Research Notes

Facts and Fiction about the MVNO market

The fast moving MVNO market is one of the hottest subjects in the mobile sector right now. This is no surprise for Strand Consult – we were the first to recognise and describe what was happing when the first discount MVNO’s emerged in Denmark. But what does surprise us a great deal is how much is being written about this market that is either based on rumours, guesses or gossip and is simply not true!

For example there are already a good number of myths in circulation and also wild guesses at the expectations for the future MVNO market that would be rather interesting to take a closer look at – or we could examine some of the figures that some analysts have put forward as to the current and future size of the market – either way the amount of erroneous information is simply staggering!Strand Consult is not in the guessing business. We do not believe that small reports consisting of 30 to 70 pages can give a serious overview of the MVNO market and how it is developing. Our customers are critical and need the best possible strategic information to help them optimise their strategies to the realities of this new market. Strand Consult has had a team of employees that have spent the past 3 years doing nothing else but analysing and describing this market, how it started, how it is developing and how the events in Denmark are repeating themselves in other countries.

In November 2003 we published the first edition of our report “The Moment of Truth – A portrait of the Discount MVNO / Mobile Operators’ success”. This report was 350 pages long and has since been updated 4 times. It has been sold to over 70 operators and 40 MVNO’s world-wide. We did not have to guess about this market – we were a part of it from day one and have ALL of the leading MVNO’s and Operators involved as our customers. That is why we were able to be the first in the world to describe this market and how it was developing.

If you read our predictions in the first edition of “The Moment of Truth – A portrait of the Discount MVNO / Mobile Operators’ success” and then look at what has actually happened in Europe since then – you can see that ALL our predictions were spot on!

O2 gave up in Holland and sold their operation for peanuts (25 million Euro) to a team of venture capitalists. They subsequently adapted Telfort’s strategy to the “how can I get more customers and more traffic in my network – without having my acquisition costs explode” and the result is very clear today. Telfort has not only got the whole MVNO market in Holland, but with KPN’s acquisition of Telfort, the investors have not only earned over one billion Euro in 2 years, but also proved that the strategy that we believe  many smaller operators will  copy and follow in the near future is an economical success.

It is no secret that KPN spent that much on the purchase of Telfort, but if you take a look at the consequences it really is a “win win” situation for all the players in Holland.  Moving from 5 to 4 market players on the Dutch market is very likely exactly what is needed to reduce SAC and CHURN – in the same way as when Orange gave up in Denmark after Telmore’s success and sold their operation to TeliaSonera. This market development in Holland was predicted and described in “The Moment of Truth – A portrait of the Discount MVNO / Mobile Operators’ success”. KPN have not only made a sensible purchase, but are also helping the Dutch mobile market settle down and become more healthy – something T-Mobil, Orange and Vodafone have been looking forward to for a long time.

In Germany and Austria, E-Plus and One have launched their own discount concepts under the new brand names “SIMYo” and “YESSS”. This is a natural strategy under the circumstances and again one that we predicted and described in “The Moment of Truth – A portrait of the Discount MVNO / Mobile Operators’ success”. Many more operators will do the same – launching their own sub-brands that are targeted at price-sensitive customers on the mobile market. For us it is not a question of which customers will use these new concepts – we already know who they are. Many think that it is only the prepaid customers, but that is wrong. Our research and analysis that we have done with TSN Gallup shows that it is not just prepaid customers switching to the discount MVNO’s but a great many attractive heavy users in the post-paid segment. This cannot come as any surprise – both poor and rich people also fly with easyJet and Ryanair.

Also there seem to be many mix-ups in the MVNO terminology. It does seem like many people writing about this business do not know the difference between a service provider and a MVNO – we constantly see many service providers being called MVNO’s even though they have never been one. To fully describe the difference in detail would take a little more than just 10 lines – but to put it simply, a service provider buys his basic product from a network operator, packages and brands it and then sells it as a mobile offering to the end user. A real MVNO has a much greater flexibility e.g. his own operator code, own SIM cards and the possibility of both National and International roaming. Right now there are only 4 real MVNO’s in the whole of Europe: BT in the UK, Tele2 in Denmark, Norway, Austria and Holland, Djuice in Sweden and Saunalahti in Finland. There are however also a number of GSM1800 operators and some 3G operators that have MVNO agreements with other operators in the countries they operate in. Players like Virgin Mobile, easyMobile, Debitel, Fresh, Tesco Mobile, Mobilkom etc. are and will remain service providers; they cannot move their customers over to another network without issuing their customers with new SIM cards.

So Finnish Saunalahti is a real MVNO – they can move their customers – and that is exactly what they are doing. They have terminated their contract with TeliaSonera in Finland – something that would be almost unthinkable for an ordinary service provider – and will move over to another operator’s network. The switch has cost Saunalahti an early termination fee of 11 million Euro – quite a substantial amount, but not enough to stop Saunalahti from switching. Why? Simple, Saunalahti can make the switch to another network in just hours and they believe that the savings they can achieve on the new network will justify the cost of the switch. This is a real MVNO. They have a lot of clout over the operator whose network they are using and if they are not satisfied, they can take their business to other operators hungry to boost their network traffic. Looking across Europe, Telfort is in the same situation, as Tele2 who account for around 25% of Telfort’s total customer base also is a real MVNO and can move their customers over onto another operator’s network in just hours. In reality, all Tele2 would have to do is invest in two 2Mb data transmission lines that are connected to another operator – and then they would have switched all their customers away from Telfort. We believe that the reason that KPN paid 980 million Euro for Telfort – with the possibility of having to pay 140 million extra is the fact that Telfort is very dependant of Tele2 and their traffic.

There is a great deal that has been said and written about the MVNO market. Having the correct knowledge and information about this market is extremely important and can make so much difference on strategy decisions that can ultimately change the direction – and success – of mobile companies. We are appalled at the amount of information that is currently floating around on the Internet and in small reports – information that is either misleading, guesses, wrongly quoted or simply totally incorrect, but being marketed and sold as valid information about the MVNO market. In our report ”The Moment of Truth – A portrait of the Discount MVNO / Mobile Operators’ success” we not only described this whole market in depth but also predicted 3 years ago how this would spread across Europe and the impact it would have. Our customers do not judge us on what we predict about the future – they judge us on what we said in the past would happen today. 

The Moment of Truth – discount MVNO’s

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