Mobile Virtual Network Operator

A Mobile Virtual Network Operators (MVNO) is an operator that offers mobile services but does

not own its own radio frequency. MVNO operates through commercial arrangements with

licensed Mobile Network Operators (MNO). The MVNO provides the telecom service under its

own brand to the subscribers. MVNOs do not have their own spectrum. The key difference

between a simple reseller or a franchisee and MVNO is that MVNOs add value and sell either

niche or generalized value added services to subscribers. Generally the MVNOs deliver their own

SIM cards and take care of branding, marketing, billing and customer care. The goal for an

MVNO is to make profit through fulfilling the expectations of the chosen customer segment so

that the customers experience a level of service that satisfies their needs.

The introduction of MVNO is seen as a natural progression towards enhancing free market

principles and contributing to the efficient use of existing telecommunication infrastructure. The

mobile value added services are still evolving. While the potential of mobile technologies is

undeniable, new value added services are constantly emerging widening the range and types of

service offerings and pricing plans, the likely applications and usage. Correspondingly, the

possible types of services an MVNO might offer and the role they would play in the emerging

market would also expand. It is observed that the entry of MVNO in the mobile market raises the

level of competition by providing consumers with a wider choice of service providers, a wider

range of innovative value added services and more competitive pricing plans.

International experience shows that there is a valid business case for MNOs and MVNOs to work

together. It may be very difficult and too expensive for a large MNO to offer successfully a

number of value added services particularly the niche ones, while for an MVNO it could a

successful business proposition. MVNO could provide access service including various types of

value added services in some remote areas or specific towns where MNO may not have its

presence. The ARPU is decreasing every quarter. The mobile operators have to look for alternate

sources to boost their revenues. A number of value added services like ring tones, picture

downloads, game downloads etc. are contributing significantly to the revenue of mobile service

providers. These are simple value added services which a large MNO can manage on its own.

However, there are several niche value added services like booking and delivery of tickets (air,

rail, cinema etc.) which can be efficiently offered through a good distribution network which is

well spread out in the service area. Also an MVNO who has a well-recognized brand name in

some other area would have good acceptability. Such MVNOs would help the MNO to widen and

deepen its market.

Generally, it is said that, markets which are sufficiently mature and tending towards saturation of

demand and where excess capacity is available in the networks are the situations where

introduction of MVNO would add value for the customers and the operators. However, it is not

limited to this alone. In markets like the Indian Mobile Market, which is highly competitive, the

customer acquisition is becoming increasingly difficult and complex. The supply chain or the

present network of retail outlets is unorganized barring the company outlets which are limited in

number. In India many of the 22 service areas have large geographical area and a single service

area i.e. circle is comparable to an average European country. An MVNO with a strong retail

chain may be able to address the issues of customer acquisition and customer care more

effectively in its niche area of operations. The fact that many of the existing MNOs are already

outsourcing a number of its activities, reiterates this aspect.

In general, MVNO and MNO do not compete in the same market. By offering value addition, the

MVNO side steps the competition and its services are differentiated clearly from those of

licensed operator. MVNO can have its own subscribers without competing with the MNO whose

network it uses. For this, if required, MVNO may have its own limited infrastructure in the form

of switch or an Intelligent Network platform.

Opportunity for MVNO in Indian market

Macro-economic indicators such as GDP per capita and population density vary considerably

across the 23 telecom circles in India. Correspondingly, there are significant differences in the

level of mobile penetration and the degree of concentration in each circle. Given these disparities,

we believe that it is more appropriate to consider India as a collection of 23 separate markets

instead of a single homogenous market when assessing the opportunity for MVNOs. However, all

other circles are significantly under-penetrated, indicating that the opportunity for MVNOs in

these circles may still be a few years away.

The three key metro circles in India offer high levels of penetration and have a significant number

of mobile subscribers who could be viewed as potential switching to an MVNO. These metros are

also characterised by a number of mobile networks and there is evidence of additional network

rollouts by new entrants. This would suggest the potential opportunity for an MNO with a less

competitive retail operation to offer wholesale capacity to an MVNO in a “win-win” scenario for

both. While the metros may exhibit some of the characteristics shared by markets with MVNOs,

it would be premature to conclude that MVNOs can enter and operate profitably in these circles

today. Amongst other factors, regulatory policies governing the entry and operations of MVNOs

could have the highest impact on the commercial viability of MVNOs in India.

We expect that 3G services will begin by the end of 2010. The expected capital expenditure

required for network deployment is substantial and demand for 3G services might take a while to

grow. In this situation, MNOs may slowdown network deployment or go for a phase wise

deployment in order to ensure reasonable returns on their investments. This may decelerate the

roll out of 3G services in India. In this case, MVNOs will open a new way for 3G MNOs to

recover part of their capital expenditure even as the demand for 3G services will grow in India. It

is also important to ensure that the expanded capacity and the allocated spectrum are utilized

efficiently. Further, MVNOs can increase capacity utilization of the MNO Radio Access Network

and also can improve spectrum utilization in both 2G and 3G networks, especially important in

our spectrum scarce country.

MVNO's first requirement is that there should be a spare capacity with an existing licensed

operator in the area where it wants to launch its services. We believe that as mobile markets

mature, there will be an opportunity for several Indian companies with strong brands and loyal

customers and those with extensive distribution infrastructure to offer their own brand of mobile

communication services. However, most of these companies neither have the wireless expertise

nor the risk appetite to make significant capital outlays for the wireless business. To facilitate

cost-effective and rapid deployment of such services, a class of Mobile Virtual Network

Aggregators (MVNAs) who act as intermediaries between multiple MNOs, handset providers and

back-end platform providers on one hand, and potential MVNOs on the other, may emerge.

MVNAs would dramatically reduce the time to market and lower the risk profile of launching an

MVNO. It would also allow regional MNOs to become MVNOs and enter other regions. This

would eliminate the expense of investing in a new licence or acquiring a local MNO. Early

entrants would seize the best opportunity, but being hasty is not advised. MVNOs need to make

sure they choose the right partners that can allow them to offer the best range of services for their

targeted segment. This would create an ideal situation for MVNOs that can buy capacity from

mass marketers and exploit niche markets, thereby creating a win-win situation for both the

network operator and the MVNO.

Types of MVNO

Thin MVNO

A Thin MVNO focuses on sales and the customer interface, leveraging its close customer

relationships, strong brand, or sales and distribution channels. The Thin MVNO adds value by

linking a mobile offering with existing non-mobile products or services. Thin MVNOs do not

operate mobile telecommunications components or infrastructure, but buy the necessary services

from a partner, which may be an MNO, an MVNE, or a Service Operator. A Thin MVNO’s

products and services, along with its pricing structure, will typically reflect its partner’s offerings.

The partnership agreement is often based on sales commission or “retail minus” wholesale

pricing. However, as Thin MVNOs generally have an amortized cost base they can use a new,

incremental consumer pricing model that is both complementary and competitive with their host

MNO.

