1. Mobile Virtual Network Operators: Introducing the business concept of "One doesn’t need to own a cow to milk a cow”
S Seminar on Mobile Operator
Strategies and Games, fall 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?
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. Virgin Mobile, Key Figures
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 Q (2,013,382)
Record Q 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. It’s time for questions and answers.
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