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The future for mVNOs

Mobile Virtual Network Operators (mVNOs) are mobile phone companies which hire capacity on another mobile operator’s network and then resell it. I worked for an mVNO some years ago, and there is some coverage about it in the media at the moment. I have to say, I am a little cynical.

The core idea is this:

– the mVNO gets to exploit its brand, marketing knowledge or customer relationships to make some money in an emerging marketplace.

– the mobile operator who owns the network gets the benefit of more network traffic, as a result of the mVNO’s marketing efforts (the profit on these minutes is lower, but you can live with that, if it increases your volumes.

– the user benefits from having extra competitors in the marketplace (this is why the new 3G licenses in Ireland and elsewhere) have a stipulation that the operator must allow access to an mVNO.)

All good so far. There is plenty of oppportunity – Virgin Mobile in the UK became the world’s fastest-growing mobile company ever after launching Virgin in the UK.

However, anyone considering getting into the game needs to think about the following:

– will the mVNO be able to offer lower prices to the public? (The answer is usually ‘no’.)

– how is the mVNO going to be able to sell a more attractive product to the customers? (The answer to this is that you have to differentiate your offering and make it appealing to a particular group of customers.)

– how is the mVNO going to offer anything different from the original operator, selling what is basically a commodity, mobile phone minutes? (The answer to this is usually to develop ‘value-added services’, content services which will be appealing to your customers. In practice, this is difficult to do, and can be somewhat costly. Also, innovation may be limited by factors outside your control – the handsets you can get, and the services and performance on the network)

Equally, there has to be something in it for the operator which owns the network. It isn’t enough (as in the Irish case) to just do it because the regulator says you have to. That’s just crazy. You have to build your business model so that mVNO’s strengthen your business, rather than behaving like an Achilles’ heel injury, constantly digging into your profits.

To do that, the company has to be prepared to share, and let another company take its share of the reward (as well as the risk) of the business. It won’t work any other way.

(Note: I’ve worked with a major international mVNO, but everything here is just a general observation about the business)

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  1. I dont think customers want value add services from mvnos, this is purely a pricing strategy on the part of comreg, the question is will prices come down. Having worked in the industry there are definetly supernormal profits being had, in Denmark they reckon price has dropped by 21%. Why do you think prices wont fall with this change?

  2. Well, undoubtedly, comreg wants prices to come down and you are mostly right that customers want lower prices, not fancier services. I agree with you that there are very chunky margins in the industry.

    The only problem is that there is not much point in getting into the MvNO business if you just want to cut prices. It’s a race to the bottom. Inevitably this will end in a squeeze which the MvNO will most likely lose (since it is a smaller, less-established player that doesn’t own its own infrastructure and doesn’t have the scale of the original operators).

    I wrote this piece before the recent comreg announcement.

    Also, I think that mobile prices in Denmark have fallen by considerably more than 21 percent.