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MVNO Business Essentials
This document has been created by NEREOBUSINESS CONSULTANTS. It is not complete unless supported by the underlying detailed analyses and oral presentation.
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THE MVNO BUSINESS
LAUNCHING A MVNO
CONCLUSIONS
ABOUT US
INDEX
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THE MVNO BUSINESSWhat is a MVNO
Agreement at price level
Quality management (SLAs/KPIs)
Mechanisms to garantee the
relationships evolution (newservices, price updateprocedures,)
Value proposition (SAC, productsand services)
Efficient management of the
customers retention (churn, SRC,customer care)
Essentially, MVNO business consists in managing two key relationships:Mobile Network Operator (MNO) and the end-user
MVNO
MNO END-CUSTOMERS
A Mobile Virtual Network Operator (MVNO) provides mobile services without owningspectrum and usually relies on the Mobile Network Operators (MNO) network
infrastructure.
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Distribution
Cost
BundlingSegmentation
Brand
MVNO
Handset /Aplications
... which means that MVNO business is mostly a market segmentation game for maturemarketplaces.
THE MVNO BUSINESSMarket entry strategies
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Services &IT Platform
Ownershipand OperationOf the MobileNetwork
CustomerCare
Service
Marketing& Sales
Services &IT Platform
CustomerCare
Service
Marketing& Sales
Ownership ofMiblie Network
Distribut.
Distribut.Push
Leveraging on selected partners through outsourcingSpecific offers for each
market segment
Only one Market
Market Segments
Executed in-house Outsourced to an external partner (MVNO)
Befor
Currently
...by creating offersaligned to the needs of each of the existingsegments
...by dividing the value
chain and allowing theentrance of new playersthrough:
Radically reducing costs(increasing the EBITDA)
Reach new consumers inmarket segments not yettapped into (newdistribution channels)
In saturated markets, competition becomes a market-share game, so this new challengeleads MNOs to seek for MVNO partnerships to sustain the overall market growth
MVNO allow MNOs to address specific market niches which they have not yet tapped into, whileincurring lower Subscriber Acquisition Costs (SAC)adding efficiency to the value chain
Operation ofMobile Network
Pull
Distribut.
Distribut. Push
Pull
Pull
THE MVNO BUSINESSHow MVNOs create value for MNOs
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WithoutMVNO
WithMVNO
SubstantiallyLower
SAC ARPU
Slightly Lower
The Subscriber acquisitioncost (SAC) in the wholesalebusiness for an MNO is zero,due to it falling on the MVNO.
The Average Revenue perUser (ARPU) in the wholesalebusiness is only slightly inferiorto the ARPU of the retailbusiness for the MNO.
In this way, the EBITDAmargin% of the wholesale
business is much higher thanthat of the retail one for MNOs.For the Host-MNOs, the EBITDA margins for customers acquiredby MVNO is 3x the retail one
Besides being a source of growth for the client portfolio, MVNOs create significantadvantages for the MNOs in terms of improving its business profitability
EBITDA margin
Lower margin %
THE MVNO BUSINESSBenefits of MVNOs for the MNOs
WithoutMVNO
WithMVNO
WithoutMVNO
WithMVNO
IMPACT OF MVNO BUSINESS ON MNOs FINANCIALS
MVNOs help MNOs to drastically improve their EBITDA margins by reducing SAC costs withonly a slight reduction in ARPU
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THE MVNO BUSINESSMVNOs in Europe
Number of MVNOs and their market share in Europe (end of 2009)
MVNOs have been quite successful in garnering market share in most European countries
Source: Nereo Analysis with company data
15%
MVNOsMarket share
Spain: 22
(Simyo, Lebara)
Portugal: 5(UZO, Tele2)
France: 11(Carrefour, Tele2, Virgin)
Luxembourg:2(KISS, Transatel)
Belgium: 35(Simyo, Transatel)
Netherlands: 39(Simyo, Tele2)
Norway: 16
(Mobyson, Sense Talkmore)
U.K.: 25(Virgin, Tesco)
Finland: 9
(Saunalahti, Oyj)
Sweden: 18(ACN, Sense)
Germany: 29(Ay yildiz, Simyo)
Austria: 5(Yesss!, Tele2)
Denmark: 16(CBB Mobil, Telmore)
Italy: 14(COOPVoce)
Switzerland: 5(COOP Mobile, Tele2)
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Tele2/Sunrise - Switzerland
Tele2 acquired by SunriseValue: 33 million EUR Price per Customer: 63 EURYear: 2008
Sense/TeliaSonera - Norway
Virgin UK/NTL - UK
Virgin UK acquired by NTL
Value: 1,060 million EUR Price per Customer: 318 EURYear: 2006
Bibob/Telenor Denmark
Hutchison/CPW - Germany
Allmobility/Vodafone - Germany
Allmobility acquired by Vodafone AGValue: 25 million EUR Price per Customer: 62 EURYear: 2007
Sense/TeliaSonera - Sweden
Saunalahti/Elisa - Finland
CBB acquired by SonofonValue: 45 million EUR Price per Customer: 103 EURYear: 2004
TELE2/VIRGIN - France
Tele2 acquired by VirginValue: 56 million EUR Price per Customer: 140 EURYear: 2009
THE MVNO BUSINESSMVNO Transactions Exit strategies
MVNO transactions across Western Europe in the last few years serve to highlight thatexit strategies have been successfully achieved by investors.