The main advantage of the Thin MVNO approach is that market entry is relatively

straightforward because the model is simple to implement and attractive to network partners (that

is the host MNO). The model appeals to prospective network partners because the Thin MVNO’s

customers use SIM cards provided by the partner MNO or MVNE, making network switching

impractical and creating churn resistance. In addition, the partner usually maintains all the

customer details for billing purposes. Thin MVNOs can thus benefit from adding mobility to its

proposition, but must work beyond this to sustain long term growth. There is little scope to

innovate beyond the service offerings available from the network partner.

Hybrid MVNO

The hybrid MVNO, an intermediate model between the Thin MVNO and Full MVNO, takes on

greater responsibility for billing, customer management and service provisioning. The hybrid

MVNO’s objective of building services differentiated from those of Thin MVNOs, other Service

Operators and MNOs, drives the need for a close customer relationship. The use of branded SIM

cards, along with its own prefixes and number ranges can help a Service Operator create the

perception that it is independent of other mobile service providers. However, the Hybrid MVNO

is effectively tied to its host MNO because changing host would involve the fairly impractical

step of exchanging customers’ SIM cards. Unlike the Thin MVNO, the Hybrid MVNO owns its

customers and accrues the associated goodwill, but is still dependent on a host MNOs core

network.

The Hybrid MVNO approach provides more flexibility and control than the Thin MVNO model,

but suffers from increased technical complexity in its implementation. Technical complexity

arises because the Hybrid MVNO takes on responsibility for its own IT and network systems.

Less obvious, is the issue of interfacing with the host MNO. At first sight, the Hybrid MVNO is

using interfaces similar to those in the host’s infrastructure. However, complexity arises because

these interfaces may not be designed to accommodate external systems, particularly if the MNO

has a legacy infrastructure (true for many MNOs.) Consequently, MNOs may be less keen to

support Service Operators. These technical issues and the implementation of service delivery

systems, such as a Short Message Service Center (SMSC), real-time communications systems

(for example IMS), an e-mail platform, or WAP gateway, often results in Service Operators

outsourcing their infrastructure delivery and management.

Hybrid MVNO, unlike Thin MVNO, may compete with their host MNO on price. If it controls

service delivery, it may also be competing on higher margin services and some MNOs may be

less likely to enter into a partnership. This makes it important that before setting-out to attract a

host MNO, the prospective Service Operator creates a proposition that is attractive to the host

MNO and to develop a strong partnership offering with clear synergies benefiting the host MNO.

While a hybrid MVNO enjoys more opportunities for long term growth than the Thin MVNO,

this growth is limited because new services, such as SIP-based services and Voice over IP

(VoIP), require core network components controlled by the host MNO.

Full MVNO

Unlike the Thin and Hybrid MVNO, the Full MVNO is different from an MNO principally

because it does not have its own Radio Access Network (RAN). A Full MVNO will maintain

core network and service platforms, as well as have its own International Mobile Subscriber

Identity (IMSI) codes, Subscriber Identity Module (SIM) cards, numbering space and

interconnection rights and responsibilities. As with the Hybrid MVNO, a Full MVNO owns its

customers and accrues the associated goodwill.

A Full MVNO has three main advantages over the Hybrid MVNO. It can terminate calls, flexibly

select the most appropriate host MNO, and can innovate at the leading edge, ahead of other

players in the market. The ability to terminate calls may provide the Full MVNO with new

margin opportunities because of differences in incoming call revenues and outgoing call costs.

These opportunities are not available to Resellers or Service Operators. The margins arise from

the interconnection arrangements in the wholesale agreement that the Full MVNO has with its

host MNO.

The Full MVNO gains additional independence from its host MNO through the ability to switch

host MNO without changing its customers’ SIM cards. The Full MVNO can achieve this because

it has its own Mobile Network Code (MNC), against which the physical network is defined, and

its own numbering system, thus its own IMSI numbers on customer SIM cards. The Full MVNO

model involves a more complex infrastructure, comprising core network, service creation and

delivery platforms and CRM/Billing systems, making its implementation and operation more

challenging. However, the Full MVNOs interfaces to its host MNO can be considerably less

complex than those required by a Service Operator. This is because the Full MVNO interfaces

with its host MNO using the same well-defined interfaces (such as intra-public land mobile

network [PLMN] backbone network [Gn], or inter-PLMN backbone network [Gp]) that all

MNOs and fixed line operators use when exchanging calls. The Full MVNOs independence

means it can shop around for the best network deal, whether that is driven by radio network

capability (2G versus 3G), coverage, capacity or price. The Full MVNOs control of its customers,

pricing, service offering and the ability to implement leading edge technologies means it can

achieve high levels of service innovation.

Advantages of MVNO

For MNO:

MVNOs can be both an opportunity and a threat to existing operators. On the positive side,

they create brand extension, growth of customer base, effective segmentation (for a niche

MVNO), and use of excessive network capacity, apart from the addition of a wholesale

dimension. This is especially good for operators with a smaller market share. However, the

arrival of MVNOs will increase market competition, thus creating downward price pressures.

They can steal business from their own customer channels, and can become a burden on their

own constrained spectrum and bandwidth. Carriers need to find the right attitudes to mitigate

loss of business or even turn them into opportunity.

Operators should not see MVNOs simply as a wholesaling model but more of a

partnership. MVNOs can be complementary, to enhance operators’ investment value,

rather than as a competitor. If carriers and MVNOs are after the same customers, it

will increase the operator’s churn. Operators do not wish to trade retail for wholesale.

Carriers must choose their partners which possess strong brands or distribution

channels to spur synergy as well as to undermine the potential competition. That way,

MVNOs can turn unprofitable customers into profitable ones. Operators should

commercially negotiate deals rather than being forced by the regulator to open their

networks to anyone that requests access.

The wholesale model enables carriers to get revenue without the need to cover high

customer acquisition costs. Operators can offload low-value customers to the

MVNOs, but it could expose them to higher credit risks in the event of an MVNO’s

financial failure.

Wholesaling adds complexity to the mobile operator’s traditional retail-only business.

They need to find the right way to structure the two businesses. Marketing through

separate divisions, as in Western examples, and following lessons from fixed carriers

may be good approaches.

Carriers have to adopt stringent cost control, given the intense pressure from MVNOs

to focus on profit. Furthermore, a ramped-up retention strategy would be necessary to

retain the high-value customers.

For MVNO:

There are number of benefits behind the MVNO business model that have been obtained in

the markets where the business model has been launched:

Market growth stimulation by serving untapped segments.

Open competition to avoid oligopolies, reducing entry barriers to new players. This

situation has led to intensify competition resulting in: greater choice of service

providers and services, price decreases that has benefited customers and a wave of

innovative value propositions and advanced services.

Improvement in service quality.

Stimulate private and foreign investment that acts as a new source of employment and

economic growth.

MVNO can exploit factors such as a superior brand, customer service functions or

content to attract new customers who would not necessarily be attracted to the

existing Host Operator.

