and marketing, which is very different from
the big advertising spend that you would
normally associate with big mobile operators,”
he says.
These are activities that are simply unrealistic
for major network operators to embark
upon. As Fawcett points out, 3UK recently cut
its rate for calling Poland to £0.12/minute in
a bid to capitalise on the influx of Polish immigrants
to the UK. Lebara’s rate for calling
Poland is £0.04/minute.
For an MVNO to be a success, and to be
attractive to potential hosts, it has to offer
the operator something that operator doesn’t
already have. “I think it is tremendously important
that there is no brand clash,” says
Blyk’s Leif Fagelstedt. “If we partnered with an
operator that is targeting the youth segment,
it would not be productive because it would
mean that you would be stealing customers
from each other.”
Likewise, Jon Fawcett argues that Lebara
brings different traffic profiles, with different
peaks, so it does not drive incremental cost
on its host network. And, he says, it brings
in minutes that would otherwise be on the
fixed line, as its customers would likely be
using prepaid calling cards if they weren’t
using Lebara Mobile.
Supermarket brand MVNOs, like Tesco
Mobile and Asda Mobile provide host
operators with an unrivalled distribution
channel, with huge customer throughput.
In the UK, 15 million households shop in
Tesco each week.
If an MVNO does manage to convince a
host operator that it has a viable proposition
that will be net positive, a deal still
has to be struck. There are a variety of
ways to structure deals, ranging from full
joint ventures, which is how Virgin started
out, to airtime wholesale. MVNOs and host
carriers share a reticence when it comes
to discussing the nature of their deals,
but Michael Lowry of Addleshaw Goddard
reckons there is a trend shift in the types
of deals being struck.
He suggests that there is a move towards
the sharing of profit and risk. “This is probably
because some of the operators are doing
a lot more than just providing airtime,”
he says. They might be providing the billing
as well, for example. And, as a result, the
operator is more tied in with the success
or failure of the venture as a whole.” One of
the key benefits for operators of some form
of joint venture is that they usually get a
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seat on the board of the MVNO, affording
them greater strategic influence.
But, says Andrew White, with great power
comes great responsibility and operators may
be put off joint ventures by their exposure to
failure, as well as complex accounting rules.
“We believe that most activity is going to be
seen on the straight wholesale ‘cost plus’
arrangement because it tends to be suitable
for more applications.”
Either way, Lowry reveals, the discussions
that begin once an original agreement
has been struck can see significant shifts in
relationship definitions. “It can soon become
apparent that deals aren’t quite as thrashed
out as some people originally thought,” he
says. “I’ve never seen changes as fundamental
as a move from non-equity to equity, but I
have seen the actual charging structure move
quite substantially.”
And as MVNOs look to expand into multiple
territories, they may strike different deals
with different operators. Both Jon Fawcett
and Leif Fagelstedt are insistent that each
market must be approached on its own
merits—one thing we are unlikely to see is
an international partnership between carrier
group and MVNO operation. As Fagelstedt
says: “Every negotiation doesn’t have to start
with Vodafone and Orange.”
And yet these are two operators that have
made a clear commitment to MVNO hosting.
If carriers are going to make MVNOs a plank
of their strategy, they have to embrace the
model fully. “Those carriers who are likely
to be successful in the MVNO space are the
ones that have set up separate reporting
lines,” says Andrew White. “That’s very important
because otherwise there can be a
conflict between the core business and the
incremental business.”
There is a risk, he says, that if the wholesale
division isn’t given separate reporting
lines, then core marketing and strategy
teams could simply attempt to steal ideas
proposed by MVNO partners. “Operators are
beginning to conclude now that having 60
or 70 per cent of something is better than
having none of it.”
In an industry that is all too often afflicted
by hype, it’s interesting to see how
the MVNO model has quietly matured into
something that is genuinely workable. The
rash of big brand MVNOs never appeared.
In their place, are a gang of lean, niche specialists
helping operators to mine hidden
seams in their marketplaces. �
Lebra Mobile takes its marketing
to the streets
MVNO COVER STORY
39
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