyen et Marginal
pour
- Terminaison
Net
Calls
d'Appel Off
Net
18.00
16.00
Origination/Termination
- Average
Cost
Emission/Terminaison
d'Appels
Off Net
(Moyen)
Coût€cent/min
€cent/min
Cost
14.00
Emission/Terminaison
d'Appels
Off Net
(Marginal
Origination/Termination
- Marginal
(Theoretical)
Théorique)
Origination/Termination
- Marginal
Emission/Terminaison
d'Appels
Off Net(Realistic)
(Marginal
Réaliste)
12.00
10.00
8.00
6.00
4.00
2.00
0.00
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
Network
Capacity
min/year)
Capacité
Réseau(billion
- milliards
min/an
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL (8)
 GPRS Costs
GPRS = Incremental Cost in a GSM Network (software upgrade)
•
1 channel reserved permanently for GPRS in the model  channel reserved permanently for GPRS
connectivity  voice overcapacity decreases, incl. marginal costs as they are not constant….
Capacity millions MB/yr
15
20
25
30
35
40
45
50
1870
18
1.5
0
1870
18
1.5
0
1870
18
1.5
0
BTS allocated
8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 11.0% 11.8% 13.2%
Costlafor
the GPRS GPRS
at 10 àkbps
CoûtAverage/Marginal
Moyen et Marginal pour
Transmission
10 Kps
Moyen 10 Kbps
Marginal Planifié 10 Kbps
Marginal Réaliste 10 Kbps
4.00
3.50
Coût €cent/min
Cost
€cent/min
Marginal Cost is flat
(evident)
10
1870 1870 1870 1870 1870 1870 1870
18
18
18
18
18
18
18
1
1
1
1
1
1
1
0
0
0
0
0
0
0
GPRS alone
Empty network
dedicated to GPRS
5
BTS
BSC
MSC
NMC
3.00
2.50
2.00
1.50
1.00
0.50
0.00
0
5
10
15
20
25
30
35
40
Network
Capacity
(billion
min/year)
Capacité
Réseau
- Millions
Mbytes/an
45
Nov 28, 2006
50
55
ECONOMICAL/FINANCIAL MODEL (9)
 HOW TO DETERMINE PRICING (your own pricing and competition
pricing)
What cost should be considered ? Average Cost ? Forward Looking Cost (in order not to
penalize the last entrant who host a MVNO) ?
Direct sales enjoy this too as the network costs decrease too.
Add interconnection costs/revenues in case of incoming traffic.
Average/Marginal
Cost for the
Origination
& Termination
of Off
Coût Moyen et Marginal
pour
l'Emission
d'Appel Local
Net Local Calls
Cost
€cent/min
Coût €cent/min
32.00
28.00
Origination/Termination
- Average Cost
Emiss
ion d'Appel Local (Moyen)
24.00
Origination/Termination
Marginal Théorique)
(Theoretical)
Emiss
ion d'Appel Local -(Marginal
20.00
Origination/Termination
- Marginal
(Realistic)
Emiss
ion d'Appel Local (Marginal
Réalis
te)
16.00
12.00
8.00
4.00
0.00
1
1.5
2
Re mplissage du réseau grâce à
Capacity filled with
l'apport de trafic des
2.5
3 supplementary
3.5
4
4.5
5
partena ires wholesale e t de la
traffic
vente directe
5.5
6
6.5
7
Network
Capacity
(billion
min/year)
Capacité
Réseau
- milliards
min/an
7.5
8
8.5
Nov 28, 2006
9
ECONOMICAL/FINANCIAL MODEL (10)
 HOW TO DETERMINE PRICING
Special Case of Roaming: Cost plus = Retail minus via IOT
Cost of Special Services: according to the provision of service:
• SIM manufacturing
• Use of Storage Capacity for Voice mail/HLR
• Use of processing power of prepaid platform
• Legal Tapping
• Fraud Monitoring
Nov 28, 2006
ECONOMICAL/FINANCIAL MODEL (11)
 Comparison with a Generic Cost Model From a Typical Regulator
How a regulator will audit you if it imposes MVNO with cost orient.
“BIPT/ANALYSIS GENERIC MODEL”
“PRESENT MODEL”
Top Down
Bottom Up
LRIC (Long Run on Incremental Prices) par
opposition au FDC-FAC (that considers only past
investments)
LRAC (Long Run on Average Prices)
Emphasis on average costs but anticipated in 2
years.
Emphasis on Incremental Costs because they are
the most efficient according to theory.
