REPORT: The Future of MVNOs in the 3G Era

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OVERVIEW

With over 100 Mobile Virtual Network Operators (MVNOs) launched since 1999 in Western Europe and over 30 present in the USA, mobile operators cannot ignore the impact that MVNOs are having on the market. MVNOs are taking significant market share (nearly one quarter of customers in Denmark, for example), and are increasing churn and subscriber acquisition costs in many markets. Also, because most MVNOs to date have focused on offering discounted voice services; they have increased price competition and lowered ARPU.

Regulatory environments are encouraging more MVNOs in developed mobile markets, but their relationships with mobile operators are changing substantially in the new 3G era. Mobile operators will need to develop strategies that maximise the benefits and minimise the threats of a new wave of MVNOs: record label Universal Music has established an MVNO in France, TV channel M6 and radio station NRJ each plan to set up MVNOs in France, and sports content provider ESPN (indirectly owned by Disney) plans an MVNO in the USA. A number of data-only MVNOs have also emerged, including the Earthlink MVNO in the USA, with services designed to support mobile PCs and data devices such as the Blackberry.

These companies are among more than 50 profiled in the report, in order to explain the impact of MVNOs to date, illustrate emerging trends, and demonstrate strategic lessons. The report also provides case studies of the development of MVNOs in country markets of Denmark, France, UK and USA, including details of all MVNOs in those countries.

The Future of MVNOs in the 3G era answers your key questions:

- What has been the impact of MVNOs on market shares, ARPU, churn and customer acquisition costs?
- What can we learn from MVNO activity to date?
- How will 3G networks change the MVNO landscape, in terms of the number, types and industry impact?
- What new types of MVNO will emerge to take advantage of 3G, and how will this affect mobile network operators and existing MVNOs?
- Why are content owners, media channels and business-focused service providers interested in becoming MVNOs, and why should mobile network operators consider hosting them?
- What types of organisation are best placed to become MVNOs in the 3G era?
- How must existing MVNOs, new 3G entrants and established mobile operators modify their MVNO strategies within the context of 3G?

0 Summary: 3G will fuel the growth and diversity of MVNOs, and will require revised strategies
1 MVNO strategies must be evaluated again in the context of 3G
- 1.1 Definitions of MVNOs vary, but we define them in a broad, functional sense
- 1.2 The broadening range of MVNOs demands attention from the telecoms industry
2 MVNOs are growing in number, importance and diversity
- 2.1 MVNO activity varies significantly between countries, in terms of the number of MVNOs and their market focus
- 2.2 Denmark’s discount service providers and MVNOs have acquired nearly a quarter of all mobile users
- 2.3 MVNOs have been a feature of the UK market since 1999, with most focusing on discount services
- 2.4 France has experienced a recent surge in MVNO activity, as several media companies become MVNOs 2.5 MVNOs in the USA are addressing a broad range of opportunities, assisted by Sprint as a willing host
3 Current MVNO implementations have limitations and risks
- 3.1 An overabundance of discount MVNOs could harm future service evolution
- 3.2 Some MVNOs are looking to drive greater value, within the constraints of their host network technology
- 3.3 Strong MVNOs can help mobile operators to grow market share, but their hosts must manage the consequences
- 3.4 Regulators must think carefully before enforcing access for MVNOs
4 3G will fuel the number and diversity of MVNOs
- 4.1 3G service capabilities, capacity and costs will encourage the market entry of new types of MVNO
- 4.2 Discount MVNOs could benefit from the cost improvements of 3G, although they must be aware of potential drawbacks
- 4.3 3G opportunities and threats may require existing MVNOs to adapt their strategies and possibly to switch host operators
- 4.4 To benefit from 3G MVNOs, mobile operators must choose the right portfolio and partners
- 4.5 Hosting MVNOs could be a necessary strategy for 3G new entrants to achieve profitability more quickly
- 4.6 Regulators need to create an environment that fosters a rich diversity of MVNOs to use 3G
5 All mobile operators can potentially gain from MVNOs
- 5.1 MVNO arrangements can benefit a range of organisations, as well as mobile operators and end users
- 5.2 Mobile operators’ MVNO strategies will depend on their competitive position and market characteristic

ACTIONS

MVNO strategies of the following organisations are discussed in detail within the report:
Boost Mobile, BT, easyMobile, ESPN, NRJ, Sprint, Sonofon, TDC Mobil T-Mobile, Virgin Mobile.

