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Member of Scanning The MVNO Opportunity - Business Model versus Reality - Barcelona, June 7 th 2006 Guy Alain Djopmo Komguep
Member of
Scanning The MVNO Opportunity- Business Model versus Reality -
Barcelona, June 7th 2006
Guy Alain Djopmo Komguep
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Detecon - your international partner in the consulting market
Established:1954 Diebold1977 DETECON
Reorganized:2002 Detecon International GmbH
Sales 2005:EUR 130 million500 consultants
Shareholder:T-Systems International GmbH
Globalization
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Content
1. Introduction
2. MVNO Definition
3. Business Model
4. Market Reality
5. Differentiation Pools
6. Recommendations
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Key QuestionsIntroduction
Key Questions
What is an MVNO?
What is the essence of the business model?
What is the reality on the MVNO global market?
What are the recommendations for different players?
Which boundaries shall be considered within the mobile Telco value chain?
How do you to target a market and design a competitive strategy?
What are the lessons learned from respective success stories and pitfalls?
What are the leads for business growth and service differentiation?
1
2
3
4
Objective of the presentation is to provide suitable answers to predefined key questions.
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Content
2. MVNO Defintion
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The Gray ZoneMVNO Definition
However, this broad definition is not always applicable to all MVNO business models deployed in diverse countries with different regulatory systems.
The first approach focuses on players which simply repackage network operator’s services and issue their own SIM cards by relying almost on the host’s facilities with a little product differentiation.
While the second approach consists of providers which have and operate their own core network infrastructure including switching, home location register, billing, customer care, value added services platforms and intelligent network systems.
In essence, most MVNOs fall somewhere between this Gray Zone according to their technological implementation choices, market strategies and the respective regulatory framework.
Clarification
An MVNO does not own a mobile spectrum license but sells mobile services under its own brand name, network code and SIM cards using a licensed mobile radio network.
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MVNO WorthMVNO Definition
Illustration
With regards into the mobile Telco value chain, the MVNO worth is swiftly clear.
Classic Service Provider
Enhanced Service Provider
NetworkServiceProvider
MVNOSales Partner
Reseller & Billing System
Mobile Network Operator
Numbering Range (IMSI, MSISDN)
Service Delivery Platforms
End user devices
Sales
Radio Network
Core Network (MSC, HLR, GGSN, IN)
SIM Card
End User Contract
Customer Care
Billing Platform
Branding Advertisement
Serv
Co
Sale
sCo
Net
Co
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Content
3. Business Model
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Targeting a MarketBusiness Model
Modus Operandi
It is more important to do what is strategically right than what is immediately profitable.
Market
Regulatory Openness
Mobile Penetration GDP Per Capita
Market Size
3 4
1 2
Influence of political and lobbying forces
Lead for market entry strategy
Indicator to future growth potential
Driver or Inhibitor for aspiring MVNO
Cost Equity per Subscriber Demand Forecast Churn Rate
Local MVNO Definition
Transparent Framework
Decision-making Process
Expected ARPU Planned MoU Pricing Strategy
Market Share
Segmentation
Competition Level
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CornerstonesBusiness Model
With respect to subscriber forecast scenario
Simulation of expected Churn Rate and Minutes of Use
Statement on current ARPU as well as identified customer segments
Awareness to existing tariffs packages and service offering portfolio
ARPU level
Balance between the rate offered and the pricing for end-users (40-50% Margin)
Nationwide network coverageof the mobile carrier partner
Technological compatibility with the planned service offering
Suitable SLA in terms of duration, reliability and reaction patterns
Wholesale stratagem
Opportunity for non-carriers, established service providers
Strengths of an outsourcing deal in terms of infrastructure management, time to market, risk assessment, etc.
Sound check of the MVNE business uncertainty on the long term prospect
Best scenario with a MobileNetwork Operator playing also the MVNE role
MVNE perspective
Significant grounding points for the compilation of a MVNO business model are the Wholesale stratagem, the ARPU level and the MVNE perspective.
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Competitive StrategiesBusiness Model
Competitive Strategies
Funding requirements, service offering and customer segmentation are not just „garden-variety“ rudiments, but decisive dynamics determining the MVNO competitive strategy.