For customer:

Regardless of the company that moves forward to become an MVNO, it is the company’s

customer base that may perceive the biggest win. Subscribing to a MVNO gives customers

easier access to the kind of content and services they want. Instead of filtering through a

generic menu and accessing the Internet, content is immediately available and highly

personalized. Finally, since it is branded, the information looks and feels familiar to the

customer. This makes them more likely to interact and, ultimately, buy.

Challenges faced by MVNO:

Newcomer MVNOs have to compete with well-entrenched players in a mature

market, where they usually have a strong brand presence. Asian incumbents in mature

markets, particularly in north Asia, already have effective customer segmentation.

The greater marketing and distribution costs pose higher risks to MVNOs as they rely

heavily on branding and marketing to create a strong enough hook to draw customers.

The recently dropped family oriented MVNO, Disney Mobile, admitted its powerful

Disney brand was not enough to outweigh the economies of scale exploited by US

carriers in terms of the range of handset options and pricing plans.

MVNOs don’t have control over service provision. They are completely dependent on

the host carriers’ network coverage and reliability, and depend on them for service

upgrades. They will have to risk their brands for inferior service quality from the

operators.

The necessity for MVNOs to compete on price in the short term, particularly in the

low- ARPU Asian environment, exerts pressure on MVNO profit margins. As more

players enter the market, they will drive down ARPU further, making the financial

proposition less attractive. The budget segment will, at some point, reach saturation,

which will lead to eventual consolidation. Enterprise and business users are less

exposed to price sensitivity.

While a niche MVNO can provide differentiated offers to existing mobile players, the

confined market size can limit the growth opportunity for the MVNO. The partnership

could deteriorate if it goes beyond the line into the operator’s turf.

Regulatory Issues in India

The Indian telecom industry has unique characteristics that add complexity to the regulatory

task. Several regulatory issues could directly impact the launch timing, scale and scope of

MVNOs in India. These regulatory considerations can be grouped into three categories:

Industry Structure, Spectrum & Licensing and Operations

Industry Structure:

1. FDI limits on investing in MVNOs: Foreign Direct Investment (FDI) limits in India are

different for each industry sector. Given that MVNOs will be launched predominantly by

non-telecom firms, the level of FDI investment in an MVNO may require clarification.

2. Limits on MNOs investing in MVNOs: If the regulator follows an approach of

maintaining a strict separation between service provisioning and network operation, the

regulator has to stipulate the maximum equity that MNOs can hold in their affiliated

MVNOs.

3. Definition of Significant Market Power (SMP) status: As MVNOs increase an MNO’s

subscriber base, the quantitative thresholds beyond which a MNO is seen as having SMP and

the implications of achieving that status may require further clarifications.

4. Tax structure of MVNOs: The present taxation level of Indian telecom players at 17%

26% is one of the highest in the world. Since MVNOs work on thin margins, high tax rates

could prove to be an obstacle towards a viable commercial model.

Spectrum & Licensing:

1. Licensing model for MVNOs: An effective approach for granting licences to MVNOs

(e.g. auctions, fixed fee) which meets the regulator’s objectives as well as the commercial

requirements of all stakeholders would be a key prerequisite.

2. MVNO access to the USO fund: Clarification on the regulatory position on access to

Universal Service Obligation funds for MVNOs who may choose to provide services in rural

areas.

3. Defining regulatory boundaries: MVNOs are typically launched as an additional service

by an incumbent in a different industry (e.g. media, retail). Clarifying the role and jurisdiction

of different regulations in the context of an MVNO’s operations will serve to streamline their

operations.

4. Spectrum sharing implications: The MVNO model benefits further if spectrum sharing

and trading are allowed, as it gives MVNOs increased flexibility. The regulatory position on

such issues is not clear today.

Operations:

1. Wholesale capacity and pricing policy: If regulations mandate open access, then they

need to address issues such as how much of the MNO capacity will be shared and at what

price. It has the further task of monitoring the implementation of these guidelines by MNOs.

2. ADC levy norms for MVNOs: The policy of charging ADC (Access Deficit Charges) on

mobile operators could affect the viability of MVNO business models, given their thin

margins relative to an MNO.

3. Guidelines on MVNO roaming agreements: An MVNO may require separate national

and international roaming agreements from its host MNO. Guidelines may be necessary to

define the options available to an MVNO.

4. Concerns around subscriber data: The host MNO will have access to a MVNO’s

subscriber database. A clarification in the regulatory position governing access to and sharing

of this information for purposes of commerce and national security may be necessary. The

regulatory challenges surrounding MVNOs in India are considerable and will require

concerted action by several key stakeholders. While the market poses some opportunities for

leading international MVNOs and local Indian companies to consider MVNOs in India, the

absence of a clearly defined regulatory framework acts as a significant impediment today. A

proactive approach to MVNOs and their operating framework in India could help address

additional issues raised by expected trends such as the launch of 3G services in India.

WORLD SCENARIO FOR MVNO:

WORLD SCENARIO FOR MVNO REGULATION:

Regulatory

Position

Examples Regulatory regulations Number of MVNOs

Force MNOs to

share network

1. Hong-Kong Example network: Hong

Kong

Hong Kong: 7

2. Norway1) 40% network

capactiy dedicated to

MVNOs

2) No limit to number of

MVNO licences

3) Uniform wholesale

pricing regardless of

MVNO

Norway: 8

Facilitate launch

of MVNOs

1. Australia

2. Belgium

3. France

4. Denmark

5. UK

Example Market: Australia

1) Mandatory sharing of

networks enforced on

operators with

significant market

share

2) Wholesale pricing on

a cost plus basis with

regulated margins

1) Australia : 20

2) Belgium : 15

3) France : 17

4) Denmark : 11

5) UK : 18

Indifferent to

MVNOs

1. Austria

2. Canada

3. Japan

4. Portugal

Example Market: Japan

1) No requirement on

MNOs to open

networks to MVNOs

2) MNOs allowed to

price discriminate

based on its own

business objectives

1) Austria : 4

2) Canada : 5

3) Japan : 2

4) Portugal : 2

Discourage 1. Bolivia Example Market: Argentina 1) Bolivia : 1

development of

MVNOs

2. Argentina

1) Large number of

MNO licenses

granted to make

market unattractive

for MVNOs

2) Stringent roll out

obligations to MNOs

make MVNO entry

difficult

2) Argentina : 0

Prohibit MVNO 1. Greece

2. Italy

Example Market : Italy

1) MNO not allowed to

host MVNO till 2011

as part of 3G license

agreements

1) Greece : 0

2) Italy : 0

Challenges in launching a successful MVNO:

To launch a successful MVNO, it is important to ensure that you have in place all the critical

success factors.