Hutchison acquired by CPW(Carphone Warehouse)Value: 52 million EUR Price per Customer: 96 EURYear: 2003
Bibob acquired by Telenor DenmarkValue: 12.5 million EUR Price per Customer: 181 EURYear: 2009
Sense acquired by TeliaSonera
Value: 189 million EUR Price per Customer: 104 EURYear: 2004
Chess/Sense acquired by TeliaSoneraValue: 185 million EUR Price per Customer: 457 EURYear: 2004$
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THE MVNO BUSINESS
Operational Models
LAUNCHING A MVNO
CONCLUSIONS
ABOUT US
INDEX
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Selecting a specific MVNO operational model depends mostly on the commercial strategythat the new player wishes to implement in order to tap into the market
-
+Branded Reseller Enhanced SP Full MVNO Network Operator
Alternative MVNO structures
Level of ownership ofthe mobile networkinfrastructure
MVNOsTelecommunicationcompanies. MultimediaCompanies Utilities Retailers Niche Operators
SIM: not self owned Prices: are based on
negotiations with an MNO undera retail-minusregime for theMNO prices
Brand: own brand or co-brandingwith the MNO
( powered by ).Business Model:
Revenues: based onrevenue sharing with theMNO
Costs: marketing, sales,distribution
Service Provider
SIM: self owned Prices: own and independent
from the MNO Brand: own brand or co-
brandingwith the MNO( powered by ). Clientownership possible
Business Model:
Revenues: from traffic ofits own customers
Costs: wholesale accesstariffs, marketing, sales,distribution. OPEX andCAPEX associated to ITplatforms
No network infrastructure
Can potentially have a VSplatform No capability to set prices No ownership of the client
Radio Access Network Complete networkinfrastructure
No network infrastructure Own VAS platform
Own billing platform Own Customer Care Ownership of the client
With network infrastructure(no radio)
Own VAS platform Own billing platform Own Customer Care Ownership of the client
SIM: self owned Prices: own and independent
from the MNO Brand: own brand. Complete
ownership of the client Business Model:
Revenues: from traffic of
its own customers
Costs: wholesale access
tariffs, marketing, sales,
distribution. OPEX and
CAPEX associated to IT
platforms
SIM: self owned Prices: own and independent
from the MNO Brand: own brand. Complete
ownership of the client Business Model:
Revenues: from traffic ofits own customers
Costs: wholesale access
tariffs, marketing, sales,
distribution. OPEX and
CAPEX associated to IT
platforms and network
elements
No network infrastructure Can potentially have a VS
platform Capability to set prices Possible ownership of theclient
THE MVNO BUSINESSOperational Models (II)
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MVNO OPERATIONAL MODELSEconomics associated to each MVNO model
BRANDED RESELLER SERVICE PROVIDER
IncomingRevenues
OutgoingRevenues
Host-MNO
Host-MNO%
% of revenues +commission per gross add
MVNOMargin
IncomingRevenues
OutgoingRevenues
Host MNOCharges
MVNOMargin
FULL-MVNO
IncomingRevenues
OutgoingRevenues
Host-MNO Charges(outbound calls)
HostMNO Charges(incoming calls)
MVNOMargin
MVNO has no control over retail pricing nor
over the client, who belongs to the H-MNO
MVNO agrees with the Host-MNO a certaingross margin over the existing retail offer
The MVNO may also receive a commission
per client acquired Interconnection revenues from incomingtraffic go directly to the Host-MNO
MVNO can establish its own retail rates and
owns the client, but not the IMSIs
Wholesale rates may vary with the type ofcall/sms (destination):
On/Off Net
National / International Interconnection revenues from incomingtraffic go directly to the Host-MNO
MVNO has full control over the retail pricing
and also over the client with its own IMSIs
The MVNO pays the Host-MNO a certainrate per min. for outgoing calls (A-leg) aswell as for incoming calls (B-leg) to its end-
users Interconnection revenues from incomingtraffic go directly to the MVNO
MVNOs can be classified broadly into the following 3 models, each with their specificeconomic implications for the business
Host-MNO
Full-MVNO operational model provides higher margins and total independence from the Host-MNO,and it requires also the lowest effort to be implemented by the MNO
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Depending on the MVNO operational model and the segment of the target marketselected, payback of the investment can be expected usually between 4 and 6 years
Project Peak-funding 4-6 Mill. USD
EBITDA Margin(% of revenues)
10-15%
CAPEX 2 Mill. USD
Branded Reseller
7-10 Mill. USD
15-20%
3-5 Mill. USD(1)
Service Provider
10-15 Mill. USD
20-25%
12-15 Mill. USD(1)
Full MVNO
Subscr. Ownership The Client belongsto the MNO
The Client belongsto the MVNO
The Client belongsto the MVNO
Source: NEREO analysis
