Analytics point out the stable growth of the world market of the services which is provided by the Mobile Virtual Network Operators (MVNO). There were more than three hundred ones in the last year.

In our country we can count such operators on fingers. Moreover we can speak about the niche projects or the business schemes that require minimum investments. The result is disappointed: either the local market is not ready enough to use the business-model that already proved its exploitability abroad or it previously was vaccinated from MVNO.

KPMG analytics determine MVNO as the value-added mobile services which promotes the services under the own brand. In many cases offerings of such operator are oriented on the niche market or appeal the consumers that are loyal to this brand.

From the business view point use of the famous brand, active marketing strategy and the work with the special subscribers’ categories are the most important MVNO features. However, outwardly MVNO in many cases can look like the one more mobile operator: the differences between traditional and “virtual” cellular companies are in the sphere of infrastructure and are hidden from the common user. Generally, the mobile virtual carrier doesn’t have the own telecom infrastructure, and its investments are limited by the billing system integration and clients’ services, the platform of the prepaid services; SMS, MMS or other content delivery, BSS/OSS systems.

Nevertheless, there are variants. MVNO business schemes differ, in particular, by the control level over the rendering services and products, and also by the used infrastructure components including software part. Chosen strategy determines necessary level of investments, the ROI period and the level of the subscribers’ loyalty. Sometimes, “virtual” operator obtains and places the own switch boards, but anyway transport network, wireless equipment and frequency resource it leases from the “real” operator of the Host Network Operator (HNO) that is the basic difference between these companies categories.

Moving forces

The history of MVNO market evolution in different countries shows the high perspective of the work in the niche segments. However the first niche MVNOs appeared about ten years ago, and for the last 2-3 years have appeared the new conditions for the rapid development of the business. Among them is the grown demand on the mobile content and multimedia services. The enforcing of the global brands positions that frequently have the own unique content, the development of the mobile browsers and the growth of the content-aggregators evoked the desire to offer it directly to the customers, and do not divide the profit with the traditional mobile operators.

The definite role played the technologies development, the transport networks capacity growth, decreasing of the unit cost of its free transmission range, the wide spreading of the multi media terminals, IMS architecture appearance, achieving of the market saturation in a few countries. The last condition changed strategy accents of the traditional mobile operators: now efforts concentrate not on the new subscribers’ attraction, but on the old ones keeping. This opens the wide abilities for MVNO which help the operator rise the loyalty of the niche categories of subscribers owing the more personalized services and marketing policy. Curiously, that MVNO can be the affiliated structure of mobile operator (Simyo in Netherlands), join venture (Virgin Mobile and One2One in Great Britain) or Independant Company.

The Atos Consulting Firm points out any more consequences of the interest growth to the MVNO. In the conditions of the strict competition the one-time co-operation with the several “virtual” allows traditional mobile operators with the small market share giving additional impulse to the own business with the not great expenses to attract new customers. It is not in vain that in the 2006 year beginning on the e-plus there were up to the 40% of the all new connections of the mobile subscribers in Germany, although the share of the company on the local mobile market was not more than 14%.

It is not the reason to ignore the changes in the legislation. If in Great Britain mobile operators willingly opened the networks for the “virtual” ones, so in the other European countries (Ireland, Spain, Italy, and France) this happened only after the ratification in 2004-2005 years the proper regulatory documents.

Evolution and divergence of the different MVNO models brought to the appearance in this market segment of the new type of participants which take on themselves the basic capacity of the MVNOs’ business providing, but they do not co-operate with the end users. These companies determined as MVNE (Mobile Virtual Network Enablers) roll out and exploit back-office systems and play the role of the interface between the host-operator network and MVNO. The MVNE functions may be in the control over the network equipment and its rejuvenation, support of the OSS/BSS systems, in the data transmission service providing, mobile content spread, mobile applications and mobile commerce support. Representatives of some MVNE concerns that the use of the services allows the virtual network operator decreasing on 0,4-10 million Euro the start-up expenses on the technical solutions implementation, decreasing from 12 to 5 months the commercial services launching, and in 10-15 times decreasing the fixed operating expenses.

MVNE activity simplify enter the mobile market for companies that do not obtain experience in the telecommunications sphere. At the same time it gives the “virtual” the meaning flexibility in the zones of responsibility dividing between host-operator and MVNO in the rendering services parameters. And MVNO gets an opportunity to protect the start-up investments, decrease expenses, and concentrate at last on the subscribers’ service.

MVNO model that is connected with the low investments and risks, and also provided by the offers from the MVNE site is the convenient point to enter the mobile market for the promoted brands (often from the consumer segment), media enterprises, large content providers and even for the fixed communications carriers. To illustrate, we should mention large retail chains like Tesco in Great Britain, Auchan in France and 7-Eleven in the USA, and also the Disney Company that launched in the 2006 year beginning MVNO-projects Disney Mobile and Mobile ESPN, the long distance communications provider Philippine Long Distance Telephone in Hong-Kong.

The other important result of the low start-up expenses is the ability to run the profitable business for the middle-sized operator with the medium base of subscribers. Many things depend on the right financial policy and host-operator choice. Well, a couple years ago the Scandinavian firm Telmore that had not less than hundred employees successfully served more than a half of a million subscribers.

For the general profit?

In many cases both sides get the profit from MVNO. The Companies that are on MVNO pass get the opportunity having humble start-up capital to run the business in the mobile sphere. In some countries to organize the work of national-scale MVNO 25 MUSD needed. But using traditional approach this sum used to be much higher. The lower investments and lower operational expenses (comparing with the traditional carriers expenses) provide business efficiency even with the high tariffs and lower increasing of the subscribers’ base. At the same time this business scales well, and the rates of growth even in the conditions of saturation can be high than the mobile operator has. Such growth can be characterized by lower churn depended on there loyalty to the brand and the more focused MVNO policy.

