Insights of Mobile Virtual Network Operator (MVNO) with Allan Rasmussen


Social Media is wonderful platform if used in correct form, we learn about so much happening around the world and meet so many great people which help you learn and understand new possibilities and work being done in terms of technology. We got connected to Allan via social media. He has been veteran in the industry and has enlighten us with MVNO and concepts. MVNO is not only about sharing the network elements but a lot more such as giving better quality of service.

Q 1. TechPlayon: Hi Allan, Thank you very much for your time and speaking to us, Let’s start with sharing basic about MVNO, what is MVNO and why there is need of MVNO in today’s world?

A 1.  Allan:  Thank you very much for your interest, it is my pleasure to share with you and the readers.

There are actually no common basic description on MVNO. MVNO is short for Mobile Virtual Network Operator, and in simple words Mobile Virtual Network Operator (MVNO), is an entity, who offers telecommunications services similar to a mobile network operator (MNO), however the MVNO does not own any radio frequency spectrum. Here MVNO enters into a commercial agreement with a mobile network operator, who has radio frequency spectrum and depending on the type of MVNO, it either buy access network from the mobile network operator at wholesale rates, and then set its own proposition and retail prices – or it sign a re-seller agreement with the mobile network operator.

To answer your question about the need of MVNO in today’s world, actually MVNO was introduce to add innovation and competition into the markets, as well as to maximize investment in infrastructure. By removing the first expensive steps of the investment ladder, compared to a normal mobile operator (MNO) i.e. obtaining a spectrum and the rollout of a mobile network, the MVNO could instead use the existing infrastructure through a mobile network operator (MNO) as partner, and then concentrate on the service offer.

In today’s world that is more important than ever, as connectivity itself (network) becomes a commodity, where more and more people are getting used to, and come to expect connectivity to be available anytime and anywhere.

MNO’s have to provide their services to everyone, which means there are some groups or segments where the service does not resonate well i.e. some teens might find it old school to be on  the same network as their grandfather – or some elderly people don’t see the value in a promotion for Facebook or Instagram. You have to imagine the MNOs, as a person standing on a stage shouting all their offers and service to everyone through a megaphone, while the MVNO, is like a person who walks around the audience and are having conversations with each individual to learn what they are looking for and if that matches the segment they are after to form a community of likeminded.

During early days MVNOs mostly focused on lower pricing compared to the existing operators. This approach was not always a success for the MVNO, however they did succeed collectively to bring down the overall telephony prices in many markets, which we are all benefiting from today. But    due to innovative nature, MVNOs that had and still is the most important part today. A MVNO is a small lean organization with fast decision time, having a concentrated segment, it knows it’s customers and can ask them what they would like, and then provides them using telephony, more as a logistic part and then service becomes the revenue stream instead.

That’s why we can see a new breed of MVNO’s today i.e. well-known device makers, OTT and web companies like  Google fi,Panasonic, Lenovo Connect, Foxconn Xunjie, Xiaomi Mi Mobile,  Line Mobile, WhatsApp and so on. They use the telecom part (data, voice, SMS) to provide the service but up-sell/cross-sell its existing products or services on top.

Q 2. TechPlayon: In today’s world telecom operators are struggling with limited or declining ARPU? Do you think MVNO (MORAN + MOCN) can help operators when they merge operations?

A 2. Allen: Telecom operators are very good at network deployment and network maintenance, but less so on innovation in retail, while MVNOs are good at segments, innovating new services, customer support and new business models, so it is a perfect match.

An example from another industry is Volkswagen from the automotive industry. It used to be just VW but went from being a single brand to a multi segment strategy. Volkswagen today, is catering to several segments though its engagement in Audi, Bentley, Lamborghini, Skoda, Scania,

The same strategy is introduced in the telecom industry, in saturated – or near saturated markets, as organic growth wears off, competition becomes a quest for market share, and this challenge leads MNOs to seek for MVNO partnerships to sustain the overall market growth

Examples of such would be E-Plus (Now Telefonica), a German mobile network operator, who was facing the signs of a maturing market. Although the number of subscribers in the overall German market grew 11% between 2002 and 2005, the market share for E-Plus grew just 4%. Over the same period, the company’s EBITDA margin declined from 32% to 24%. The market was near saturation and offered little traditional growth potential. In response, E-Plus transformed itself in 2005 from a single one-size-fits-all mobile operator into adding a collection of brand MVNOs, each targeting a specific segment.