THE MVNO BUSINESSOperational Models Main Business Ratios
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THE MVNO BUSINESS
LAUNCHING A MVNO
CONCLUSIONS
ABOUT US
INDEX
LAUNCHING A MVNO
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LAUNCHING A MVNOPhases
MVNO Agreement
with Host MNO
Phase I Phase III
The Launch of a MVNO can be broken down into 3 seperate Phases:
Phase II
START UPPROJECT PLAN -LAUNCH
DEFINITION OFSTRATEGICPOSITIONING
NEGOTIATIONSWITH MNOs
A
BUSINESSPLANNING
B CC
IMarket Entry Analysis
Negotiations LaunchPreparation
Start-Up+II
D
III
Management Decision
(Go No Go)
LAUNCHING A MVNO
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Offers for churners
Positioning
Products& Services
PricesDistribution
Channels
ClientManagement
Branding &
Communication
The strategic positioning has to be examined in the light of the following variables:
Offersfornewusers
LAUNCHING A MVNOStrategic Positioning
Offers for churners
Offersfornewusers
INDEX
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THE MVNO BUSINESS
LAUNCHING A MVNO
CONCLUSIONS
ABOUT US
INDEX
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MVNOs are an instrument to stimulate the growth of mobile market once it is
approaching or has reached saturation in terms of penetration
The MVNOs create value in a mature market by segmentation, with offers focussedon the target market and leveraging their assests to introduce efficiency in thevalue chain as a whole
MVNO experiences in many countries have demonstrated the importance of anadequate regulatory frameworkin helping the MVNOs flourish.
The regulatory framework should explicitly define the rights and obligations applicable
to the agents in the business relationship; the MVNO, the Host MNO & theConsumer
CONCLUSIONES
INDEX
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THE MVNO BUSINESS
LAUNCHING A MVNO
CONCLUSIONS
ABOUT US
INDEX
CREDENTIALS
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NEREO has an extensive experience in the mobile telecoms space worldwide.
CREDENTIALSTelecom Practice
Assistance in thevaluation of a local GSMoperator
Technical assistance for
defining MobileTermination Rates
Assessing the feasibility ofMVNO business for a Saudibased company
Valuation of afixed and mobiletelecom player
Negotiating a MVNOagreement in Oman for aBahraini Telecom Firm
Assistance in thedevelopment of a PrivatePlacement Memorandumfor a Kuwaiti Firm
Entry strategy within theSpanish market for one ofthe leading pan-Europeanmobile operators
Providing support to oneof the Spanish MNOs inconnection with regulatoryissues
Carrying out DueDiligence processes on
European MVNOs for aMiddle-Eastern client withaims of acquiring saidoperators
MVNO strategy in Spainfor a well known
American Media andMovie Company
Assistance in theacquistion of a TVBroadcast InfrastructureProvider in Spain
Developing the entry strategywithin several European marketfor one of the leading pan-European mobile operators
Developing the entrystrategy into theSpanish market for aGerman MVNO
Consultancy formultinational IT firm forSMS Premium serviceswithin the Spanish market
Assistance to amultinat ional IT firm intopics related to Mobi leNumber Portability
MVNO strategy andnegotiations for an ethnicMVNO
Defining the MVNOstrategy and Negotiationswith Host MNO for anIslamic MVNO in Malaysia
MVNO strategy andlaunch activities in CostaRica
CREDENTIALS
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MVNO Experience Geographical Distribution of MVNO projects
CREDENTIALSOur MVNO Expertise (I)
MVNOFunctional Model
Branded Reseller
Service Provider
Full-MVNO
PROJECTS EXECUTED
3
4
14
EUROPE
17 Projects
Middle-East &Asia
3 Projects
We have executed over 20 projects in the last 4 years leveraging on our MVNO Specialisation
NEREO has assisted clients in identifying business opportunities, negotiating with HostNetwork operators and launching MVNOs of all models in over 10 countries.
Central America
1 Project
CREDENTIALS
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NEREO has gained a unique experience in developing projects of all business models indifferent countries of the world
COUNTRY MNO MODEL
FULLMVNO
FULLMVNO
FULLMVNO
FULLMVNO
FULLMVNO
ON GOING
FULLMVNO
FULLMVNO
FULLMVNO
FULLMVNO
FULLMVNO
COUNTRY MNO MODEL
24
CREDENTIALSOur MVNO Expertise (II)
CREDENTIALS
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BRANDEDRESELLER
SERVICEPROVIDER
SERVICEPROVIDER
SERVICEPROVIDER
BRANDEDRESELLER
BRANDED
RESELLER
n/d
n/d
COUNTRY MNO MODEL COUNTRY MVNO MODEL
FULL
MVNO
FULLMVNO
FULL
MVNO
FULLMVNO
25
ENHANCEDSERVICE
PROVIDER
CREDENTIALSOur MVNO Expertise (III)
n/d
FULLMVNO
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www.nereoconsulting.com
NEREO BUSINESS CONSULTANTS
C/ Jorge Juan, 15. 28001 Madrid
+34 914 35 35 61
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