The benefits for the subscribers are first of all in the rendered services personalization. By the quality index and the services cost MVNO almost always wins the traditional operator. You can add the abilities to create the services and to sale the value-added products, developed sales chain, which the traditional operator doesn’t have; and the raised loyalty to MVNO will become logical.

Owing to this condition many mobile operators do not harry up let MVNO be closer to there infrastructure. They are eager to sale network resources that do not use, but are not interested in the “virtual’s” business growth because they feel the menace to there’s revenues. Fortunately, for the last years its position has begun to change, and MVNO appears to become the partner which is able to serve the niche and low-profit subscribers, and with the low expenses to attract. The new abilities are opened by the modern 3G technologies: traditional operator gets the low-cost training range of the modern serviced, and first of all in the data transmission sphere, and the addition way to “force” the mobile subscribers to use 3G services that allows gaining the critical mass of subscribers and returning the investments.

To be or not to be?

In Russia the first MVNO projects appeared in 2003-2004 years. “Euroset”, Tele2 and Gars Telecom that were supported by MegaFon broke new ground, at least by the preview. The first local MVNO intended for different aims: Tele2 for instance aimed to enter the capital market, “Euroset” was inttrested to diversify the business. At those time to the MVNO team jointed “Allo”, “Matrix”, “Public Mobile Phone” (PMP), “Cifrograd”, and Divizion.

In 2005 with the assistance of 3G Association and according to the Mininformsvyaz of Russian Federation from 22, February 2005 PMP Company built the training MVNO zone that covered Saint-Petersburg, Samara and Nizhny Novgorod. The first call was made in August, 2005 and in September, 2005 the check out results were presented for Mininformsvyaz. It would seem that this market segment in our country should have the bright future but it still doesn’t come.

Examined data from PMP, local regulator run into the “third condition”, and was not eager to develop and confirm the juridical base and to release the first licenses as well. Moreover, mentioned “Euroset” obviously was not in hurry to launch the moving communications service under the own brand. About a year ago there was s message that the company overviewed the plans in this sphere. The majority of firms chose the easiest MVNO variant, and the support from the both sides they did not feel.

As the result, suppose top managers of Effortel Mobile Russia and Gars Telecom the market of virtual operators still doesn’t exist in Russia. The thin retail pilot MVNO-projects do not show the magnificent growth of the subscribers’ base and do not become self-sufficiency. By the evaluations of Pavel Gorenkov, Gars Telecom CEO, the local MVNO serve no more than the half of a million subscribers.

The incertitude of the field regulator prevents the MVNO segment development. But the heads of the native virtual operators make a slip in speaking: it is possible that when the regulator base appears it will create new challenge for the business. It is not a secret that the first MVNO in our country appeared when the regulator documents were absent, and in Europe the normative acts ratifications by far not precede the market segment formation.

By Michael Sergeev, Gars Telecom Corporate Communications Director, in the nearest years the local MVNO market won’t get the meaning evolution, the majority of the projects will save the niche character, and till the 2010 year end virtual operators will serve not more than 1,5 million local subscribers. The situation should change with the 3G technologies integration, but it will be possible in 5-6 years when in the new generation networks the saturation stage comes.

The spoon in the barrel

The decade passed after the first MVNO had appeared, and it showed the positive dynamics. European continent that became the cradle of a new business-model save the champion status: the majority of the virtual operators are in Netherlands, Grate Britain, Finland, Belgium, and Denmark. The United States that have not ever been among the mobile communications leaders again stayed behind, however there were about a couple of dozens of MVNO.

Upon the viewpoint of Yankee Group, Informa Telecoms&Media and Motricity analytics up to the 2010 the average rates of increase of the world base of the MVNO subscribers will be 24% per year, it means that the positive trend of the last years saves. The number of the mobile subscribers will increase by 5% per year. Informa forecasts that in 2013 year virtual operators will render services for 150 million subscribers including 63 million (42%) of Europeans. To compare: in 2005 there were only 63 million of subscribers. In other words, in 5 years MVNO will serve 3% from the world subscribers’ base and in Europe this index will be 6%. However, the last indicator is not the break point, someone supposes that, for the 5 years it will be possible for MVNO to sign 15% of the European mobile subscribers and rise this share up to the 20%.

On the other hand, the authors of the “MVNOs and MVNEs: Analyzing The Viability of Virtual Mobile Players” book concern that the USA have the maximum potential for MVNO development, and in couple of years they will have the half of the total number of subscribers over the world. At the same time the Yankee Group experts forecast that up the 2010 in the USA will be no more than 30 million MVNO subscribers. So 24 million from those 30 will become the clients of the 5-6 operators. The volume of the North America MVNO market in 2010 will achieve 10,7 BUSD (in 2006 it was 4 BUSD).

These bright forecasts were drawn up without taking into consideration the economic crisis which step by step overtakes the USA and European countries. The awareness signals that in MVNO kingdom everything was not ok had appeared long before. The loss ration of the MVNO-projects of Disney Company and the vanishing of the number of MVNO projects on North America market, EasyMobile went out of business in Netherlands and the tens of the similar cases in different countries point the MVNO model success does not have the guarantee inherently. Success depends on the number of conditions that we should not ignore.

For the last period we can notice the market consolidation: MVNO are merged or affiliated by the traditional communications operators. This allows Atos Consulting experts talking about the end of the MVNO “golden fever”, at least in Western Europe.