Factors for MVNO Success

| WE CONNECT THAILAND

ONE DEVELOPMENT is the next generation, independent, Mobile Virtual Network Aggregator and Enabler

(MVNA/E) with hands-on experiences from both MVNO and Mobile Network Operations worldwide.

ONE DEVELOPMENT | WE CONNECT THAILAND

MVNO WHITEPAPER

ONE DEVELOPMENT WE CONNECT THAILAND

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www.weconnectthailand.com

FACTORS FOR MVNO SUCCESS May 2015
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TABLE OF CONTENT

DEFINITIONS USED THROUGHOUT THIS DOCUMENT ............................................................................................2

PART 1 INTRODUCTION TO MVNOs .....................................................................................................................3

a) How does an MVNO work? ..................................................................................................................................3

b) How does an MVNO make money? .....................................................................................................................4

c) Do all MVNOs require a lot of technology? ..........................................................................................................4

d) I need to offer the same (or better) tariffs than my competition can I do this? ..............................................5

PART 2 WHY DO I WANT AN MVNO? ...................................................................................................................6

PART 3 WHY WOULD SOMEONE BUY MY PRODUCT? .........................................................................................9

DEFINITIONS USED THROUGHOUT THIS DOCUMENT

HNO - HOST NETWORK OPERATOR It is as a Mobile Network Operator that owns its network infrastructure and allocated spectrum.

MVNO - MOBILE VIRTUAL NETWORK OPERATOR It is an organization, which offers mobile services. The MVNO does not own spectrum, instead it enters into an agreement with either a HNO or MVNA to obtain bulk access to network services at wholesale rates, and then sets its retail prices independently. An MVNO may use its own customer service, billing support systems, marketing and sales personnel or it may employ the services of a MVNE

MVNE - MOBILE VIRTUAL NETWORK ENABLER It is an entity, which provides infrastructure and services to both HNO and MVNOs, which enables existing, and new MVNOs to offer their services on the HNO network, while leaving the back-end enablement to the MVNE. The MVNE provides services, such as billing, business workflow, product setup, service delivery, customer care, fraud management, web services, reporting, sale platforms, etc.

MVNA- MOBILE VIRTUAL NETWORK AGGREGATOR The MVNA is an entity, which purchases mobile airtime in bulk from the partner HNO, and then wholesales this airtime and service to multiple MVNOs, who each in turn sells the mobile service to end-users.

MVNE/MVNA - MOBILE VIRTUAL NETWORK ENABLER & AGGREGATOR (ONE DEVELOPMENT) is a combination of, Mobile Virtual Network Enabler and Aggregator. The MVNE/A is an entity, which purchases mobile airtime in bulk from the partner HNO, adds its service platform (MVNE) on top, and then wholesales this airtime and service as end-to-end to multiple MVNOs.
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PART 1 INTRODUCTION TO MVNOs 1. Introduction Many of the factors influencing an MVNOs business success are the same as those you would encounter

running any business: hiring, cost control, quality control, customer service, sales and marketing effectiveness,

bad debt management and so on. We do not intend to cover these more general questions in this series. Here

we intend to look at some of the issues specific to MVNOs and provide some thoughts, based on years of

experience, which might help you start your MVNO with the best chance of success.

We suggest you ask yourself two important questions:

Why do you want an MVNO?

Why would someone buy your product?

Your answers these two questions will provide you with a great deal of guidance for the implementation of

your MVNO. Later we will look at some of the usual answers and how they influence plans regarding your:

wholesale deal

technology strategy

product

distribution and sales

brand strategy

But first, we will introduce some basic concepts so that you have a framework to assist your understanding of

the details of these plans.

2. Basic MVNO concepts

a) How does an MVNO work?

At its core, an MVNO is a simple business. It first enters into a contract known as a Wholesale Agreement

with a Mobile Network Operator (i.e. one of the, usually three or so, companies in a country which have

acquired mobile radio spectrum rights and which have installed mobile base stations to which subscribers

mobile phones connect).

This Wholesale Agreement allows the MVNO to sell mobile connections to customers in return for paying

certain charges to the HNO. HNOs typically enter into these contracts in order to enhance their competitive

position in the market by working with MVNOs to help acquire more subscribers onto their networks.


b) How does an MVNO make money?

