What is an MVNO?
An MVNO is a company that purchases access to an existing infrastructure in order to offer value-added services. Generally the MVNO offers voice and data telecommunications services via a subscription agreement. The MVNO buys access to the infrastructure and then resells it, with added-value and often significant discounts, to the consumer.
What are some examples of MVNOs?
1. Virgin Mobile (http://www.virginmobile.com)
Launched in November 1999, this is the world’s largest MVNO. It offers branded cellphone service in the UK, Australia, and the US. Because of the piggybacking nature of MVNOs, this company can offer cellphone service with no incidental fees. Customers do not have to pay monthly fees or rental charges — they only have to pay for the actual calls they make. Several value-added services make this communications provider “cool”.
2. Tele2 AB (http://www.tele2.com)
This is a Swedish MVNO that offers both fixed and mobile phones. It has markets in Scandinavian and Baltic countries. It is marketing itself as the lowest-price competitor in these markets. It has been growing mainly through acquisition.
3. Sense Communications (http://www.sense.no)
4. Cotas (http://www.cotas.net)
Advantages of MVNOs
MVNOs specialize in knowing their customer. The money they don’t have to spend on upkeep of the infrastructure can be spent on marketing research. This makes them ideal companies from a consumer’s point of view. The companies can focus their energies on finding out what the consumers want and then giving it to them.
Another area of specialty of MVNOs is their concept of branding. This can be seen clearly in the Virgin Mobile example. The Virgin parent company already has a cool, slick image, and that can be used to great advantage in selling further services. Customers trust the Virgin logo, so they will likely be willing to trust this new foray into telecommunications — with much more confidence than they would trust a new company, or an old public company.
Third, these companies are able to offer value-added services, especially contents-based services, that are not generally provided by the owners of the infrastructure. In the world of mobile phones, this can mean information and entertainment services, discounts, and personalized services for individual customers.
Finally, a basic concept of MVNOs is that they try to provide seamless operations — meaning that the customer has access to the infrastructure when and where they need it without having to negotiate separate terms with separate infrastructure operators. This is may eventually lead to the possibility of seamless global-roaming.
Disadvantages of MVNOs
There is a very basic problem with MVNOs. Core companies don’t want to give access to their infrastructure and MVNOs don’t want to pay for its expensive upkeep. This causes a general amount of uncertainty in this new business model.
The main concern is that MVNOs purchase access to the infrastructure from a core company — a competitor — and sell it to customers that could have bought directly from the core company. In order for the MVNO business model to work, there has to be a significant advantage to the core company to let a competitor have access to its network. The MVNO has to prove that its services will be complementary to rather than competitive with the core company’s goals.
Furthermore, allowing access to the core company’s network backbone poses a significant security threat. The idea of giving a young startup access to a core company’s most valuable asset is not likely an appealing notion for the infrastructure provider.
Money is made in the telecommunications world by selling services to subscribers. By allowing MVNOs access to the infrastructure, the core companies risk losing their share of the consumer market. They end up being a “dumb pipe” provider rather than being able to profit from their contribution to the market.
Core companies have to follow strict regulations regarding their provision of infrastructure. MVNOs are largely unregulated. This dichotomy is a point of contention for the core companies. MVNOs seem to get all the advantages of operating a part of the network without any corresponding restrictions.
Found acronym on:
Found examples and other information on:
www.pyramidresearch.com/info/rpts/mvno.asp (no longer available)
www.ssgrr.it/en/education/catalogo_en_2002/mvnoto.asp (no longer available)