MVNOs gain momentum in U.S. Mobile resellers capitalize on maturing market

America's Network, Dec 1, 2004 by Kaustubha Parkhi

Mobile Virtual Network Operators (MVNOs) are becoming more popular in the U.S., adding a new level of excitement to the marketplace and indicating to many that the mobile market is rapidly maturing.

"MVNOs provide the carriers with an effective channel to market," says Bob Rosenberg, president of Insight Research. From a simple reseller that offers differentiation based only on branding, the spectrum of MVNOs stretches through to a classic or full MVNO that offers convergent services. Then there are intermediate stages of enhanced resellers offering differentiation based on content, and enhanced service operators that maintain their own billing systems and have distinct application platforms. Regardless of type, MVNOs have added a new dimension to the competitive telecom landscape.

What drives mobile operators towards the MVNO model? The simple answer is outsourced marketing, or more precisely, outsourced customer acquisition. This is valuable since acquiring a new customer is more expensive than retaining an existing one.

Rosenberg notes that customer ownership is critical in the emerging telecom scenario. "Exciting opportunities--like unlicensed bands, Wi-Fi, WiMAX that could enable access up to 30 miles, DTH, delta-fixed-mobile integration--are being unleashed. In that light, it becomes important to own the customer," he says.

MVNO's enjoy inherent economic benefits. They don't have to invest in infrastructure. Their expertise is basically smart product management: sourcing, bundling, pricing, branding and selling. Some MVNOs bundle non-telecom offerings with their standard telecom offerings as well.

The ubiquity of the mobile phone is attracting mass marketers like retailers, banks, entertainment companies, games developers and business applications specialists to the MVNO domain. The network operator is fighting its battle with overcapacity and trying to figure out where the next dollar to roll out 3G services will come from. Being the traditional masters in branding, selling and distribution channels, the mass marketers have an almost self-righteous sentiment that this is their territory.

EUROPEAN COMPARISON

Although MVNOs are likely to benefit from their past experience in overseas markets such as Europe, they face a different challenge when they enter the U.S. market.

"The dissimilarities in the European and the North American telecom markets are quite glaring," says Rosenberg. "The population density of Europe is more than that of North America. Moreover, it is skewed towards the urban side in the European market, whereas the North American market retains a relatively formidable rural and suburban flavor.

"This translates into the building of wireless infrastructure that is easier to set up and ultimately, more lucrative vis-a-vis fixed line infrastructure in North America when compared to Europe."

Rosenberg notes that U.S. billing patterns support MVNOs. "Billing is one more factor that makes wireless more attractive in North America," he says. "In Europe you are billed from the moment you dial out," while U.S. practices are friendly to itemized long distance billing

Although MVNOs are just three years old in the U.S., the obvious synergy with the mobile operators will propel growth. About 20 MVNOs are already making their presence felt in the U.S. market.

THE CARRIERS' PERSPECTIVE

Operators are carefully watching MVNO development. Common sense suggests that the transition period between 2.5G and 3G would be the most fruitful period for MVNOs. It is in this period that cellular carriers would look upon MVNOs to expand their customer base to achieve the critical mass required for deploying their 3G services. MVNOs could therefore be a springboard for them to leap from 2.5G to 3G.

MVNOs have turned the concept of value chain on its head, giving it a near 180-degree shift. Any enterprise would like itself to be involved in as much value addition as possible. MVNO goes against this very philosophy: The carrier itself risks doling out the all important end-user experience to a third party. Wouldn't that affect its brand equity?

"The carriers are careful, by and large," asserts Rosenberg. "For example, a carrier like Sprint would not allow a third party to function as an MVNO unless it ensures that the quality is maintained in terms of end-user experience. It would factor this in the contract that it signs with the MVNO."

Although there are synergies driving the MVNO market, there are many challenges as well. MVNOs have to follow the cardinal mantra: source cheap, add value, create a niche and cultivate it. MVNOs who neglect sourcing run the risk of being commercially unviable. MVNOs cannot dare to overlook the other factors, either, since they enable MVNOs to differentiate themselves.

What's driving MVNOs?

* Infrastructure investment unnecessary

* U.S. wireless billing model attractive

* Could provide critical mass to new wireless technologies

* Mass marketers attracted to model