MVNOs make money by taking a margin of the amount that their customers spend through the MVNO for their

mobile phone costs.

There are two ways this margin is made, these are referred to as: Cost-Plus and Retail-Minus.

Cost-Plus

On this model, the Wholesale Agreement stipulates a set of charges, which the MVNO must pay the

HNO for voice minutes, SMS messages and MBs of data. The MVNO then adds a margin to these

wholesale costs and charges the marked-up cost to their subscriber base.

Retail-Minus

On this model, the Wholesale Agreement allows the MVNO to sell products at specified prices. In

return, the MVNO is given a set percentage of the total amount paid.

c) Do all MVNOs require a lot of technology?

No, not necessarily. Aside from the obvious differences between the Cost-Plus and the Retail-Minus

models, there are significant differences in the ways that MVNOs approach their technical operations.

Some MVNOs do not bother with a technical implementation at all.

This can be achieved in one of three ways:

1. You resell SIMs obtained directly from the HNO. This is known as a Reseller approach and typically

operates on a Retail-Minus model. Realistically, these MVNOs are little more than distributors,

however, their low overheads can lead to worthwhile profits.

2. You enter into your own Wholesale Agreement and work with a Mobile Virtual Network Enabler

(MVNE), which manages the technology operation.

3. You work with a Mobile Virtual Network Aggregator (MVNA), which manages both the Wholesale

Agreement and the technology for your MVNO.

Other MVNOs are distinguished by their commitment to managing their own technology. These can range

from only a small amount of technical implementation (Light or Thin MVNOs), through more complete

technical implementations (Heavy or Thick MVNOs) up to a complete network implementation operating

essentially the same technology as an HNO, minus the radio base stations (Full MVNOs).
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If you are not sure, which approach will work best for you some MVNE/A companies can enable you to

start working on a flexible model, which can grow with your business.

You can start on an MVNA basis which will give you access to the Wholesale Agreement and technology

implementation of the MVNE/A company (this requires minimal investment at start-up).

If this is successful you might like to negotiate your own Wholesale Agreement but then migrate to the

MVNE/As MVNE platform, while using your own wholesale terms. If you then want to migrate to your own

technical deployment this option may be open to you at a later date.

If you are interested in taking this approach it is important to check that the MVNE/A will support this

migration path.

d) I need to offer the same (or better) tariffs than my competition can I do this?

As with any product, the price you offer your products to your customers depends on two key inputs: (a)

your Costs (wholesale + operating) and (b) your desired net margin.

Wholesale costs generally vary with the size of your business.

If you are in a position to guarantee the HNO a very large wholesale revenue and you are prepared to back

these up with minimum commitments (i.e. you will commit to pay the HNO whether or not you are

successful in selling the full amount prescribed in your Wholesale Agreement) you have a good chance of

obtaining a low wholesale price.

It is unrealistic, however, to think that an HNO will give you the same rates as their largest wholesale

clients without a commitment to a similar overall expenditure.
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PART 2 WHY DO I WANT AN MVNO?

In our experience, the majority of MVNOs are started for one of the following reasons:

a) I want to invest in a business which I can sell at a later date for capital gain

WHOLESALE DEAL

You will almost certainly want a Wholesale Agreement that is based on a Cost-Plus model. This will give you control over the types of products and the tariffs that you offer to your subscribers and, thus, gives you an added measure of independence from your HNO. It should also be clear in the Wholesale Agreement that the subscribers are owned by you and not by the HNO.

TECHNOLOGY STRATEGY

For maximum value at exit, you will want to maximum amount of control over your subscribers. You need to really own your subscribers otherwise the only realistic acquirer of your company is your host HNO which is a situation which clearly limits your ability to gain an exit at all, let alone the maximum valuation. There are two ways to achieve this:

Manage your own technology on a Thick or Full MVNO model, or

Work with an MVNE or MVNA, which is prepared to provide the same depth of technical implementation on your behalf.

PRODUCT Innovative products and services clearly enhance the value of your company and you should attempt to develop a product approach, which sets you and your business apart from the herd.

