Mobile Virtual Network Operator; the longest standing MVNO resource by MVNO expert Christian Borrman
The original ‘Brief’, ‘Concise’ and ‘Longer’ explanation from the old blog below, as the blog is moved over to this new site some links may be broken, apologies for this but please do let me know in comments if you see any and I will try and fix them as soon as possible…
A three part Explanation: Brief; more detailed and as complete as possible in one page explanation on mobile virtual networks, the host operator relationship, through to the models MVNOs were built on and how they have evolved.
MVNO Explained – Brief:
An MVNO is a wholesale arrangement that allows the Mobile Network Operator (MNO) to sell excess capacity for resale by more diversified, specialised or other markets through hosting a service on its network to an MVNO. The two most important points here are: “excess capacity” and “other markets”. At the simplest level this involves re-branding a SIM and maybe the phones (most large volume MVNOs have been or still are SIM-only), having your own sales channel and customer care, and maybe some value-add services and a billing engine to offer differentiated pricing if required.
One of the best and first examples of this is Virgin Mobile UK, and its following franchises; not only because it was one of the first, but also because it is one of the biggest, but also because of its success: Virgin took a pre-pay service, that the mobile network operators were trying to move away from as a supposedly low-revenue product, and returned better revenue per user than most of the operators subscribers on supposedly higher revenue contract services. Key to this was lower cost of acquisition. Virgin Mobile UK also did this with a very lean service, with the only real difference between the host operator and the Virgin SIM, being the brand, and a different customer care number. However, with just innovative pricing, some value-add services and a different customer care provision, Virgin managed to be voted twice “best network operator” whilst its host operator “worst mobile operator” despite the former not actually having a network, and the product, in terms of a network, were identical.
The key points to take away here are:
- The MNO is selling excess capacity to markets it cannot address, each MNO varies in these aspects.
- The MVNO must be able to do this either cheaper, more profitably or both
- Owning a network is not important, Virgin UK as a “light” MVNO (no HLR, etc) was voted best mobile operator (sic) for the 10 years it has been operating so far, while its host has often been voted worst: its all about customer perception of service: by being niche or specialised you will serve them better
Mvno explained – Concise
It is important to remember with the MVNO that it is in essence, nothing more and nothing less than a wholesale deal. Essentially an MVNO is the retailer and the MNO the manufacturer. At present all MNOs own and manage all parts of the production and supply chain of a mobile service, a situation that occurs in most new products and services initially, however, as the market matures and demand diversifies, then wholesale becomes the best way for a manufacturer to maximise ROI. This point usually happens soon after critical mass is reached. Mobile is therefore unusual in that critical mass has been reached in most markets already, yet MNOs, despite virtually all of them being subject to shareholder scrutiny, are still not leveraging the wholesale model to maximise their ROI; and a significant investment this has been in some cases. It is important to also remember at this point, that wholesale is one of the most established and mutually profitable business models in existence, and not to re-invent this model for mobile. Some earlier MVNOs and MVNO thinkers did just that, by both not looking at the MVNO as a mutually profitable exercise, and by assuming that the MVNO had to go deep into the mobile network in order to differentiate a service. This made the early MVNO models overly complicated and expensive; too expensive and with too much overlap to be mutually profitable. This is where next generation MVNOs are now realising a mutually beneficial and profitable MVNO model for both the MNO and MVNO. The three points and basic principles of any wholesale model, and from my experience of successful MVNOs are:
Mutually profitable wholesale model for both the MNO and MVNO form the start
- As little overlap as possible if any.
sell what is in demand today, wholesale is about taking a surplus product in bulk, adding as much margin as the market will bear and selling with a shorter timeframe as as possible; today this means voice, SMS and maybe some data, at times, locations or in markets where the MVNO has excess capacity.
The best model to keep in mind is the most successful wholesale model today; the supermarket: so, just as supermarket will only buy and sell, for example; oranges if it can sell on those oranges quickly at a profit because there is immediate demand. Additionally in will negotiate with the supplier depending on market conditions at that time and the quality of the produce. Moreover, the supermarket never feels a strange compulsion to invest in orange plantations in order to do so! The only reason to invest in network infrastructure for the MVNO is if it can increase its margins by doing so. In the MVNO world there is little room for extra costs that are merely “strategic” or do not deliver a tangible increase in returns.
resource by MVNO expert Christian Borrman