Vincent Poulbere
French telcos may buy into struggling MVNOs
In an article published this morning, Les Echos revealed that Ten Mobile, a French MVNO, is looking for funds to support its activities, and that Orange and Alice (ISP owned by Telecom Italia) would be candidates for buying the company. Also, in parallel, SFR would be the main contender to buy Debitel, another MVNO, which has been on sale for several months.Comment: The announcement of Ten's difficulties echoes the news from the US that Ampd' Mobile filed for bankruptcy protection on Friday 1 June. Both announcements illustrate the difficulties in creating a value-add MVNO that offers innovative, differentiated services, and focuses on the postpaid high-value customers. At its launch we found Ten's positioning interesting for an MVNO because it was providing differentiated services based on IP data services and the support of popular Internet services. However, the company faced a very slow customer uptake despite important marketing spend - including TV ads - and Ten Mobile burnt most of the cash invested in the company in 12 months. According to Les Echos, Axa Private Equity had invested around €10 million, and the number of Ten customers would be close to 15,000, with a high ARPU level of €40-45 per month. That's been a very expensive customer acquisition strategy and it's no surprise that the investor has pulled the plug out now. So what are the lessons? First, this type of MVNO strategy is very vulnerable to the mobile operators' reactions. The service differentiation does not stand up for long against the operators' own plans to develop IP-based mobile services with the Internet players (e.g. Orange and Bouygues Telecom partner with Microsoft to offer Windows Live Messenger). Also the MVNO cannot sustain the battle on handset prices based on handset subsidies, as operators have much deeper pockets for this as well as a strong direct distribution network. And finally, in France particularly, the acquisition play around postpaid customers is heavily based on unlimited plans, which cannot be replicated easily by MVNOs due to the wholesale pricing arrangement they've got with the operator to use their network.As we wrote in the report 'French MVNO market enters consolidation phase' in March, consolidation of the MVNOs in France is starting to take place, and we see that the network operators are the likely consolidators (SFR for Debitel, maybe Orange for Ten), which is not very surprising as this has already taken place in Northern Europe. We expect very few large mass-market MVNOs such as Virgin Mobile or Carrefour will remain, and some more focused ones with a niche play, such as Mobisud targeting the North African immigrants. The only 'sweet spot' for MVNOs seems to be the more low-end, prepaid market, which operators are ready to divest to concentrate on their high value customers.