In order to analysing the success factors by doing the study of MVNOs worldwide, we

identify 6 broad categories of MVNO strategy, each leveraging different assets and selecting

a different position in the market place:

MVNO-Worldwide

• Total MVNO market – 3% of Total Mobile Market

• Currently, over 400 active MVNOs operated by over 360 companies

• Western Europe – 40% of the worldwide MVNOs, Netherlands and Belgium

represents the highest share

• Hong Kong - highest MVNO penetrated Asian market with 7,20,000 customers, i.e.

around 7.5% market penetration

• Govt. of India recently accepted TRAI's proposal for the entry of MVNOs in the

domestic market

MVNOs in Europe

In Europe the growth rate of MVNOs is more than 100 and following are the most leading

MVNOs:

Belgium: Primus Telecom, Scarlet Telecom, Telenet, Transatel.

Denmark: CBB Mobil, Telmore, Debitel, Tele2.

Norway: Song Networks, Tele2, Chess, Sense, Zalto, You.

Netherlands: Scarlet, Tele2, Lebara, Yellow Telecom Call4Care, PEP Talk, Hema, TMF,

Easy Mobile.

United Kingdom: Virgin, BT Mobile, Fresh, Mobile World, Tesco, Easy Mobile, Timico,

Primus, Buytel TravelFone (Ryan Air), Toucan.

MVNOs and European Regulatory Environment

In various European countries, MVNOs’ fortunes have been greatly affected by the decisions

and actions of national regulators and the European Union.

1. United Kingdom: operators opened their networks to MVNOs entirely voluntarily,

with no regulatory intervention sought or required. However, in other countries, the

national regulator has taken steps to force the MNOs to sell capacity to MVNOs,

citing competition issues.

2. Denmark: Above mentioned case has been in countries such as DENMARK where

the legislation passed in mid-2000 obliged SMP providers to conclude MVNO

agreements. That is how regulator made the ground breaking move of putting mobile

operators on the same basis as fixed operators, giving new entrants rights to national

roaming across all networks and the right to interconnect.

3. Sweden: the Swedish regulator also requires that 3G networks host MVNOs but it is

not very prescriptive in its definitions. However, overall its strategy is amongst the

most pro-MVNO.

4. Italy : Italy stands out in Europe as the only significant country where the regulator

has determined that network operators do not have to open their networks to MVNOs

on request. The Italian regulator Agcom has decreed that the network operators

should be afforded a level of protection to develop their 3G businesses, in a decision

that was upheld by the EU in December 2005.94 Although initially Italian regulators

attempted to legitimize MVNO but the four Italian incumbent operators strongly

opposed regulators’ attempts to regulate and legitimize MVNOs. Because of this

pressure, the Italian government decided to delay MVNO legislation until at least

2010, so to give the incumbents’ time to (i) recover UMTS costs, and (ii) establish

themselves in the mobile data market.

Virgin Mobile, UK

About Virgin Mobile

Virgin Mobile is the UK's largest mobile virtual network operator and uses T-Mobile's

network. Virgin Mobile is part of the ntl:Telewest group. The group is the first to be able

to offer 'quadruple play' to customers: mobile and fixed line telephony, broadband

internet and television/

Virgin Mobile employs approximately 1,700 staff at three sites, Trowbridge, London and

Daventry, and has an outsourced customer service centre operated by approximately

200 staff in Middlesbrough. Virgin Mobile was voted 22nd in the Best Workplaces in the

UK Financial Times survey for 2006.

Since its launch in 1999, Virgin Mobile UK has attracted more than four million

customers and established itself as the leading mobile virtual network operator (MVNO)

in the United Kingdom. To keep pace with strong customer demand, the company relies

on its award-winning web site and workhorse Order Management System (OMS), and

the underlying GigaSpaces solution that powers the resilient, dynamically scalable

Service-Oriented Architecture (SOA).

Different challenges faced by Virgin and their solutions:

1. Customer service: When Virgin Mobile UK faced the welcome challenge of

skyrocketing growth, it quickly learned the hard way that a traditional server-based

architecture that relied on tight coupling of services could not help them meet it.

During critical sales periods, such as the run up to Christmas, even short system

outages could prove costly and potentially tarnish the company’s great reputation for

customer service. As part of a corporate strategy to grow its online capability,the

company sought a new solution that would provide both the scalability to accomodate

rapid, unpredictable changes in demand and the fault tolerance required to maintain

continuous availability.

Solution Overview:

Replaces point-to- point and MOM with GigaSpaces Space-Based architecture

for SOA.

Easily handles 600% increases in transactions per day.

Scales dynamically to keep pace with fluctuations in demand.

Provides resiliency to safeguard against backoffice failure.

SBA is a natural extension of message-oriented architectures, providing the

same capabilities as MOM—including publish-subscribe, request-reply, and

message queues—without the difficulties associated with integrating MOM

systems with disparate local information models.

Key Benefits-

Dynamic scalability- Easily handled tripling of daily online orders. Core

direct sales have increased by more than 40%.

Fail-proof resiliency- PSJ's innovative "Error Hospital" ensures transactions

are saved even during a back-office outage.

Exceptional performance- In 2006, following a people's choice selection

process that tabulated more than 350,000 votes in 20 consumer categories,

Virgin Mobile's web site powered by GigaSpaces was named "Best Website

of the Year" in the telco category.

Rapid, low-risk development- Reusable code frameworks boost developer

productivity and reduce time to deployment.

2. Business Need Server management issues had Virgin Mobile looking at Data

Center Automation to address application release management and configuration

change control management.

Solution Virgin Mobile chose BMC BladeLogic to address their business needs after

a benchmarking exercise to prove the capabilities of the BMC BladeLogic solution.

Results

Easily met deadline for deadline of Tibco deployment across multiple

environments, saving man hours and licensing costs

Able to establish baselines to address configuration and compliance issues

Eliminated human error in application deployment, supporting ability to

ensure continual compliance

Application teams freed up to concentrate on their core strengths, rather than

deployment efforts

On average, application deployment time on a single server decreased from 6

hours to 30 minutes

MVNOs in Finland:

Finnish MVNO market is interesting due to the presence of a large number of diverse

MVNOs. However, despite the Finnish success in the market, the country has fallen behind in

international rankings and mobile data usage during the last two years. Finland has also been

late compared to the leading European markets enabling MVNOs.

Finland has three GSM licenses (Sonera Mobile Networks, Elisa Mobile and Finnet

Verkot) and four UMTS licenses2 (the incumbent GSM license holders and Swedish

Tele2). The market share situation of incumbent operators is TeliaSonera 49%, Elisa

Mobile 28% and dna (Finnet Group) 15% (as of March 2008)

MVNOs Market Structure in Finland:

There are already more than fifteen MVNOs in Finland, and the amount is increasing. New

MVNOs together with new content providers bring a large number of new players in the

market. As a consequence, the value chain becomes a more fragmented value net.

The main business strategy of the MVNOs in Finland is to compete with price. Thus far, only

few MVNOs have chosen clearly another than the low price strategy.

Strategy Examples:

1. Tele 2-

It was the first MVNO in Finland using its own MSC. An own MSC enables the

production of own services and independent interconnection roaming agreements.

Tele2 has also a remarkable positioning other parts of the Europe: it has operations

(fixed and mobile) in 23 countries and 6 million mobile subscribers

It provides fixed Internet services in Finland (among many other countries), MNO

services in many countries (e.g. Sweden) and MVNO services in some European

markets. It is an example of International Clustering Strategy.