MVNO operations of the following organisations are also profiled in the report:

7-Eleven Speak Out, 9278 Mobile, Airdesk, AT&T, Breizh Mobile, Cegetel, Dangaard Telecom, debitel, EarthLink, ESPN, Fresh Mobile, Futur Telecom, JusTalk, KORE Wireless, LeFrenchMobile, Liberty Wireless, Locus Mobile, M6, MovidaCommunications, Neuf Telecom, NormAction, NRJ, Omni Prepaid, Page Plus, Qwest Wireless, Ryanair, Sainsbury’s One, Skypath Networks, STI Mobile, TDC Mobil, TDC Song, Tele2 Mobil, TelePlus, Tesco Mobile, Time Warner, Toucan Mobile, Tracfone Wireless, U Mobile, Universal Mobile, Uphonia, VivaLiberty, ZUMA Prepaid Wireless

LIST OF FIGURES AND TABLES

Figure 1.1	Entities considered as MVNOs within the scope of this report
Figure 3.1	Mobile customers in Denmark by retail provider, December 1999–December 2004
Figure 3.2	Comparison of TDC, Sonofon and MVNO customer bases in Denmark, December 1999–December 2004
Figure 3.3	Prepaid and postpaid ARPU for TDC Mobil in Denmark, 2000–2004
Figure 3.4	Growth in Virgin Mobile and T-Mobile retail customers in the UK, December 2000–December 2004
Figure 3.5	Evolution of T-Mobile and Virgin UK customer numbers, 2004–2010, stronger T-Mobile growth scenario
Figure 3.6	Evolution of T-Mobile and Virgin UK customer numbers, 2004–2010, weaker T-Mobile growth scenario
Figure 3.7	Combined market shares of the first and second mobile operators within Western European markets, 2004
Figure 4.1	UK market share (by customer numbers) growth scenario for 3 UK, assuming no MVNO partners
Figure 4.2	UK market share (by customer numbers) growth scenario for 3 UK, assuming three major MVNO partners

Table 2.1	MVNO characteristics in North America and Western Europe by country
Table 2.2	MVNOs in Denmark by launch date
Table 2.3	MVNOs in the UK by launch date
Table 2.4	MVNOs in France by launch date
Table 2.5	MVNOs in USA by launch date
Table 3.1	Comparison of the cost of Boost Mobile with other prepaid mobile services in the USA
Table 3.2	Growth in Virgin’s share of T-Mobile’s annual net customer connections, 2001–2004
Table 4.1	Examples of MVNOs attracted by mobile operators in the USA
Table 5.1	Potential benefits of different types of MVNOs to host operators, MVNOs and potential users
Table 5.2	Strategic options for different types of mobile network operators to benefit from MVNOs

WHO SHOULD READ THIS REPORT?

Incumbent mobile operators: See how 3G changes the business rationale for hosting MVNOs and identify the best strategy to suit your market situation
3G new entrant mobile operators: Determine whether or not you should being hosting MVNOs
Existing MVNOs: Assess the impact of 3G on your strategy and decide when is the right time to upgrade and whether to find a new host operator
Prospective MVNOs: Understand the changes presented by 3G and how these affect the service opportunities for your organisation
Regulators: Understand how to deal with MVNOs in the 3G era, to achieve healthy competition without damaging the mobile industry

ABOUT THE AUTHORS

Dr Alastair Brydon and Dr Mark Heath are founders and directors of Sound Partners Ltd and co-authors of a series of major reports from Analysys Research.

Prior to joining Sound Partners, Alastair reported to Nokia’s European management team and worked with many of Nokia’s customers to implement market firsts ranging from the introduction of prepaid mobile tariffs to new mass-market content services. Previously, Alastair worked in a number of roles for the BT Group, focusing on the evolution of wireless services, networks and technologies. He also contributed to international research and standardisation of GSM, DECT and 3G. Alastair holds BSc and PhD degrees from UMIST and was awarded the IEE prize for top student.

Mark has held a number of marketing and business development roles in Nokia, ultimately becoming responsible for strategy and business development across Europe. Previously, Mark was responsible for business planning at BT Cellnet in the UK, having spent six years at BT as a senior consultant. Mark holds BSc and PhD degrees from the University of Leeds, winning the University prize for his research in telecommunications. Mark also holds an MBA, graduating as top student from Henley Management College.

Katrina Bond (Principal Analyst) specialises in mobile telecoms, and has written reports for Analysys Research on the mobile content and entertainment market, Western European mobile forecasts, mobile data solutions for businesses, GPRS roaming, pricing GPRS services, GPRS billing, mobile portals and ASPs and m-commerce. She is a regular contributor to Analysys Research's Mobile Networks and Services online market intelligence service. Before joining Analysys in 1998, Katrina worked as a consultant in Australia.

For more information contact Matthew Tapson on +44 1494 771 734