Generic Cost Model applied to MNO specific data
(this was not the case for fix telephony)
Idem
UMTS and Commercial Costs not considered
(although were considered before even with MNO
notified as SMP)
No Commercial Cost
Economical depreciation (not an accounting
depreciation)
Accounting Depreciation
No UMTS Costs
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations ot host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
REGULATORY ASPECTS
 Impact of the NRF (New Regulatory Framework)
Authorization Directive replaces the licensing regime by a notification regime unless scarce resources are
concerned. This makes MVNO entry easier
 Impact of MVNOs on market definitions and dominance
Access Market (Market 15) Marché de l’Accès Mobile
MVNO provokes an uncoupling between access and origination
MVNOs decrease simple dominance ( a little) but especially joint dominance (players  so tacit collusion )
Termination Market (Market 16)
Simple Dominance for fix to mobile calls and Joint Dominance for mobile to mobile calls.
MVNO provokes more substitution if it can resell mobile termination.
MVNO Modifies the perimeter of the market (especially if he is a fix operator) and can make it more
convergent.
Simple Dominance decreased if MVNO can resell mobile termination
BUT: simple dominance will transform in joint dominance if only a few MVNOs (so we should not a policy of
big MVNOs)
Opportunity to introduce RPP ? As it makes the externality more symmetric for fix to mobile.
Other Remedies: (1) Clearing House for mobile termination (2) bill and keep (back to back of externality)
Roaming Market (Market 17)
MVNO will have no imapct due to cartel game between mobile operators.
Remedy: Create a secondary market outside the GSM Association
Some models are able to decrease the dominance on this market (TRANSATEL).
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations to host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
MODELS OF ORGANIZATION (1)
 EVOLUTION OF INTERCONNECTION BETWEEN OPERATORS
First strong link with the Regulatory/Legal
ONP Obligation has provoked the shift of interconnection to a P&L driven entity upstream from retail
in order to make no discrimination between new entrants and one’s own retail operations.
This constitutes the basis to host MVNO: MVNO are a form of extension of interconnection/access to
operators with no or with partial infrastructure.
 OBJECTIVES OF A MVNO-minded ORGANIZATION
Avoid the usually protectionist behavior
- Delay Provisioning of MVNOs (eg: MNP et i-mode)
- Retain information or discriminate their release to MVNOs (so one must set up of wholesale at
network side)
- Unbundling not granular enough (Threat of cannibalization will determine the right level of
unbundling)
- Demand unuseful guarantee in regard to the service delivered
- Not the same quality of service is delivered to MNO and one’s own retail operations.
- Utilize the information collected with MVNO for competition purposes (Chinese Wall) (so one must
set up of wholesale at network side)
- Pricing Policy not transparent enough (e.g.T-Mobile and VIRGIN Mobile)
Nov 28, 2006
MODELS OF ORGANIZATION (2)
 3 TYPES OF ORGANIZATION
MNO (Mobile Network Operator) with most of its objectives based on
MVNOs: especially for 3rd and 4th entrants  Strong Organization that must
be autonomous versus the retail operations.
MNO (Mobile Network Operator) with MVNO business driven by marketing
pin order to enjoy the MVNO opportunity: MVNO is seen as another
distribution channel; marketing arbitrates unavoidable conflicts retail
operations and MVNOs; this applies for 2nd entrants with comfortable
penetration.
MNO (Mobile Network Operator) has the legal obligation to host MVNO but is
strategically reluctant to the model: MVNO will be driven by legal and
regulatory considerations.
 EXCELLENT CASE STUDY:CARREFOUR/BASE (!!)
Nov 28, 2006
MODELS OF ORGANIZATION (3)
 OBJECTIVE OF A WHOLESALE ORGANIZATION THAT IS MVNO-minded
Set up of the organization:
•
Outside and upstream of retail operations, inside the technical department.
Give the organization a P&L responsibility
In order for it not to discriminate between MVNO and retail operations
BASE
Retail
ICT
Sales &
MKT
Intercon
nect
(roaming/Interco)
Carrier
Market
Business
Market
Mass
Market
Product Lines:
Roaming
Interconnection
Connectivity/Access
3rd Party
Retail
Wholesale
Market
 WHOLESALE SERVICES
-
Roaming
Technical Product Management
ICT Production
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations ot host MVNOs
Economical Models
Case Study: why no corporate MVNO exist and other cases
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
Case Study: Corporate MVNO (1)
 Case Study 1: Why no Corporate MVNO exists ?