Aggressively pricing strategy:

The main business strategy of Tele2 Finland is to offer ‘aggressively’ priced basic

services through their modular network structure: they offer pre-paid subscriptions

without monthly charge. Despite of choosing the price leader strategy, Tele2

negotiates its interconnection contracts itself and uses its own platforms and existing

resources for service development. The costs are kept in minimum with economies of

scale: by using existing service creation resources, concepts and personnel. In

addition, exploiting the Internet as the main distribution channel allows minimization

of distribution costs.

2. MTV3

MTV3 , the leading commercial television channel in Finland has an entirely different

business strategy in the mobile market. Because of their existing content provision

capability and customer base, they compete and differentiate with content services. As

a MVNO they provide a mobile subscription with complementary service packages

including different types of content. MTV3 buys the all- inclusive network service

from Elisa Mobile.

3. Fujitsu Services:

Fujitsu Services, a large IT service company, use the MVNO strategy of service

differentiation: they integrate GSM subscriptions to a complete, customized IT

offering targeted mostly at large enterprises [6]. Note that combining GSM with

voice-over-IP office telephony Fujitsu Services is able to challenge the traditional

operators on their hometurf with a full voice telephony offering to enterprises. Thus in

addition to the differentiation strategy, they apply the focus strategy.

4. Saunalahti

Saunalahti has combined three strategies of our model:

they offer the low price services directly to their customers,

provide differentiation with content services, and

resell their network capacity to focused brand operators.

They have won over 300 000 subscribers from the incumbent operators within two

years, resulting over 6% market share. Saunalahti also bundles their mobile

subscriptions with their fixed broadband Internet subscriptions. As an MVNO enabler

they provide services (SIM cards) for two brand operators. Hesburger and Passeli

subscriptions are so called brand operators, applying truly the focus strategy. They

offer mobile communications services fully provided by Saunalahti to the existing

customers of Hesburer (a hamburger restaurant chain) and Passeli (an accounting

management software).

Strategies of European MVNOs to play and win the MVNO game:

MVNO business relies on their ability to fulfill the unmet needs of the market which

traditional mobile network operators (MNOs) either don’t serve adequately (e.g. lower ARPU

customers) or don’t find attractive enough (e.g. niche customers like immigrants with low

spending capacity).

MVNOs segmented approach offer the MNOs to target specific segments with distinct needs

through incremental wholesale revenues while being able to focus on high-value customers.

Today, most of the western European operators are open to MVNOs and/or have a wholesale

strategy. On their part, MVNOs have been largely prepaid in nature where they face least

resistance from mobile operators and target the niches that host operators are under serving.

Mobile virtual network operators (MVNOs) have had a mixed success story in Europe so far.

While there are MVNOs which have captured significant customer base with their value

proposition, there are others who have not done as well in spite of an attractive value

proposition.

In our opinion,

Three key success factors that have played a major role in determining success of

MVNOs are

1. Market timing,

2. Strength of strategic assets and

3. Execution capabilities.

Understanding of these is crucial to evaluate how the MVNOs are likely to evolve in the

future.

Market timing – composition, competition and enablers

If 80 to 85% mobile penetration is considered adequate for MVNOs to make an entry

into the markets, what then dictates the different level of activities in the different

markets?. It is important to understand the composition of the market. Which are the

segments that are underserved or left out and why?. What are the needs that are not

met and what it will take to meet those needs?.

A case in example is Al Yildiz targeting the large Turkish community in Belgium

and Germany and bringing attractive tariff plans for calling back home and within the

community.

In a highly competitive market, excess capacity with the mobile operator with the

least market share sometimes becomes highly relevant to forge favorable partnership

as a host operator for the MVNO which is first step towards entering the market.

Example-E-Plus in Germany realized that it could not gain market share as fast as a

traditional MNO and rather complemented its position with an MVNE proposition

and now has most of the market share of MVNO and with high margins.

Role of the regulator not only impacts the successful entry of the MVNOs into a given

market but also becomes a deciding factor in their immediate and long term success.

EU wide directives recommend all national regulators to increase competition in the

telecom space. The push for MVNO however needs to be supported with action on

the ground in areas where MVNOs are dependent on mobile operators. Example:

players have been interested since 2005, it was not until 2008 that first MVNO has

been launched in Ireland by Tesco Mobile, UK based MVNO, interestingly as a joint

venture with a mobile operator.

Strategic assets – as good as they are put to use

Many different flavors of MVNO are currently entering or have entered the European

market leveraging the possibilities to weave innovative value propositions around

technology and capture niches for themselves. Technology has enabled fresh thinking

to come up with innovative data plans that allows the media companies to get more

bang for buck from their assets and foster loyalty amongst its audience. For instance,

40 Móvil, an MVNO positioned as a branded reseller in Spain is part of a leading

music channel.

Banks are increasingly realizing that mobile may well be the next de-facto contact

point with its customers and are beginning to offer mobile services to their customers

with innovative incentive schemes. Rabo Bank became the first bank to successfully

launch MVNO in Netherlands. Its lead has been followed by other players like

Bankinter in Spain, MBank (owned by the BRE Bank) in Poland and more are

expected to follow.

The most important differentiator has been the ability of the MVNOs to ensure

exclusive access to their strategic assets.

Focus on critical assets that customer will value and potential competition cannot

replicate is key to succeed in a niche segment based competition.

A pan European MVNO, Simyo, for example is strong on market orientation,

positions as low cost and couples it with operational efficiencies.

If the assets can be acquired or replicated by others then the competitive advantage is

lost. This partially explains the long tail as the customers get distributed with too

many players offering more or less similar value proposition after a certain time.

Taking Spain as an example, Carrefour Mobile has been followed by Dia and Eroski.

Lebara focusing on multi-ethnic immigrant segment has been followed by Happy

Mobile (MVNO brand of The Phone House) and some more. Further, with more than

23 MVNOs in Spain, the leading MVNO has 34% market share of the MVNO martket,

and within top 3 they hold 67%. In UK out of 12% market that belongs to MVNOs,

10.5% belongs to the top 3 MVNOs amongst more than 30 MVNOs active in the

country. The story is similar in Germany with the top 4 MVNOs accounting for 70%

of the MVNO market share amongst more than 40. Finally, Belgium is also similar

where top 4 represent 75% of the MVNO market share amongst more than 35

MVNOs.

MVNOs who understand how to build and retain the competitive advantage using their

strategic assets are more likely to succeed in the face of tough competition with low

entry barriers, as is the MVNO game.

Execution capabilities – making it happen

Most successful MVNOs are very secretive of their operational processes like MNOs.

Building efficiencies into the process of Sales, Customer Service, and Back Office

leads to incremental gains that may be passed as benefits to the customers.

Additionally, intelligent agreements with top-up channels, logistics and third party

providers for SIM become crucial as volumes grow.