The company actively sought MVNO partnership with various brands and resellers in the market. By 2009, it had partnered with and launched 34 different MVNOs in the German market. The results of this transformation was striking. E-Plus’s subscriber base grew by 18% between 2005 and 2008, even as its EBITDA margin grew from 24% to 39% and in the years that followed, E-Plus was the only MNO in Germany with increasing market share.

We have since seen this strategy being adopted by others i.e. Sprint in USA, DoCoMo in Japan, Telefonica Germany (Former E-Plus) and Cell C in South Africa, but also in smaller markets like Omantel in Oman.

It is these kind of partnerships that provide the right framework for a true win-win-win. A win for the MNO, a win for the MVNO and most of all, a win for the end-users.

Q 3. TechPlayon: What are the successful deployments of MVNO in recent times and what are key take away from the same?

A 3. Allen: I would say Equitel, which is a bank MVNO in Kenya. The bank (Equity Group) wanted to transform themselves from being a physical place that customers come to, to something they do. They wanted to digitize and virtualize the bank, prioritizing mobile and internet channels. Increase affordability and thereby adoption of smartphones by offering financing plans.

Its mobile service enables customers to transfer money, pay bills, apply for loans, and carry out cross-border transactions using their handsets.

The MVNO launched in November 2014 and 600,000 subscribers signed up during the first six months, and in April 2017 it had 1.4 million subscribers, more importantly transactions by agents between May 2015 and May 2016, saw a staggering growth of 545% and loans rose by 75%.

Key take away is – in and industry faced with disruption the bank to matters into its own hands and used the MVNO model to provide its customers with a service that was in demand. To add new customers the bank linked the financing world with the telecom world by offering financing for smartphones.

A personal favorite, because it is a textbook example, a true win/win for operator and MVNO, and starting from zero with no existing users, is the MVNO Renna from Oman.

Renna was among the first two MVNOs to launch in Oman on the network of Omantel. The MVNO co-operated closely with the MNO to find a niche segment, that was under-served by the MNO but not by the other competing MNO. It managed to put together a service that resonated well with the newly defined segment and reached financial break-even after just 22 months. The MVNO was sold recently (exit) to a company with existing landline users.

Key take away: Close co-operation between a MVNO and MNO to find the right segment, resulted in not only success for the MVNO but also the MNO who gained total market share while its competitor stumbled. The MNO Omantel was announced as one of the world’s top 3 wholesale operators.

Q 4. TechPlayon: If any ISP provider or small city operator wish to start MVNO wireless operation how shall they start?

A 4. Allen: Focus on the existing customers, what will they gain from this? How can you enhance their experience, what can you add that will create stickiness, and attract new customers to your existing service. Don’t focus on telecom revenue in the form of data, SMS, voice. You should still make revenue on it of course, but not as the primary driver. Focus on what you are best at, which is the customers/segment you already have.

Find out (ask your customers) what frustrates them about current mobile services they have (if any) and what is most important to them. In other words look for a niche, that is not well covered by the existing services and solve a problem.

And remember, you are not opening a new telecom operator, you are opening a new service, just like any other shop, buy cheap, sell more expensive, and live on the margin between.

The remaining part i.e. all the telecom mumble jumble is just IT systems, That is not where your focus should be. We often joke by saying the worst people to run a MVNO is former telecom executives, because they are just used to spent money on advertising, and wait for the customer to come. Best people for MVNO are shop keepers who are used to wholesale and make a living on the margins between wholesale and retail. This is of course exaggerated, but concentrate on solving a problem, look into the business case, is the margins enough to make a living, should there by another revenue stream?

Plan for 2-3 service milestone over a period of 30-36 months, where you can stand out and which will add value to your defined segment, that way you will stay relevant for the end-users.

