 | Issue: | India 2012 |
| Article no.: | 4 | |
| Topic: | How Do MVNO’s Differentiate Themselves | |
| Author: | Guru Grewal | |
| Title: | VP Tech | |
| Organisation: | Tech Mahindra | |
| PDF size: | 258KB |
About author
Guru Grewal is VP in Tech Mahindra Europe. Mr Grewal has a widespread international business exposure and has worked in leading roles in North America, Japan, India and Europe for over two decades. He is currently responsible for Tech Mahindra’s European Operations. He joined Tech Mahindra in October 2005.
Prior to Tech Mahindra, Mr Grewal headed technology verticals for HCL UK since 2000. He moved to the UK from Japan, where he led the Japanese operations of HCL for five year. Guru Grewal started his career with Tata Unisys and worked there for five years handling business and technical responsibilities in USA and India.
Guru Grewal has an MBA degree from Bombay University.
Article abstract
In Western Europe, which pioneered the MVNO model, not all MVNO entrants survived, but many are still thriving. This business model has now spread to emerging economies, but it appears to mainly flourish in a saturated market, where niche services and focusing on a special market segment can still add value to subscribers. In India, the market is reaching this point but the regulator’s recommendation is not backed by DoT guidelines to encourage the incumbents to open the field. India could greatly benefit from the MVNO innovative approaches that could foster, for example, mobile money for those without banking facilities, thus stimulating the economy.
Full Article
The Mobile Virtual Network Operator (MVNO) market has become a melting pot for three of the most important industries today: telecommunications, entertainment and non-telecom sectors such as BSFI (Banking, Financial Services and Insurance), Aviation, Sports and Retail. The idea that a mobile phone can lead to a customer’s mindshare, wallet and most important of all – loyalty – has a range of businesses, not always from the communications industry, interested. They can explore the opportunity of entering the mobile services business through the MVNO route. Ovum has predicted that the global MVNO market will boast of 186 million subscribers by 2015 with revenues reaching US$9.5 billion. This means that many more MVNOs will launch in the coming years.
Western Europe has pioneered the MVNO model with approximately 357 active MVNOs. While currently there are very few MVNOs in emerging economies, more countries are expected to introduce MVNOs in markets such as South and Central America, India, the Middle East and Asia-Pacific. The critical success factors for MVNOs, their ecosystem and global factors that are influencing MVNOs commercial progress do vary in different regions.
The MVNO principle
The term ‘MVNO’ covers a range of different business approaches to providing mobile services. MVNOs are often known brands with a viable proposition, brand strength and channels to market for mobile services. This allows them to capitalise on their existing assets such as brand equity and captive customer base when entering an unrelated business. The core business of an MVNO providing mobile services can be completely different from that of a Communications Service Provider.
The key question is why does the MVNO market exist when MNO’s are already doing the same job? Interestingly, the answer lies in the current communications market dynamics, as established telecom service providers are gradually expanding their portfolio beyond the voice market, capturing subscribers from cable operators and ISPs. Cable operators are also gradually offering triple play voice, video, and data services and taking away subscribers from the telecom service providers. The telecom markets have therefore become extremely competitive and highly saturated.
In such a market scenario, the two main levers that drive MVNO business model are:
a) Spectrum Scarcity: A company that aspires to be in the telecom business but missed the spectrum auctions in their country can take the MVNO route to enter the market.
b) Customer Loyalty, Retention and Churn Management: Mobiles have now become one of the more powerful mediums for information dissemination and are increasingly used as a popular marketing and lead generation tool. The MVNO model provides the business with the opportunity to offer alternative avenues, enrich communication facilities, enhance lifestyle packages and address captive customer base.
MNOs benefit from offsetting the high investments in spectrum licenses and network infrastructure by charging the MVNOs wholesale fees to the use of their network. The also benefit from, acquiring additional customers at a zero cost. MVNOs help to increase their Minutes of Usage, which in turn might aid MNOs in negotiating Interconnect agreements with their roaming partners.
How do MVNOs differentiate themselves in the already saturated market?