Global Needs of Corporate Customers versus local MNO
Sales to Corporate MVNO heavily cross subsidized
– Risk of Squeeze Out in case of Cost Plus
– Impossible to design good offers with Retail Minus (no economies of scale
for MVNO)
But MVNO in a better position to propose cross borders/international
services
– No multiple network to manage
– Rework wholesale agreements/local operations into a
global retail
services
– Emerging outsourcing is an appeal for more MVNO in this sector
Value Proposition for a corporate MVNO
– Global
– FMC
– Cost
Nov 28, 2006
Case Study: Corporate MVNO (2)
 MOBILE OPERATORS or GROUPS ARE COUNTRY-minded
Recent History of Mobile Operators – licenses are national
P&L of ORANGE & VODAFONE are local, not global
FreeMove et STARMAP = presales master agreement ou brand agreement
SYMPAC: is KPN credible with only 3 real networks and an image of competitor
when it asks for a MVNO agreement → Risk for SYMPAC to become a new
FreeMove…
TELE2 is the only multi country MVNO but its residential positioning prevent it to
leverage this….
Nov 28, 2006
Case Study: Corporate MVNO (2): Business Plan
 CAPEX Assumptions
Interconnection to 5 mobile operators : 100 000 €
Take on its own the billing chain till mediation rating: 20000 €
Interconnection as an enhanced service provider + use of MVNE OSS (economies of scope of
MVNE towards MNO) : 30 000 €
 OPEX Assumptions
Set up cost of 10 000 € for the first 5000 end users
2 €/SIM/month beyond 5000 users
Activation Cost of 5 € per new user
CRM outsourced to the MVNE.
Cost/Profit per SIM card
70 €
OPEX: 2.5 €/month (Life cycle of 12 months)
CAPEX: 5 € (base de 30 000 utilisateurs)
SG&A de 17 %
wholesale fee paid to the mobile operator:60 €
CAPEX amortized immediately
Coût/Profit Par SIM Card (€)
ARPU & Cost Per User
Calcul
du Break
Evenvs
en Nombre
de SIM
Cards
Actives
Break
even
Active
SIM
cards
60 €
CAPEX par utilisateur
40 €
OPEX per end user
Total cost par utilisateur
20 €
Profit par utilisateur
0€
0
10000
20000
30000
40000
-20 €
-40 €
-60 €
# SIM
Nombre
de cards
SIM Cards
Nov 28, 2006
50000
60000
CASE STUDY: Belgium
 Case Study 3: Belgium
Mix between Option 2 and Option 4 with recently Option 1
BASE (3rd entrant) has started a MVNO program in 2001
– Ethnic/Niche MVNO
– Use of MVNE to aggregate small MVNOs
– CARREFOUR bypasses BASE to engage with an MVNE
– War price CARREFOUR/BASE on prepaid cards
MOBISTAR (2nd entrant)
– Has decided to not to miss this opportunity even if it does not need it
– Use of MVNE as ASP (same MVNE present within BASE and MOBISTAR)
– Co-branding with CARREFOUR Competitor (DELHAIZE – Loyalty program)
– MVNO with 3 play CATV operator TELENET
PROXIMUS (incumbent)
– What will they do ?
Nov 28, 2006
AGENDA
 A few facts/figures to frame MVNO in today’s context
-
How do telecom groups react today towards MVNO: Opportunity or Threat
MVNO and Segmentation…Same Answer for the Same Issue
What a MVNO can bring to capture market shares
 Back to Theory….
-
Definition of MVNO
Strategic Models of MVNO
Regulatory Aspects
How a MNO should organize its operations ot host MVNOs
Economical Models
Case Study: why no corporate MVNO exist ?
State of MVNO market within EU
Conclusion
 How MNO Should Respond to MVNO entry
Nov 28, 2006
BRIEF OVERVIEW OF EU MARKETS (1)
 Types of MVNO
Country
Denmark
Finland, Norway, Sweden
Netherlands , United Kingdom
Austria
Reste of Europe
Penetration
> 20 %
> 10 %
>5%
>2%
<2%
Group
Group 1
Group 2
Group 3
 Key Success Factors of 1st Generation MVNOs
Efficient Distribution Channels
Good Marketing
Brand or Niche
New Content or Content/Service Making the Difference
 France as an exception….
Cobranding only - no new brand creaetd by MNO
MNO plays the role of MVNE
Retail Minus
Incumbent very active
Nov 28, 2006
CONCLUSIONS
 Mobile Market is not competitive enough
Oligolopy revenues
Too much integrated vertically
•
No more price competition/No more innovation
Root cause: ownership of scarce resources, assets not replicable,….
 Impact of MVNO
MVNO remedy for access/origination and termination
MVNO breaks the vertical integration but must be hosted by the last entrant
MVNO today: a lost generation (see USA…) with a focus on price war….
 Case Study
MVNO will appear in all network economies that get deregulated
Nov 28, 2006