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S-38.042 Seminar on Mobile Operator Strategies and Games, fall 2003 12.11.2003

Mobile Virtual Network Operators: Introducing the business concept of "One doesn’t need to own a cow to milk a cow”. S-38.042 Seminar on Mobile Operator Strategies and Games, fall 2003 12.11.2003 Timo Smura and Mika Marjalaakso. Presentation Outline.

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S-38.042 Seminar on Mobile Operator Strategies and Games, fall 2003 12.11.2003

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  1. Mobile Virtual Network Operators:Introducing the business concept of "One doesn’t need to own a cow to milk a cow” S-38.042 Seminar on Mobile Operator Strategies and Games, fall 2003 12.11.2003 Timo Smura and Mika Marjalaakso

  2. Presentation Outline • What is a Mobile Virtual Network Operator? • Key driving factors enabling the MVNO opportunity • The MVNO opportunity • Different MVNO types • MVNO backgrounds • MNOs and MVNOs in Finland • MVNOs business on modeling point of view • Conclusions • about the business opportunity • a few selected suggestions to the MOB business game

  3. What is a Mobile Virtual Network Operator? • Mobile Virtual Network Operator • doesn’t own a network nor have a radio spectrum license • buys wholesale network capacity from a network operator • makes, however, significant investments to network infrastructure to obtain better control on services offered • Mobile Network Operator • owns and runs a network • own radio spectrum license • acts both network and service operator

  4. Key driving factors enabling the MVNO opportunity • Western Europe mobile market reaching saturation • Nordic countries already saturated at 90% • Introduction of pre-paid subscriptions has had a large impact • Deregulation opens the mobile markets to competition • No need for own spectrum licenses or radio networks • Regulator-controlled interconnection prices • The focus in revenues is expected to shift from basic services to more content-based value-added services • Convergence, evolution towards IP over everything • New entrants may have excellence in content-creation • Also increasing shift from voice to data services

  5. The MVNO opportunity Virgin Mobile, Key Figures • 269,681 net connections in Q3 2003 • Total customer base 3,183,347 (30th Sept. 2003) • Customer growth up 56% since Q3 2002 (2,013,382) • Record Q3 2003 turnover of £112,6m • Nine month EBITDA of £67m • Nine month operating profit of £59m • Nine month turnover of £309m • >1500 emplyees • >6000 distribution outlets

  6. Different MVNO Types • ITU: MVNO = an operator that offers mobile services but does not own its own radio frequency • Different categorizations exist, mostly technology-based

  7. MVNO backgrounds • MNOs have their roots in the fixed line business • leverage on the existing network and ownership of spectrum licenses • MVNOs can emerge from a plethora of industries • leverage on strong brands and extensive distribution networks

  8. MNOs and MVNOs in Finland • Three GSM licenses, four UMTS licenses >> four MNOs • Currently ten MVNOs, with very heterogenous backgrounds

  9. Modeling MVNOs: The Big Picture

  10. Conclusions: the business opportunity • it’s as real as life, which we can see from the figures put on the table by Virgin Mobile • we don’t have lots of financial information about the success of MVNOs in Finland • Saunalahti has quickly acquired some amount of new customers, but the profit level has been far from Virgin figures so far • end-users have already experienced the deregulation activities in declining prices and simplified pricing schemes • many MVNOs have entered the market to learn the business and prepare themselves for the emerging, more content and data-based 3G market

  11. Conclusions: some remarks on the current MOB business game • Current version does not recognize the division between service operator and network operator • MVNOs could be modelled in many ways • Computer-controlled vs. Player-controlled • Relationship with MNO players: No interface vs. full negotiations • Types: Service provider, Enhanced service provider, Full MVNO • Different strategic alternatives: cost or service leader • Simplifications required for feasible implementations

  12. Conclusions: three improvement suggestions • Implement MVNOs with fixed interconnection cost and the network capacity bought virtually from nowhere • MVNOS implement the cost leader strategy • significantly lower capital (approx. 20% of MNOs costs) and operational expenditures • fixed interconnection prices determined by the game operator • restricted set of services a MVNO can offer • Introduce means for negotiation, the network capacity is bought from actual players • network capacity is bought for a certain period of time • switching costs for a MVNO due to investments to the network infrastructure (e.g. VAS servers, billing and charging systems, integration costs) • wholesale pricing options for MNOs who decide to sell excess capacity • Give the players a possibility to act as MVNOs with different strategies • service leaders must select a service mix they intend to offer • requires for modeling financial flows based on service demands per customer group and actual costs to produce a certain service

  13. Thank you! It’s time for questions and answers. virtual service operator capacity network operator virtual service operator virtual service operator virtual service operator services virtual service operator

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