For instance, in a push model of business, having attractive commissioning systems

for the sales channel partners becomes crucial especially when they are non-exclusive.

In a low margin business where operating margin is between 5 to 15% percent, it

becomes very important to build the differentiation not only in the positioning but

also in the operational model.

It is also crucial for the MVNOs where operational processes are relevant, to identify

what can be outsourced and what needs to be in-house.

For example, a low cost MVNO does not necessarily mean outsourcing everything.

On the contrary, it may actually increase cost as the margins are shared with the

service providers. Also, if the processes can be shared across other businesses of the

group than it makes sense to adapt that for

the MVNO business.

It is important to build a dynamic organization to react fast to the changes in the

market. Price competition for low cost MVNOs demands quick reaction.

SIMYO has been particularly quick in all its market to react to the competition

indicating the strength of their market focus.

More MVNO Success factors in EUROPE:

On one hand, the subscriber acquisition and retention costs have an upward pressure

where as on the other the revenue growth is slowing down.

This leads to define two ways to grow for the MVNOs - get more out of the

customers or get more customers

Gaining economies of scale is the second way to grow for the MVNO players.

Growing into the markets with similar value proposition or different value proposition

in order to leverage the existing know-how and set up is seen as a logical way

forward.

Examples:

Lebara is already expanding pan-Europe. KPN has a pan-European strategy to

launch MVNEs across selected countries in Europe. It is already active in Germany,

Netherlands, Belgium and Spain while France is underway. In fact, the new brand of

MVNOs are launching with a pan-geographic business plan.

Differentiate on product or price

Set up good distribution channels

Target specific customer segments

Ensure solid service capabilities

Have a strong brand

Use MVNO venture to Cross-sell other products

MVNO’s in Latin America:

We have categorized different MVNOs in Latin America on the basis of their behaviour to

customers as follows in the table below:

Lifestyle

Types of MVLIFESTYLE

• MVNOs focused on niche markets

• Niche defined by demographic criteria, such as sex, age,

behavior, and lifestyle

• Price not being the main selection criteria, despite its

importance HELIO

• MVNOs focused on niche consumers from foreign

nationalities

Ethnic • Main selection criteria - Price

• Differentiation Factors - Lower tariffs, native speaking

language, and specific content

MOVIDA

Discount

• MVNOs focused on aggressive tariffs

• Most Decisive Factor - Price

• Differentiation Factors - Lower tariffs and basic and low-

cost handsets TESCO

Mobile

Business

• MVNOs focused on business (B2B)

• Main Selection Criteria – Specialization (despite the

importance provided by SMBs to price)

• Differentiation Factors - Special services for mobile data

(M2M) and VAS.

KORE

TELEMATICS

Sponsored By

Advertising

• MVNOs based on publicity

• Price is not relevant, as traffic and data are free according

the publicity received.

• Differentiation Factors - Contents and handsets offered to

subscribers

BLYK

Lifestyle: HELIO

• It was a joint venture between SK TELECOM (South Korea) and EarthLink (USA). It was

launched in the USA in May 2006.

• Focused in the young segment (18-32 years), for affluent clients and high-tech profile.

• Value Propositions - Innovative handsets, advanced content, app stores, and direct MKT

• Alternative Media - verbal communication, sponsor, cable TV, and magazines

• MySpace – Helio was the first operator in the USA to allow users to interface with

MySpace.

• Revenues in 2007 -$171million, Loss - $327 million.

• ARPU (service) - Around $80.00 per month

• Helio was sold to Virgin Mobile USA in 2008 with 200,000 subscribers.

• Virgin Mobile USA sold it to Sprint-Nextel in November 2008.

• Five stores (Denver, NYC, Palo Alto, San Diego, and Santa Monica) were launched.

• Value proposition included an exceptional retail experience.

WHAT WENT WRONG?

• Weak value proposition, as “innovative” handsets were obsolete in South Korea and USA.

• Low scale of clients, as there were other companies such as Boost Mobile, Amp’d Mobile,

and Virgin Mobile with the same focus

• Difficulties to leverage the communication and marketing investments after negative

financial results

• Lack of a wide distribution network (only 5 cities in 3 states)

• Content similar to cable TV offerings, with the only difference being the mobility appeal.

• The Small base of clients, resulting in low bargaining power with partners such as Verizon

and Sprint, which resulted in less attractive plans

Ethnic- MOVIDA:

• It was established in 2005 in USA by Cisneros Group of Companies from Venezuela.

• It focused on cities with significant Hispanic population, such as Dallas, Houston, Austin,

Miami, Los Angeles, San Antonio, and Phoenix.

• The target segment was 40 million Hispanics.

• Distribution network included the important centers of Hispanic circulation, such as Wal-

Mart.

• Aggressive tariffs for local, SMS and international calls for Mexico and Caribe.

• Prepaid services were offered to consumers with low/ limited credit in USA.

• Spanish language in all communication, assistances and handsets systems.

• Special content, such as soup operas, news from Hispanic countries, and football news, was

offered to Hispanics.

WHAT WENT WRONG?

• Though it had a good value proposition (aggressive tariffs and Spanish language services),

other strong competitors (such as Tracfone) and mobile network operators (MNOs) offered

Spanish language services as well.

• It had a very low profit margin

• It had a limited offer of mobile plans, without unlimited minute plans, and varied tariffs for

special hours, and small portfolio of handsets.

• Special content alone could not sustain its competitive advantage.

Type

Discount- TESCO MOBILE:

• Tesco is the third-largest retailer globally.

• It generated revenues of $38.1 billion 2008, with a net margin of 6.0 percent.

• Until February 2009, Tesco had 2,306 stores in the United Kingdom that were set up by six

different BUs

• It operates in 15 countries (China, Japan, the United States, and so on) with more than 2,420

stores.

• Tesco held a share of 30.4 percent in the U.K. retail market in 2008.

• It has business in many other sectors such as gardening, bank, electronics, fuel, IT, and

telecom.

• Tesco was the first retailer in the world to offer online shopping experience to its customers

in 1984.

• It launched its mobile virtual network operator (MVNO) in July 2005.

Tesco Mobile is a joint venture between Tesco and Telefónica O2 (50/50). 02 is Tesco’s

Mobile MNO network provider. In December 2008, Tesco Mobile’s client base reached 1.7

million in England. It offers low tariffs for voice (£ 10p/minute) and SMS (£ 5p/message). It

has a number of sales channels such as retail network, Internet, and call center. It expanded

operations to the Republic of Ireland and Slovakia.

WHAT WENT RIGHT?

• Strong Value Proposition - Aggressive tariffs and quality, supported by brand reputation

• Experience in launching and managing products and services under its own brand name

• More Tangible Advantages - Free SIM card, tripled credit recharges, and unlimited plans

• Multiple Points of Interaction with Clients - Many retail outlets, Web site, call centers, and

ATMs

• Loyalty (Tesco Clubcard) - Handsets purchased and expenditures made through credit cards

result in addition of loyalty points.

