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MVNO strategies to survive the economic downturn

Carrie Pawsey

MVNO strategies to survive the economic downturn

Despite the economic downturn, there are still exciting new markets for MVNOs to enter, as well as new types of players looking to launch services. For those competing in saturated markets, the low-cost MVNO structure will help them survive and there is the potential to grow as consumers look for new ways to reduce their mobile costs. Success is most likely for those MVNOs that have targeted offerings for specific market segments. In addition there is the growth of data-focused MVNOs, but the challenge for them is how to differentiate from their host providers.

Find the right market and the right business model

Recent regulatory changes have meant that new markets are now opening up to MVNOs; most recently the governments of India, Israel and Turkey have set out their intentions to welcome MVNOs to the market. The Middle East continues to be of interest to potential players and we've seen recent announcements around launches in Oman, with two players recently signing wholesale agreements.

There is no doubt that the MVNO business model continues to be of interest to new players. Retailers are still keen to offer mobile services; for instance, Ikea has announced its intention to launch services in Spain following its UK launch last year. But, more interestingly, we've seen interest from less traditional MVNO players. There is speculation that both Ericsson and Nokia have shown an interest in launching MVNO services in India, and Nokia is rumoured to be setting up a Japanese MVNO operation. Such a move by a vendor would be a significant departure from the traditional business model of selling devices through third parties. We believe that the MVNO model is of interest as it allows a direct customer relationship, which is a key component of a SMART player strategy (further discussion of SMART players can be found in the 'Of iPhones and Androids: redefining smartphones and other devices').

The economic downturn brings a wider addressable market for MVNOs, but greater competition

The economic downturn means that many users are re-evaluating their mobile costs and therefore there is a wider addressable market for low-cost MVNOs. The 'no-frills' offers will be appealing to many who just want cheap basic communication services at the best price.

However, those MVNOs will face strong competition from SIM-only offers from the network providers, which have placed a renewed emphasis on this - our forthcoming research on SIM-only strategies will provide more detail.

Those MVNOs that offer targeted plans to specific segments will continue to do well - that's evident from players like Lebara and Lycatel, which target the ethnic segment and together have around 3.5 million customers across Europe. However, potential MVNOs shouldn't be misled into thinking that an ethnic offering equals guaranteed success. The US market initially saw lots of success for those players targeting the Hispanic community, but we've seen financial difficulties faced by players like Movida and Azteca Mobile.

Wholesale data is available, but MVNOs need to beware of competing on price alone

Some network operators in advanced markets are now wholesaling their data networks in order to leverage investment, and therefore we are seeing some interesting data-focused MVNOs. Some are targeting the business market, such as the Dutch MVNO Yes Telecom, which last week launched HSDPA services on the KPN network, and Japanese PHS operator Wilcom, which plans to sell its own-branded datacards made by NetIndex together with wholesale access to the NTT DoCoMo network. Consumer mobile broadband offerings are available from a number of players, including Virgin Mobile UK and Coriolis Telecom in France. Interestingly, the Spanish banking giant Santander is rumoured to be about to launch a consumer-focused mobile broadband service via USB modem using Orange's network in Spain.

MVNOs that are looking to offer mobile broadband need to differentiate from their host providers. Mobile broadband is a lucrative retail service that is still in its infancy in relation to mobile voice, so wholesale data rates are likely to be high. Competing on price alone is not sufficient for success. Those that can bundle mobile broadband with fixed broadband provide a 'convergence' differentiation to the service and allow for cross-selling opportunities.

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