Mobile Virtual Network Operators, or MVNOs, are mobile operators who do not own a physical radio network infrastructure. They provide a service under their own brand using assets owned by another operator, and to the end-user the service appears indistinguishable from the "real thing".
Market Overview in Europe
Recent years have seen a rapid growth in the number of MVNOs across Europe. In particular the Scandinavian market has seen particularly aggressive competition. In Denmark service providers such as Telmore & CBB have gained over 40% of new shipments since launch in 2000. Even in the UK, where the mobile operators have often been reticent to encourage their emergence, MVNOs are now capturing 25% of pre-paid additions. In all these markets the introduction of MVNOs has brought more choice to the customer, more appealing mass market brands to the mobile market and lowered the cost of services.
However the MVNO market in Europe remains fragmented in nature and characterised by a series of ad-hoc, bi-lateral relationships between Mobile Network Operators (MNO) and service providers. Network operators have been wary about the impact of MVNOs in cannibalising their existing revenue streams, and so agreements have tended to focus on those market segments where the operators feel that the brand and distribution channels of the service provider are complementary to their own. This has been typically true at the low end, pre-paid segment of the market. The MNOs have been resistant to offering wholesale deals that would enable a service provider to address the more profitable post-paid base.
In many countries the regulators have accepted this situation, taking the view that there is sufficient competition between the network operators to avoid the need for intervention. However in a small number of countries (eg Ireland), the regulator is beginning to question whether there is a need for intervention to oblige MNOs to offer access to MVNOs.
Any new service providers seeking to enter this space face both practical and legal issues.
Practical issues
- The timescales involved in negotiating bespoke agreements with the mobile network operators are often lengthy (often 6-12 months) and complex;
- Average Revenue Per User: Typically MVNO deals are focused at the low spending, price sensitive segment of the market where margins are tight. As explained above, this is often the result of a deliberate policy by MNOs to offer access at rates designed to ensure that MVNOs are only truly viable in low spending segments.
- Only pre-paid will be available: Most operators are reluctant to offer a post-paid deal, not simply because they wish to protect this attractive segment of their customer base, but also because their systems and processes are simply unable to support offering this functionality to their MVNO customer.
- Subscriber Acquisition Costs (SACs): Given the typical target segment for an MVNO, SACs represent a significant proportion of revenues. A challenge for all MVNOs is to reduce SACs through innovative distribution deals (eg web based sales), a reduction in handset subsidies or by offering SIM-only packages.
- Assessing the impact of 3G technologies, which allow significantly higher rates of data communication with handsets. What data services should the new MVNO offer and to which segments?
- The forthcoming liberalisation of radio spectrum in the UK will lead to an expansion of the range of businesses which are able to use radio spectrum for mobile services, and hence to the opportunities available for MVNOs too. Legal Issues
The first legal hurdle is to decide on how to structure new operation. One option is just for the new company to enter into a contract with the underlying MNO governing the provision of access to its network. Although this has the virtue of simplicity, it may be easier to obtain funding or to gain the agreement of the MNO if the new business is instead set up a joint venture between the brand owner and underlying MNO. The best example of this latter arrangement is Virgin Mobile.
Whichever structure is chosen, the next legal task will be to agree the services agreement between the MVNO and the MNO. There will be some important considerations here:
- Determining the services to be purchased. In most cases MVNOs take additional services from their MNO suppliers such as access to the network management systems, SIM provisioning, billing, and CRM. Negotiating a wholesale service is more than just the provision of wholesale minutes and data services.
- Ensuring that the new MVNO is not disadvantaged by the MNO in terms of the quality of service customers receive.
- Planning for termination – the MVNO will want to ensure that it could, at least in theory, seamlessly switch its service to another MNO without interruption to customers. This may necessitate, for example (where permitted by local law) that telephone numbers are allocated not to the MNO but to the MVNO
- Branding – the agreement will need to be clear on how the new service will be branded, and on what, if any, reference will be made to the underlying MNO’s network;
- Roaming – will the MVNO be able to offer its customers international roaming, and, if so, how will this be arranged?
- Access to interfaces – the MVNO may need access to various of the MNO’s systems and interfaces, whether on SIM Cards or on the underlying network, in order to provide its service. This is often something MNOs are reluctant to agree.
- Ensuring that the MVNO can meets its legal obligations towards its customers -such as giving them free access to the emergency services, and the ability to "port" their numbers when they switch operator. Schema and MVNOs
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Schema and MVNOs
Schema is a leading management consultancy to the communications and media industry. Its clients include leading telecommunication operators and equipment suppliers, broadcasters, content/service providers and regulatory bodies. Its success is built upon being a high quality, focused consultancy, specialising in providing business, marketing and technical support to the industry.
Schema has an unrivalled track record in the provision of consultancy support to service providers, MNOs and regulators in the MVNO field. Recent work includes a project facilitating the launch of post-pay and prepaid MVNO services for a major UK brand, part of a joint-venture with a mobile operator. Schema has also worked on the development of MVNO revenue and cost models for regulators and carriers across Europe, and on a number of feasibility studies with other service providers seeking to enter the market.
Stephenson Harwood and MVNOs
Stephenson Harwood is a business law firm based in London. With a dedicated technology practice, lawyers in the team have a particular focus on communications work. They have a thorough knowledge of the legal, regulatory and practical issues which businesses face in the sector, and members of the team have spent periods of time working on secondment both for the industry regulator, and for clients such as Three and COLT Telecom. Recent work undertaken by the team in the mobile field includes negotiating the financial clearing-house arrangements for a mobile operator allowing it easily to offer customers an international roaming facility, and negotiating SIM card and handset supply agreements. On the regulatory side the firm’s lawyers have advised in relation to the "national roaming condition" as it applies to O2 and to Vodafone, and have assisted with setting up the Virgin Mobile MVNO operation in Australia, and with the sale of one of Lebanon’s GSM operations.
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