• Wide Range of Voice Services Offered - Prepaid, postpaid, pay-as-you-go, roaming and

international calls

• Broad portfolio of handsets, including high-end models such as iPhone

• Importance provided to number portability in its advertising campaigns

• Mobile marketing and advertising being considered strategic for the future.

DISCOUNT – TESCO MOBILE (Contd...)

Business – KORE TELEMATICS:

• It was established in 2003 in the United States targeting the mobile data market.

• It provides services to 93 percent of the U.S., Canadian, and Caribbean population. It offers

roaming services in 220 countries.

• It offers a broad portfolio of services, based on mobile data, which also include VAS such

as surveillance and mobile voice.

• It is a complete MVNO, as it manages the entire chain ranging from the commercial and

billing process to network monitoring with own NOC.

• Main services include vehicle tracking, payment systems, telemetry, VPN, local voice,

national roaming and international calls.

• It has customized solutions for verticals such as healthcare, security, utilities, industry,

government, finances, and environment.

WHAT WENT RIGHT?

• Strong Value Proposition - Technical specialization in mobile data and great client

assistance

• Products portfolio and a verticallized commercial approach reinforce its value proposition.

• Only a few competitors have witnessed success in this sector.

• Low service penetration results in rapid growth of the mobile data market.

• On-demand pricing of mobile data services (pay-as-you-use).

Sponsored By Advertising- BLYK:

• It was established in Finland in January 2006. It operated in the United Kingdom from

September 2007 to August 2009.

• Before February 2009, it offered 43 minutes and 217 free SMS monthly without cumulative

credit.

• Additional minutes cost £24p/min (against £10p/min from Tesco), and additional SMSs cost

£10p/msg (against £5p/msg from Tesco).

• From February 2009, tariffs were raised for voice calls (£24p/min) and reduced for SMSs

(£8p/msg).

• From them on, credits are getting accumulated to the level of £15,00 per month, and they

are being used not only for voice and SMS but also MMS and data.

WHAT WENT WRONG?

• As of September 2008, it had 200,000 clients in the United Kingdom, which is considered

insufficient for a direct communication.

• It had expensive additional tariffs, which stimulated clients to change SIM cards as the

credit was near to finish.

• It had a very basic portfolio of handsets and services.

• Economic downturn in 2009 had a negative impact on sponsors, and the company decided

to change its strategic orientation.

• Currently, Blyk has partnerships with operators worldwide to develop mobile advertising.

Key Success Factors:

Leverage is essential for value creation

An MVNO is no different to any other business and must have a source of

(sustainable) competitive advantage if it is to create value for investors. Competitive

advantage is achieved by successful MVNOs through effectively leveraging their

existing assets to generate customer growth with low customer acquisition costs. It is

this leverage that provides the basis for a good business “story.” MVNOs typically

seek to leverage the following assets:

Existing customers – it is easier to sell a new service to existing customers than it

is to win entirely new customers (e.g. Tesco)

Brand – to be successful the leveraged brand must drive the purchase of mobile

telephony (e.g. Virgin)

Distribution – existing channels to market will help reduce the cost of customer

acquisition (e.g. Virgin, Fresh Mobile – CPW)

Content – for some, mobile provides simply another media for the distribution of

existing content (e.g. using the mobile to deliver advertising – Blyk, music

downloads Radio-Formula, France)

Convergence – bundling of multiple communication services is increasingly

common and has been shown to increases customer loyalty (e.g. Tele2, BT

leveraging customers and fixed assets)

Select the appropriate MVNO network model

A potential MVNO may first consider entering as a Service Provider or “thin” MVNO

to test the market before investing further

Securing the optimum network deal is fundamental to the success of the business but

so too is managing customer acquisition costs and minimising fixed costs

Select the right network partner

Negotiate the optimum wholesale agreement

Select the right vendor strategy

The success of the MVNO launch and the long term health of the business depend

critically on making the right choice of suppliers for equipment, systems and services

MVNO as a Market Entry Option in India

Greenfield Acquisition MVNOEase of AvailingLicense

Availing license is expected to be challenging

Most of the players possess 2G licenses. However, gettinga 3G license is difficult

The process for getting requisitelicenses is less challenging forMVNOs

Speed of ServiceRollout

Services can be rolled outthrough green - field rollout ortower - sharing agreements

Existing operations of acquiredcompany can be leveraged

With ready operations, servicescan be rolled out quickly

Investment Level Greenfield rollout would involvehigh CAPEX/OPEX to set upnetwork and distribution

Acquisition would involve highinvestments as candidates arecurrently priced at a premium

Targeted rollouts depending onthe investment level can becarried out

Risk The high level of investmentrequired, rollout obligations andexit barriers would be a source of risk

Acquisition target can beoverpriced

Risk is limited by the possibilityof scaling up operations as perrequirement

Control OverOperations

Overseas entrants can fullyleverage their brand andoperational expertise

Overseas entrants can fullyleverage their brand andoperational expertise

Overseas entrants can fully leveragetheir brand, however networkcontrol is limited by operator

OverallAttractiveness Low Medium High

Regulatory Implications on MVNO

Regulatory Parameters

Current Regulations Implications for MVNO

Licence • MVNOs to own individual license with service area same as that of the parent MNO• No rollout obligations

MVNOs are free to have selective rollout within the licensed circle of the parent MNO

Business Model

• Liberty to enter as a full, intermediate or thin MVNO• Scope of service is the same as an MNO while regulation, licensing and entry feerequirements are much lower

Reduced rollout costs for MVNOs

ServiceObligations& Tariffs

• Parent MNO to have no bearing on prices• MVNOs to be directly responsible for customer service, QoS, etc.

MVNOs free to decide on their pricing structure.MVNO will need to pushfor comprehensive SLAs with MNO

MNO - MVNORelationship

• No limit to the number of MVNOs attached to a MNO• An MVNO can get attached only to one MNO in the same service area• MVNO license subject to continuing relationship with MNO

MNOs will have higher bargaining power as MVNOs will be locked-in to the host operator

Exit Clause • 6-months notice to be given to MNO, customers, DoT and TRAI• MVNO will be disqualified from obtaining fresh licenses in the same service area• PBG shall be forfeited and FBG to be returned after dues are settled

MVNOs will need to be selective about regions of service rollout

MVNO Strategies

Selection of Operating ModelOperating models would largely be defined by the services and applications being provided by the MVNO. For example, an MVNO providing ILD and international roaming services might be compelled to go for a full MVNO model, as it would need to negotiate independent termination and carrier charges and also route its calls differently from its host operator. Nevertheless, MVNOs should try and maintain lean operations by outsourcing most functions to MVNEs, while continuing to build capabilities such as distribution and customer care, which could enable them to differentiate their services. By opting for the “thin” model the players would be able to break-even with a lower subscriber base. However, for higher NPV, they should have necessary agreements in place with their host operator allowing them to move to an intermediate/full MVNO model, once they have achieved a critical mass and are confident about the long-term sustainability of their venture.