DISTRIBUTION AND SALES

Your own distribution and sales operation is clearly a major asset of the company and would enhance its value. A completely outsourced distribution and sales operation is a dangerous option as your reliance on this will increase the risk associated with future revenue and diminish your asset value.

BRAND STRATEGY

Clearly, you will gain maximum valuation by having developed an MVNO brand, which is strong in your country of operation. This can be achieved by:

Creating a brand of your own, or

Licensing a strong brand (either a mobile brand not active in your country or an existing brand not yet operating MVNOs)


b) I want a business which returns consistent profits for the shareholders

WHOLESALE DEAL Either a Cost-Plus or Retail-Minus would be adequate to achieve this.

TECHNOLOGY STRATEGY

This is up to you, the funding you have available and your business modelling. In general, if you are planning a smaller business with limited funding you can get by using a Reseller model. If you are looking at a larger business and have some funding available, it is well worth looking at either using an MVNE / MVNA model or, for even larger business plans, looking at deploying your own technology.

PRODUCT The range of product designs is really open here. There is no need to develop anything revolutionary as long as you believe you will be able to market it successfully.


Distribution and sales cost money: employing your own sales-force will be a burden on your operational expenses, while outsourcing distribution and sales can cut deeply into margin. You will need to analyse the right kind of mix which suits your larger business model

BRAND STRATEGY

Brands are generally expensive to develop and are a valuable asset for a business, however, if your aim is to generate profitable sales you may prefer to take a more tactical, product-oriented approach to your marketing and minimise brand development costs in order to maximise EBIT.


c) I already have a large user base and/or brand and I want to offer them more products

WHOLESALE DEAL

If you are in the fortunate position of having an existing customer base, brand and distribution network your approach to your wholesale deal can be quite open. In many ways, you already have much of the infrastructure you need to make profitable sales and are probably already working hard to manage your existing business. You might like to keep a very light involvement in the day-to-day operation of the MVNO by working on a Retail-Minus model as a branded reseller. On the other hand, a little more investment in establishing the operation needed to manage a Cost-Plus model might return significant value in the ability to design custom products, which add value to your overall brand/product portfolio.

TECHNOLOGY STRATEGY

A business, which is already managing customers and products, might not wish to take the risk inherent in moving into a new field such as managing a significant MVNO operation. Using an MVNE or MVNA model enables the technology management to be outsourced to experts in this field while you focus your energies and investment on the sales, distribution and customer service operation where you are already expert.

PRODUCT

If you believe your sales, distribution network, and existing customer base is strong there may be no need to develop special products. Your target market is already defined by your existing customer base, so it almost certainly makes sense to market a product based on their tastes. Note that in these circumstances it is generally unnecessary to pursue an aggressive pricing strategy.


If you are building on your existing distribution and sales network, you start with a real advantage. Selling an MVNO product alongside your existing product base should not produce any major problems.

BRAND STRATEGY

Do you want to create a new brand or position the MVNO offering as a line extension to one of your existing products? This is the key question and the answer will usually be fairly obvious when you take into account the strength of your existing brand and the costs involved in building a new one.


PART 3 WHY WOULD SOMEONE BUY MY PRODUCT?

a) Its cheaper than the competition

WHOLESALE DEAL

You will need an aggressive wholesale deal in order to support a price-based proposition. It is highly likely that this deal will need to be based on a Cost-Plus model. You may be competing with MVNOs, which have made large minimum commitments to the HNO. Unless you are able to compete in this, it is unlikely you will be able to obtain a very cheap wholesale deal. You should look carefully at the niche you intend to target can you compete on price by focusing on a niche market and product (e.g. calls to specific international destinations, data-only deals, etc.). You might be wise to work with an MVNA which has its own wholesale deal and who can offer you the advantage of their own scale to keep the rates down.

TECHNOLOGY STRATEGY

You will probably need access to some technology in order to make money, which can be either an MVNA, MVNE or your own technology deployment. The choice of approach is up to you and will be based on the availability of investment and the overall business model you wish to take.

PRODUCT

Choose a niche in which you believe you can offer low prices and compete successfully. It is impractical to think that a low price strategy will work without targeting a specific niche your wholesale costs will never be as low and the HNO and without a clear focus it will be difficult to gain subscribers. The niche can be defined by calling destination (e.g. international destination), special product features (e.g. low cost family and friends calling, charitable focus, etc.), target demographic (e.g. youth, seniors, one city or province, etc.) or affinity group (e.g. clubs, societies, etc.).


