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 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

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

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

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 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

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

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

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

Modeling MVNOs: The Big Picture

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

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

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

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