Telemore in Denmark Simyo in Germany Revolution Telecom in Australia
Market Challenger“Budget MVNOs” attack leaders for future market share, prepaid services focus, no
handsets and physical outlets;
Market Follower“Convenience MVNOs” claiming product
imitation advantages as product innovation strategy, rely on existing customer base
and brand
7-eleven in USA Jeans in Ukraine M6 in France
Virgin Mobile in UK Tele 2 in Sweden Sense Communications in Norway
Market Leader“Value-added MVNOs” with largest market
share and offering innovative data and applications packages
Market Nicher“Affinity MVNOs” with portfolio appealing individual lifestyles, usage patterns or
special interests
Trident Telecom in Hong Kong RCSC Mobile in Belgium VOX mobile in Luxemburg
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Establishment ProcedureBusiness Model
MVNO Establishment Procedure
The modus operandi for a suitable MVNO establishment consists of three basic steps such as targeting a market, mastering cornerstones and designing the strategy.
GDP Per CAPITA Minutes of Use Demand Forecast
Mobile Penetration Potential Cost Equity Per Subscriber Cost Equity per Population
Market Size Competition Level Market Share Innovation Grade
Regulator Openness MVNO Definition Legal Transparency Decision-Making Process
Targeting a Market Mastering Cornerstones
Wholesale Rate Nationwide Network Reach End-user pricing Technological Compatibility Service Level Agreement
ARPU Level Subscriber Forecast Revenues EBIDTA
MVNE Perspective Cost cutting via Outsourcing Competence Consolidation Economy of Scale Rapid Time to Market
Designing the Strategy
Scenarios Market Leader Market Follower Market Challenger Market Nicher
Tools Customer Segmentation Service Portfolio Device Offering Brand Approach
1. Assessment 2. Feasibility 3. Consolidation
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Business Model Pricing Strategy
Nine Price – Quality Strategies
Diagonal strategies 1,5,9 can all coexist in the same market as long as related three group of buyers are present.
Strategies 2,3 and 6 are the way to attack the diagonal positions by convincing quality sensitive customers to buy from them and save money
Positioning strategies 4,7 and 8amount to overpricing the product in relation to its quality with the risk to spread bad word of mouth about the company
Reasoning
1. Premium Strategy
2. High-value strategy
3. Super value strategy
4.Overcharging strategy
5. Medium-value strategy
6. Good Value strategy
7.Rip-off strategy
8. False economy strategy
9.Economy strategy
High
Low
Medium
High Low Medium
Price
Prod
uct Q
ualit
y 1 percent increase in price boosts profits two to three times much as a 1 percent increase in sales volume.
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Risk / Sensitivity AnalysisBusiness Model
Illustrative
The scenario analysis focuses on market potentials of best, base and worst cases.
The sensitivity analysis of the base case includes key variables and clarifies the significance on equity value.
The sensitivity analysis shows the impact of identified risks on thekey financial indicators and ratios.
It also provides transparency between the risk level and profitability
Rationale
Scenario analysis Sensitivity analysis
Free
cas
h flo
w
Base casedefinitione.g. stable
sales
Best casedefinitione.g. rising
sales
Worst casedefinitione.g. falling
sales
Probability
Best case
Base case
Worst case
Scenario determination and impact:
Capitalstructure
Salesgrowth
Discountrate
Exchangerate
changes
Workingcapitalchange
Equityvalue
Investmentcosts
Selection of value influencingparameters:
Equity value band
Impact quantification: Quantifying the impact of selected
parameters on equity value
The risk sensitivity analysis is a decisive exercise by designing the MVNO business case.
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Content
4. Market Reality
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MVNO Hype CycleMarket Reality
MVNO Hype Cycle
After the uninformed optimisms and consumed pessimism, we are moving to the realistic optimisms.
Transition PhaseKick-Off Phase Saturation PhaseAwar
enes
s
Early adopters:Virgin Mobile UK 1999, RSL Com Finland 1999, etc.
Market followers:Virgin Mobile USA 2002, Happy Many Belgium 2004, etc.
Niche players: Affinity groups, Media brands, City carriers, Retailers, etc.
Regulatory issues clarification First MVNO players in Europe Innovative market strategies
Pan-continental MVNOs No frills brand MVNOs “Wait and see” strategies
Global deployment of MVNOs Market saturation Consolidation strategies
Time
Today
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MVNO Landscape – Attractive MarketsMarket Reality
Attractive Markets
MVNO “Sweet Spots” aka attractive markets include for instance USA, Japan, Germany, Switzerland, and Canada.