Selection of MNOMVNOs will need to select their MNO partners carefully, as regulations make it difficult for MVNOs to change their MNO partner once they have entered into an agreement. With regulation mandating that MVNOs will have to maintain required levels of QoS, network coverage and availability of spectrum will be the prime criteria for MNO selection. Additionally, the MVNO should ideally look at partnering with operators with whom there is minimum overlap of offerings, so as to have a long-term sustainable relationship. However, wholesale rates will be critical in the choice of MNO partners as they will define the long-term profitability of the MVNO venture.Although proposed regulations allow for different MVNO relationships in different circles, due to cost and operational issues it is likely that MVNOs would want the same partner across all circles they operate in. Since regulations are likely to result in lock-in with an MNO, MVNOs should attempt to negotiate deals in which operators have a stake in the success of the MVNO. This will ensure better support and long-term cooperation from the operators. This can be achieved by providing equity stakes to the MNO or by negotiating payment terms depending on the MVNO performance.

MNO Strategies

Comprehensive Wholesale StrategiesBecause of the number of players in the market, we foresee a lot of competition in the wholesale market as well. The new entrants into the market are likely to be the most aggressive in this respect, with their wholesale strategies geared towards quickly gaining market share and increasing network utilization through the MVNO model.However operators can still strike financially lucrative deals in spite of having to give deep discounts of up to 50% of retail prices for their wholesale segments21. Operators should attempt to sell other network resources such as HLR22 at higher margins and provide in-house MVNE solutions, so as to capture a greater share of the value created in the system.

MVNO Partner Selection

The key parameter for the selection of partner MVNOs will be their ability to effectively target customer segments that the operator is unable to serve efficiently. Additionally there will be operational and financial parameters such as spare network capacity and long term financial viability which are also likely to be important considerations.However, in the Indian context, MNOs should not restrict their MVNO relationships only to players with vastly different propositions, as prospective MVNOs would always be able to find partners who provide competitive offers. Instead, they should try and build up a multi-proposition MVNO portfolio, so that churn in their target segment results in customer acquisition on a partner MVNO, allowing customers to be retained on the network. In conclusion, the introduction of the MVNO model in India will be an opportunity for new players as well as existing operators. MVNO prospects that target the correct market segments, leveraging capabilities in service development, distribution and brand will be able to build up viable businesses. For long-term sustainability of these MVNOs, strategic decisions pertaining to the selection of MNO partners and negotiation of price for wholesale minutes will be critical. MNOs too should view the development as an opportunity to unlock additional revenue streams through the sale of wholesale minutes and the provision of a range of complementary services to these players.

Key Parameters to ConsiderWhile Selecting MVNOs

Key Points

Network Capacity MNOs would want MVNOs in circleswhere they have excess capacity

Level of Control overMVNO Operations

Control over MVNO operations will allow operators to maintain competitive advantage

Ability to TargetComplementary Segments

MNOs would want MVNO partners to target segments they are unable to serve competitively

Ability to Serve SegmentsRequiring Specific Expertise

MNOs are likely to be keen to have MVNOs on the network which cater to segments which require specific expertise

Additional RevenueOpportunities from MVNO

MVNOs might provide operators with additional revenue stream by subscribing to additional services

Long Term FinancialViability

Operators are likely to be favorable to only those MVNOs which they believe have long-term financial viability

Potential Target Market Segments for MVNOs

Youth SegmentThe youth population in India, comprised of the 15-24 year age group, stands at about 224 million and is expected to grow further to around 238 million by year 2015. With more than 27 million youth belonging to households with an average annual income of $15,000 and above, this is likely to be a segment which MVNOs can target aggressively. One of the estimates shows that the market for mobile services for youth is likely to be a US$15.4 billion opportunity by the end of 2010.MVNOs can potentially adopt a three-pronged strategy for this segment: creating brand appeal amongst the youth, subsidizing trendy handsets and offering customized tariff plans. MVNOs should try and create brands targeted specifically at the youth segment, similar to what Virgin Mobile is currently attempting to do through a brand franchisee model with Tata Teleservices. Additionally, they could provide customized voice and data plans, tailoring them to specific youth calling patterns and their inclination to use data services. These MVNOs can also look at bundling trendy handsets with their offers, as the bundled handsets currently in the market are fairly basic with limited functionality.

Premium SegmentOperators in India have positioned themselves as mass market players, thereby depriving potentially high-end customers from any sense of exclusiveness. The services currently offered lack premium offerings such as preferential customer care, higher guarantees on QoS, premium bundled handsets and other personalized services.There is a sizable population in India which could potentially be targeted with such premium services. There are currently more than 7 million people in households with annual income between US$23,000 and US$45,000. This segment is likely to be attractive for the higher ARPU it promises. For example, the ARPU from the more expensive PDA users in the country is 11 times the ARPU from a CDMA user. Estimates shows that the market for this segment to be worth around US$2.5 billion by 2010.

Enterprise SegmentThe spending on mobile communication for enterprises in the Indian market is expected to grow to US$2.7 billion by the year 2010. A number of these enterprises have requirements in the telecom space that are not core operator skill sets, such as managed mobility, M2M services and mobile enterprise applications. ICT service providers could launch MVNOs on similar lines as Embarq and Earthlink, which target the business and professional segment, and provide additional enterprise services for differentiation. Particularly, global telcos present in India in the enterprise ICT services space could expand their service portfolio by offering enterprise mobility services as MVNOs.

Heavy Data Usage SegmentThe data and content market in India is still in the process of maturing. As of Q2 07, only 8% of the total revenues came from data services in India, while the corresponding figures for the more mature UK and US markets were 25% and 14% respectively. However, the market is expected to grow at around 44% CAGR between 2007 and 2010, to become worth around US$2.7 billion. MVNOs targeting this segment can look at addressing the current shortcomings which have been holding the content market back. Potential MVNOs could look at providing attractive data access plans bundled with customized handsets. They can

also consider offering dual-mode Internet access plans wherein users could consume their data usage credits over cellular and Wi-Fi networks.

Entry Barriers for MVNOs

They are entry barriers for different MVNO opportunities. In the youth segment, the biggest challenge for MVNOs would be the differentiation of services vis-à-vis the competition. Incumbents have already identified the segment as an attractive one and launched specific schemes such as Vodafone’s “Campus Pack”, Airtel’s “Mobile Campus” and Idea’s “Spice Gang” geared towards this segment.

As far as the premium segment is concerned, the Indian market is currently not mature enough, with consumers largely unaware of such offerings. Consequently, the players would need to educate customers about their services in parallel with building a premium brand.

For the enterprise and heavy data usage segments, a significant barrier which will limit the number of potential players will be the domain-specific expertise that is required to serve and differentiate the offerings. Additionally, for the enterprise segment, existing relationships of incumbents with enterprises will also serve as a major entry barrier.

However, these constraints also give rise to opportunities for potential players who are able to successfully bring down the entry barriers. For example, while complexity of offerings and importance of existing client relationships will act as deterrents for most players in entering the enterprise segment, there are players such as system integrators and mobile application providers, who have existing strengths which successfully bring down these very barriers.