�t the beginning of the millennium, with the fanfare
from the 1999 launch of Virgin Mobile UK
still ringing in the industry’s ears, it was widely
anticipated that an MVNO stampede was imminent in the
world’s leading mobile markets. A swathe of consumerfacing
organisations, from soft drinks manufacturers and
fashion labels to banks and football clubs, were expected
to establish some variation on the reseller relationship
with network operators, bringing every conceivable brand
proposition to a population hungry for mobile services.
As Virgin grew in strength, subscriber base and geographical
reach, though, the hoards of imitators failed
to materialise. The network operators, it turns out, were
not so keen on the idea. The rationale behind One-2-One’s
(now T-Mobile) decision to establish a joint-venture MVNO
with Virgin was clear enough; the carrier was dawdling
in the UK market and 50 per cent of whatever subscribers
Virgin could muster represented a relatively easy way to
grow market share.
But for other operators in the UK, and other leading
markets, core growth was more forthcoming. At that time
carriers tended not to see the point in enabling further
competition in a sector already defined by a land-grab
mentality.
As the decade wore on, MVNO sceptics claimed their
point was proven by what turned out to be a fairly slow
burn in the model’s development. There were successes
in certain markets—Denmark saw the rise of a rash of
low-cost, no-frills players, some of which were eventually
acquired by Danish carriers. But these particular MVNOs
caused a violent price war, and not just in Denmark,
which hardly served to build enthusiasm. More recently,
a number of high profile MVNO failures—Amp’d Mobile,
Disney and ESPN in the US, and easyMobile in the UK—
have further dampened spirits.
But the reality is that the MVNO model has been gaining
traction for some time. Andrew White is a founder
partner of Piran Partners, a consultancy that specialises
in helping aspirant MVNOs prepare their strategies and
pitches: “Things have changed significantly in the last few
years,” he says. “The mobile network operators came to a
strategic decision that growth in their core markets had
slowed down and they could see the value of bringing in
some branded reseller partners. Specifically, Vodafone
and Orange—certainly in Western Europe—have decided
that supporting MVNOs is a good thing to do. So that’s
refuelled interest in the last couple of years.”
The attraction for operators in saturated markets is
clear. Growth is increasingly difficult to find once penetration
gets towards or beyond 100 per cent. Carriers
know that their best bet is to drill down into particular
segments of the user base, segments likely to have particular
requirements. But specialism can be costly, and
logistically complicated. A well placed MVNO can provide
the focus that carriers may lack and can shoulder a good
portion of the risk and burden associated with targeted
offerings.
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Lebara Mobile is a pan-European MVNO that offers
services to migrant communities in which demand for
international calling is high. “We know how to target our
segment profitably,” says Jon Fawcett, Lebara’s head of
Group Marketing. “We know how to distribute, sell and
market and how to build and sustain loyalty. It would
take a lot of time, energy and money to learn how to
achieve the goals that we’ve achieved. We’re not saying
the operators couldn’t do it, but we are saying that the
investment they would need to make to get themselves
to the position that we’re at would be significantly
more—and therefore the return on investment significantly
less—than it would be if they were working with
Lebara Mobile.”
Interest in the MVNO model may well be on the rise
among network operators but it would be wrong to assume
that this makes the path to success for MVNOs
any easier. In fact, operators are more rigorous in their
partner selection now than they have been at any time
in the past, says Andrew White. He estimates that only
one in ten prospective MVNOs make it as far as striking
a deal with an operator. Even then, he says the commercial
success rate of the chosen few is probably no higher
than 30 per cent.
Any organisation looking to establish itself as an
MVNO ought not to be dissuaded, though, according
to Michael Lowry, a partner in the Technology and
Outsourcing division of law firm Addleshaw Goddard.
“I don’t think it’s necessarily right to suggest that the
balance of power is with the network operators every
time,” says Lowry, whose firm has worked on the deals
that created MVNOs for UK supermarkets Asda and
Tesco, and the ill-fated easyMobile no frills venture.
“If you have a really strong, viable proposition then it’s
almost a defensive play for the operator to take it on.
Because if they don’t, someone else will.”
The strength of the proposition is everything for the
MVNO. The original idea that any brand with a consumer
following could carve out a degree of success for itself—an
idea inspired by the performance of Virgin Mobile—has
long since been laid to rest. “I don’t think brand is terribly
important,” says Andrew White. “Just because Coca Cola,
say, was to launch an MVNO, the strength of its brand
wouldn’t necessarily make it successful. It might be, of
course, but the brand alone is no guarantee.”
Public failures like Disney and ESPN have made the
industry wary of what White calls the Big Bang approach
that sees major brands pouring hundreds of millions of
dollars into MVNO operations.
Virgin was an anomaly, says White. It launched at a
time when prepaid was a relatively untapped market
in the UK and rode the growth of that segment to the
point where, he says: “It has now established itself as
a mobile operator. And I don’t use the word ‘virtual’. I
think it will be very difficult for another brand-based
MVNO to copy that—I don’t think we’ll see another
replication of Virgin.” ››
MVNO COVER STORY
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