Mid 2004 almost 43% of Canadians had accessto mobile services
Capex continues to decrease from big pending year 2000 and 2001 down
Canada
Verizon wireless as largest mobile carrier has only23% market share
Semi-rural and urban areas with digital coverage remain green fields
USA
Large population withhigh GDP per Capita
Transparent regulatorysystem with opportunitiesfor niche players
Germany
Early-adopter customers for innovative services
Transparent regulatoryframework
Japan
European commission pressure on regulatorto boost the scope of
Telco competitive services
One of the highest GDPper Capita in Europe
Switzerland
Source: DETECON Research and Analysis
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MVNO Landscape – Promising MarketsMarket Reality
Promising Markets
Promising markets, in terms of future MVNOs deployment, include for instance China, France, United Arab Emirates, India and South Africa.
Fourth largest mobile market in Europe and fine regulatory openness
69% mobile penetrationversus 86% western European average
France
Fastest Compound Annual Growth Rates for the period 1998-2003
Green fields for MVNO players
South Africa
Major star performer in Middle East, 10% growth in 2005
Early adopter market with very high ARPU
United Arab Emirates
35 Mio new subscribersforecasted for 2005
30% mobile users arelooking for better operators
Average per minute chargedeclined by 58% in 2004
India
269 Mio subscribers in 2004, i.e. only 20% ofthe population
GDP is continuously growing since 2000
China
Source: DETECON Research and Analysis
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Lessons Learned – Success StoriesMarket Reality
Selected Cases
Global and pan continental players are performing well and continue to expand.
Virgin Mobile UK: equity investments with established brands with high growth consumer segments can bear out extremely powerful.
Tele2: experienced carrier can leverage on its internal telecom skills, market footprint and image to realize business development.
Trident Telecom: “Niche MVNO” in early-adopter customer-based markets could achieve business development by offering bundled services.
Joint venture between Virgin Group and network partner One 2 One
Fixed carrier which launched Tele2mobile as alternative brand
Focus on Value Added Services for business travelers in Hong Kong
MVNO Success Stories
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Lessons Learned – PitfallsMarket Reality
Selected Cases
Technological advances are pushing for a double edged sword with which business opportunities are created and destroyed.
Sense in Norway: In short, market maturity, partner’s cooperation and funding strengths are vital for the successful outcome.
Imagine in Ireland: smart selection of the host network, suitable choice of the target market and prompt check of the regulatory support are vital for a successful MVNO establishment.
Sense in Norway
world’s first MVNO launched late 1998 and flop in early 1999
-Unfamiliarity of the concept and financial difficulties
-MNO resistances to negotiateaccess to their network
Imagine in Irelandlaunched in April 2000 and closed operations one year later
-wrong Volume Discount Agreement-legal uncertainty over its right to operate
MVNO Pitfalls
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Content
5. Differentiation Pools
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Customer CentricityDifferentiation Pools
Customer Centricity
Metro-ZoneHigh mobility
Home / Office-Zone
Neighborhood-Zone
Cost Savings Performance SecurityConvenience
one stop shop one contract one device one number one bill / tariff one customer care
service
discounts value for money shared fixed-mobile
minutes free home zone
speed and quality of service
control on communication
mobility / ubiquitous access
Seamless applications
data security service security predictability of bill
Fixed Mobile Convergence and Quadruple Play are offerings which embrace and foster the customer centricity trend.
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Market Offering PositioningDifferentiation Pools
Illustrative Use Case
Value perception Packaging Image Advertising
Channel Accessibility Ordering ease Delivery
Customer education Customer feedback Customer service
Quality of service Features Reliability Warranty
High Low
Low
Hig
h
Efficiency
3
1
4
2Pool Impact Rationale
Sales 4 Distribution and competence
Brand 4 Communication and readiness
Customer care 5 Competitive advantage
Product 3 Value proposition
1
2
3
4
Importance
Don‘t watch the product life cycle: Watch the market life cycle.
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End-User DevicesDifferentiation Pools
Integrated Mobile Device Management and Peer to Peer applications will revolutionize the perception of end-user devices and therefore the mobile communication industry.
Wireless Subscribers Growth 2005-2011 (Millions) Mobile Computing Devices Growth 2003-2008 (Millions)
3.1562.968
2.7642.547
2.3202.085
1.851
0
500
1.000
1.500
2.000
2.500
3.000
3.500
2011200920062007 200720062005
Source: Insight Research 2006
680655630595500 560
265260245225
210195
340320305
240220
205
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
470 475 480
2008200720062004
440
2003
420
2005
455
Source: Insight Research 2006
Asia / Pacific Europe North America Rest of World
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Mobile Broadband TechnologiesDifferentiation Pools
Mobile Broadband Technologies Grid
To assess future wireless broadband technologies not only data rates are important.