Distribution and sales can represent significant operational costs. If you are offering a low price product, you have probably already cut the margin on your product. You will need to exploit all methods to keep distribution costs low.

BRAND STRATEGY Marketing a brand is an expense you will need to control carefully. Try to think about leveraging your existing brand, or work with the brands of affinity groups in your target niche.


b) It has special features which they will love

WHOLESALE DEAL If you are looking to create products and tariffs, which are new to the market you will almost certainly, require a Cost-Plus Wholesale Agreement.

TECHNOLOGY STRATEGY

You will need to work with a technology platform, which gives you the flexibility to design new product types, whether these are defined by tariff or special features (e.g. family credit sharing on prepaid, free WhatsApp calling on data, etc.). You are free to choose from MVNE, MVNA or your own platform but ensure that whatever platform you choose has maximum flexibility in product design. Some platforms can give you total control over products and tariffs, whereas others are limited in the flexibility to innovate.

PRODUCT

Innovative product design is fun to do but remember that you need to offer this product to a market, which will want to purchase. Innovative product design is pointless unless there is a clear and sizeable market for which it will be appealing. Overly complex tariffs and products are hard to market. On the other hand, some products are easy to market but hard to make money from. Free advertising-supported plans have often been successful in gaining subscribers but rarely succeed in making money.


This is always a key question in MVNO design and for innovative products, it is clearly a critical part of the mix. An innovative product needs to be available to its intended target market if it is going to gain subscribers. Start by asking who you are trying to reach, how your product makes their lives better and how you are going to reach them with SIMs. Sometimes the distribution model becomes obvious from the nature of the product: family products often work well on a peer-to-peer distribution model; products targeting an affinity group have an obvious distribution strategy.


c) It has a brand that people are enthusiastic about

WHOLESALE DEAL

Where the brand is strong, the choice of Cost-Plus or Retail-Minus is up to you. You will have more control over your product with a Cost-Plus approach but there are examples of successful and sizeable MVNOs operating with a strong brand in a reseller model.

TECHNOLOGY STRATEGY

Your choice of technology strategy is open and depends, in part, on your wholesale model and product design. A strong brand might be able to operate on a me-too product and so a simple reseller approach can be sufficient. If, on the other hand, you believe it is important to create specialised product and tariff offerings you will need to look carefully at an MVNE or MVNA strategy or examine the business case for your own technology deployment.

PRODUCT

A strong brand often calls for some customisation of the product. This can be in terms of the core telephony product or in terms of some non-telephony add-ons (such as integration with loyalty schemes, preferred access to other products in the brand portfolio and so on).


Your brand might already reach its market via an established distribution model. If so, you are in luck and the comments in Part A (c) above will apply. If you do not have an existing distribution channel, you will need to examine the costs of taking this product to market and design your strategy accordingly. Do you need to use existing SIM distributors or does your brand enable you to use a different approach (via affinity groups, online marketing, etc.). Can you target subscribers via branded events (e.g. football matches, club meetings)? There should be some ways in which your already established brand can assist in distribution and sales, taking advantage of the brand can avoid competing directly with other SIM offers.

BRAND STRATEGY

Clearly, you already have the brand as an advantage. However, you will need to ask yourself how the brand can adapt to a telephony product and what advantages it can bring to the product. Simply putting a logo on a SIM does not guarantee that it will sell. The brand will need to do real work for the MVNO in positioning the MVNO as better than the competition in the mind of the target market. It will be up to you to create ways in which you build the MVNO-value into the brand activities.


There is always risk in a new venture, but ONE DEVELOPMENT helps MVNOs manage their exposure. Making

your MVNO simple and flexible, with expert advice and low upfront cost - this is how we help companies

increase their likelihood of succeeding.

ONE DEVELOPMENT is the next generation, independent, Mobile Virtual Network Aggregator and Enabler

(MVNA/E) with hands-on experiences from both MVNO and Mobile Network Operations worldwide.

ONE DEVELOPMENT

WE CONNECT THAILAND www.weconnectthailand.com

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Factors for MVNO Success

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