Mobile Virtual Network Operator Industry

MVNOs are a way to implement a more specific marketing mix, whether alone or with partners and they can help attack specific, targeted segments.

 According to Wikipedia, an MVNO (Mobile Virtual Network Operator) is a company that provides mobile phone service but does not have its own licensed frequency allocation of radio spectrum, nor does it necessarily have the entire infrastructure required to provide mobile telephone service. An MNO that does not have a frequency spectrum allocation in a particular geographical region may operate as an MVNO in that region. MVNOs can operate using any of the mobile technologies MNOs use, such as Code Division Multiple Access (CDMA), GSM and the Universal Mobile Telecommunications System (UMTS).

The first commercially successful MVNO was Virgin Mobile launched in the United Kingdom in 1999 and now has over 4 million customers in the UK. Its success was replicated in the US. There are currently approximately 360 planned or operational MVNOs world-wide, according to consultancy firm Takashi Mobile.

Countries including Algeria, The Netherlands, France, Denmark, United Kingdom, Finland, Belgium, Australia and United States have the most MVNOs. In these countries the MVNO marketplace is stabilizing and there are some well-known MVNO successes. Other countries, such as Portugal, Spain, Italy, India, Chile and Austria are just beginning to launch MVNO business models. According to Wikipedia, there are three primary motivations for mobile operators to allow MVNOs on their networks. These are generally: Segmentation-driven strategies – mobile operators often find it difficult to succeed in all customer segments.

MVNOs are a way to implement a more specific marketing mix, whether alone or with partners and they can help attack specific, targeted segments. Network utilization-driven strategies – Many mobile operators have capacity, product and segment needs – especially in new areas like 3G. An MVNO strategy can generate economies of scale for better network utilization. Product-driven strategies – MVNOs can help mobile operators target customers with specialized service requirements and get to customer niches that mobile operators cannot get to.

MVNO models mean lower operational costs for mobile operators (billing, sales, customer service, marketing), help fight churn, grow average revenue per user by providing new applications and tariff plans and also can help with difficult issues like how to deal with fixed-mobile convergence by allowing MVNOs to try out more experimental projects and applications. The opportunity for mobile operators to take advantage of MVNOs generally outweighs the competitive threat. 

There are profitable MVNO operations, from Virgin Mobile and Tesco Mobile in the UK to TracFone in the US. Moreover, interest in becoming an MVNO has not faded away by any means; the list of the companies exploring the MVNO opportunity continues to include big names from a range of markets. Europe has led the way over the past half-decade or so when it comes to MVNOs, but the marketplace in the United States is now surging as well.

From retailers to communications operators to gasoline companies, many different kinds of enterprises with strong brand recognition are testing the virtual waters. Experiences of MVNOs to date have underscored two things in particular. First, a virtual wireless venture can turn a healthy profit when planned, launched and operated effectively. Second, however, the downside risks of the MVNO marketplace are very real, and some companies may be underestimating the scope of the effort. Recent news about MVNOs has not been encouraging.

Failure of two high-profile MVNOs - Mobile ESPN and Amp’d Mobile in the US as well as easyMobile, Ten Mobile, and scores of others in Europe have raised some fresh questions about the viability of the MVNO business model, a report by Pyramid Research titled, “Rethinking MVNO and MVNE Economics: The Future of Mobile Virtual Models,” suggests. However, according to it, the model is not yet bust. And these challenges can be overcome, but success involves skills, resources and operational systems that are not necessarily within the core competencies of some of the players getting into the virtual wireless game. 

The fact that more and more companies are looking to explore this market that suggests that interest in becoming an MVNO has not faded away.

N Janardhan Rao, Lead Economist