Depending on the intended application, factors such as coverage, mobility, security, quality of service and roaming have to be considered.
One major aspect, which should not be neglected is the regulatory situation and the spectrum available for different wireless broadband technologies.
Reasoning
01234
Price per Bit
Coverage
Mobility
Quality of ServiceData Rate
Security
Roaming
01234
Price per Bit
Coverage
Mobility
Quality of ServiceData Rate
Security
Roaming
01234
Price per Bit
Coverage
Mobility
Quality of ServiceData Rate
Security
Roaming
WiMAXWiFi
HSDPAW-CDMA
01234
Price per Bit
Coverage
Mobility
Quality of ServiceData Rate
Security
Roaming
Future wireless broadband technology develops along two directions: one evolutionary path from W-CDMA to HSDPA and one revolutionary path comprising WiFi and WiMAX.
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Technology RoadmapDifferentiation Pools
W-CDMA Technology Roadmap
W-CDMA provides a coherent and evolutionary roadmap to higher bandwidths and reduced latencies. However, these promising enhancements still need frequency spectrum.
W-CDMA / (UMTS) HSDPA HSUPA HSOPA
Early deployments were based on Release 99 specifications of the UMTS standard
Peak downstream rate of 2 Mbps—although current networks are configured for only 384 Kbps.
In real-world environments, users can expect 150 Kbps to 250 Kbps over commercial UMTS networks.
High Speed Downlink Packet Access (HSDPA) was included in Release 5 of the UMTS standard.
HSDPA increases downlink speeds to a maximum of 7.6 Mbps
Maximum rates supported by the current generation of HSDPA devices is 1.8 Mbps.
Future upgrades of HSDPA will eventually provide the theoretical maximum peak rate of 14.4 Mbps.
The next step in the evolutionary process is High-Speed Uplink Packet Access (HSUPA)
As specified in 3GPP Release 6, this enhancement will eventually increase uplink speeds to a maximum of 5.8 Mbps.
This will be essential for applications that require a more symmetric link such as real-time gaming.
We may see High-Speed Orthogonal Frequency Division Multiplexing Packet Access (HSOPA) emerging as a standard in 2008.
It will incorporate OFDM and multiple-input multiple-output (MIMO) technologies to provide up to 37 Mbps on the downlink.
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Content
6. Recommendations
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Items for RegulatorsRecommendations
Items for Regulators
Regulators and standards bodies have the attempt to settle suitable framework for the usage of available frequencies.
Despite EU regulation, wide international variations in MVNO regulation remain.
The lack of a clear MVNO definition hampers regulatory intervention.
MVNO can truly add value to off-the-shelf services offered to end-users.
Network access requirements to MVNOs should remain mobile operator’s prerogatives.
Mobile Operators will be loath to surrender their licence privileges.
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Notes for CarriersRecommendations
Notes for Carriers
Move forward from the usual “wait and see” strategy to a clear portfolio strategy.
MVNO opportunity is really a viable stratagem to enter new market – Globalization.
After the 3G license burden, used spectrum can be leased to MVNO player.
Managed services and outsourcing offerings are lucrative new revenue streams – MVNE.
Fixed carriers should rely on the MVNO opportunity to embrace the convergence path.
Joint venture with aspiring MVNO is an opportunity to address niche markets.
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Slice of the Cake for Potential MVNORecommendations
Slice of the Cake for Potential MVNO
Affordable, reliable, and ubiquitous wireless services continue to alter profoundly the way people access the global communications network.
40%-50% margin for voice and higher for data is essential to finalize the wholesale deal.
MVNE perspective provides significant assets to tackle operational risks.
Potential MVNO must have reliable financial backing during the negative cash flow period.
Fixed Mobile Convergence and Quadruple Play are leads for differentiation.
Technology enhancements enable today the provisioning of state-of-the art data offerings.
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Contact
Thank you very much!
Integrated management and technology consulting worldwide
Guy Alain Djopmo Komguep
Detecon International GmbHOberkasseler Str. 253227 Bonn (Germany)Phone +49 228 700 2826Fax +49 228 700 [email protected]