Don’t be afraid to look into smaller setups. I.e. M2M. although this may not generate a lot of data usage and probably no voice revenue, the model can be tailored around analytic service instead. Furthermore you “save” a lot on marketing as machines don’t care and you will know how many you have and plan the organization accordingly. You can run small MVNOs with a team of 5-10 people.

Q 5. TechPlayon:
Do you see Indian states having a MVNO project? Considering there still coverage holes and bad service experience in rural areas? Also in such a huge geography it is difficult to maintain the network due to extreme climate conditions as well.

A 5. Allen: To answer the last part first. Network maintenance should not be the concern of the MVNO. The contract between the MNO and MVNO should clearly state that the MNO is responsible for the network, service and capacity via a Quality of Service (QoS) and Service-level agreement (SLA) terms.

Having said that, it is important to know how big or small the capacity in the area is, and will be. We have terrible example of such issues from Thailand where the first MVNOs was introduce on the 3G network by one of the state enterprise telecom operators. The first year the telecom operator did not manage to roll out more than 525 base stations in central Bangkok. Not only did the MVNOs have to share the capacity with each other but also the operator. People in the northern part could not use the service, while those in the central area of town had all the fun.

However there are still countries with rural areas today where neither electricity nor telephony are common. Again using Thailand as an example, but this time a positive one – Is the governments village broadband project where the state enterprise telecom operator TOT has been tasked with the roll out of mobile internet to 24,000 villages in Thailand. The network will be available for MVNOs or other operators in wholesale to provide services to the villages.

This is an interesting eco-system where the financing comes from the latest 4G spectrum auctions and the universal service obligation fund (USO), which all telecom companies pay to, as part of their license fee (1.5 percent of revenue). The state enterprise, who is under a turnaround to survive, will with this setup be able to survive on wholesale, while rolling out and maintain the network. The private operators and MVNOs will be able lease access to the network and new segments, the people in the villages will get access to the internet and service, and thus in return all wheels in the country are now spinning providing the backbone of digital economy.

Q6. TechPlayon: How does business model works in MVNO?

A 6. Allen: It depends, and by that I mean that MVNOs are constantly innovating new business models, which they have to persuade the MNOs to agree on, which the often don’t.

MNOs are used to either retail minus, which is the retail price in the market minus the cost the MNO has on selling this. (As the MVNO will now have these costs)

Or cost plus, which the is the actual costs for the MNO plus what the MNO wants to make on selling to the MVNO.

Revenue share is also an option, which is what most operators are used too from other commercial agreements. However with operators used to MVNO it is mostly cost plus or retail minus that has been the norm, but today it often depends on how much the MVNO itself brings to the table in terms of telecom oriented IT, operating and billing systems (how much they can do themselves) and how big the subscriber base is/can become.Other options include capacity based agreements, joint ventures or brand licensing agreements.

The cost structure of an MNO is biased heavily towards fixed costs. The main fixed cost elements of the MNO are:

  • Sales (20%)
  • Customer service and billing (15%)
  • Marketing and communications (15%)
  • Network operations and maintenance (typically 30% of all fixed costs)

While the main variable cost elements for the MNO are:

  • Interconnect costs
  • Customer acquisition
  • Customer retention costs

The cost structure of the typical MVNO is almost completely the opposite of a mobile network operator. The main fixed MVNO cost elements are:

  • Sales
  • Customer service and billing
  • Marketing and communications

The variable cost proportions are dominated by wholesale airtime costs, as well as customer acquisition. Wholesale costs can often represent 60-70% of a typical MVNO’s operating costs which immediately limits profit margins.

It is therefore essential for the MVNO to develop a business model that minimises the cost of customer acquisition and retention as well as fixed costs in order for the business model to be commercially viable.

About Allan Rasmussen

Allan Rasmussen, Technology, Media, and Telecom (TMT) consultant with specialty in MVNA / MVNE / MVNO / MNO. Background: 25 years in Broadcasting and Telecom in Europe, and for the last 12 years residing and working out of the ICT consulting company Yozzo, in Bangkok, Thailand.