MVNOs operate through a wide range of business models, such as Resellers, Service Providers, Enhanced Service Providers and Full MVNOs. Beyond the business model itself, the beauty of the MVNO approach is that it allows new entrants to segment the market any way they like. MVNOs throughout the world have targeted numerous segments to date – for example, the youth market, enterprises, sports fans, ethnic communities and the low-spending segment. Segmentation of this kind is crucial as it allows MVNOs to focus and tailor their offerings to better serve the customers in their niche. It also enables them to avoid direct competition with the established and often stronger MNOs.
There is a diverse range of approaches by various MVNOs towards their target markets: examples of these include ad-funded MVNOs such as Blyk & MOSH Mobile, who build revenues from advertising to give a set of free voice, text & content to their subscribers in lieu of their signing to receive unlimited advertisements on their handsets. Other approaches are ‘brand loyalty’ MVNOs – such as IKEA, the Swedish home furniture retailer in the UK and the Future Group’s Talk24 in India. They have launched prepaid mobile service which is only offered to existing loyalty scheme members.
Lifestyle MVNOs, such as Boost Mobile, a Lifestyle ESP targeting the youth market, Helio, AMP’D – are relatively new and target affluent, technology-savvy consumers with a focus on specific niche market demographics. The market is characterized by an emphasis on trendy design, style, advanced phone features, and jazzy content. Business MVNOs such as Mobeo, Beyond Mobile and Abica focus mainly on the enterprise market segment and corporate customers.
What are the key success factors for the MVNO business model?
MVNOs have a fair share of both successes and failures throughout the world. Informa’s research indicates that approximately 24.5 per cent of MVNOs either have ceased trading or have been acquired following poor market uptake or poor financial results. Some MVNOs have sold their business to their host operators following an unmanageable escalation of the debt, while some mobile network operators actively acquired their MVNOs in order to eradicate disruptive competitive players in their market. In general, MVNOs take off when there is already 100 per cent mobile penetration – i.e. MVNOs tend to flourish in more ‘saturated’ areas.
However there are other factors that come into play when determining the success in different geographies, especially where there are regulatory issues. Unless there is a regulatory framework, businesses can be reluctant to move into the MVNO space.
Global trends – MVNOs
While the established MVNO markets will drive growth, the emerging economies are also warming up to the MVNO approach. Markets such as Brazil and India present an attractive opportunity for MVNOs, but there are still a number of obstacles impacting MVNO development in these countries.
In India the lack of guidelines and regulations to facilitate new MVNOs is one of the key factors hindering success. Without a regulatory framework to stimulate new entrants, businesses will struggle to strike up partnerships and may not be able to make a viable business case.
In Latin America, the regulatory mandates are now being opened up and this should drive further growth. In Brazil, for example – the largest mobile market in LATAM – MVNO regulation came into force in 2010, which meant that sectors beyond telecoms, such as retail, banking, media and sport were allowed to set up MVNOs.
In Europe, MVNOs are gaining independence of their hosting MNOs by running their own service platforms. They may use several MNOs to get best-service or best-package for their subscribers, often addressing particular niche markets. Western Europe and North America are both expected to grow in subscription numbers but will not see a radical shift in market structure. These two regions will also remain the largest concentration of MVNO players and MVNO penetration. However, it is expected that the majority of new, emerging MVNO markets would remain relatively small and have minimal impact on global MVNO connections and revenues.
Business model factors
Beyond the regulatory issues, a number of factors determine the potential success or failure of an MVNO – which are not solely determined by the targeted segment. The primary components for success are that the strategy must clearly communicate the vision for the business, together with realistic market and financial objectives. The strategy should also address the retail offering, go‐to-market tactics, logistics and resourcing requirements. It must also choose the most appropriate operating model – whether managed-facilities based hosted model, shared services model or in‐house model, each affecting the balance of Capex and Opex.
The role of the MVNO is likely to evolve in coming years. They are well placed to provide emerging services such as mobile banking through their relationship with their customer. In India, for example, there is the potential for MVNOs to bridge the gap between banks and customers, so consumers who don’t have a bank account can transfer money and make payments via their service provider. MVNOs are in a strong position to appeal to the customers with service innovation, enabling rapid customer acquisition, and obtaining customer loyalty. They have the dual benefit of making the market more efficient on the cost side and expediting the adoption of services on the revenue side. Whilst individual performances of players across different regions vary, MVNOs do have the potential of changing the structure, economic flows and culture of the wireless industry for years to come.
