Research Notes

MVNO’s will turn the UK mobile market upside down

Web based MVNO’s have great success in Denmark, Norway and Finland and the rest of Europe is soon to follow.

The question is, who is going launch these discount companies. Media companies who have free advertising in their own media or others players.

It’s now been confirmed that Stelios Haji-Ioannou and EasyGroup are launching a Discount MVNO, using the Danish discount MVNO concept as model for his newest venture.

However Sir Richard Branson of Virgin/Virgin Mobile quickly replied that he doesn’t believe in EasyMobile’s concept, a concept that has been proven over the last two years in Denmark, and is now also influencing the Mobile Operators in Norway and Finland.

Sir Richard states in the magazine Mobile: “Stelios is too late to enter the mobile telephony market” and “there’s no crying need for what he’s thinking”.

Lets look at this in perspective. Sir Richard Branson is planning a EURO 1.5bn IPO of Virgin Mobile. Strand Consults view is, that Telmore, the largest Danish Discount MVNO, is comparatively more successful in Denmark than Virgin Mobile in the UK.

Discount MVNO’s, are web-based virtual networks that have few cost due to the fact that they do not have any physical stores, but utilize the Internet as sales and distribution channel, and hence offer significantly reduced voice and text prices. Customers can only register online, receive the new SIM and use their own unlocked handsets. Most often they also pay online for their voice and text messages, although customers can also pay via SMS. All customer services are self-service, thus greatly reducing overheads.

(2003 figures)

450.000 customers, Turnover estimated EURO 50 mill.(+110%), Profit EURO 5.2 mill,
Price paid by TDC (largest Mobile operator in Denmark) EURO 54.7 mill.
Debt free.

Virgin mobile:
3.6 mill customers, Turnover estimated EURO 5-600 mill (+68%), negative profit.
Value according to Virgin: EURO 1.5bn.
Bank debt: EURO 170 mill

CBB (2nd largest Danish Discount MVNO):
190.000 customers, Turnover estimated EURO 12.6 mill (+87%), Profit EURO 2.6 mill,
Price paid by Sonofon (2nd largest Mobile operator in Denmark) EURO 17.5 mill
Debt free.

Strand Consult believes that EasyMobile will launch in the UK before the end of the year, and that EasyMobile will have success, as we have seen it happen in Denmark and Norway

In Denmark the price of a mobile minute has in only 6 months dropped from 0.17 Euro to 0.09 Euro and the of an SMS has fallen from 0.07 Euro to 0.03 Euro. The price of a subscription (line rental) has fallen from 6.7 Euro to 0 Euro.

The Discount Mobile Service Providers possess 23% of voice-traffic in Denmark, and close to 30% of the SMS/TXT traffic

TDC, which is the largest operator in Denmark with 46% of market share, experienced voice/minute growth of 19% in 2003, and at the same time they experienced 22% decline in ARPU. Prepaid ARPU at TDC in Q1 2002: EURO 7.5, in Q1 2003 it was down 50% to EURO 3.6.

A month ago TeliaSonera, (the largest mobile operator in Sweden and Finland, the second largest operator in Norway, and the fourth largest operator in Denmark) published their latest numbers, and the trend from Denmark has spread to Norway, Sweden and Finland with more countries sure to follow in the next 6 months.

The smallest network operator in the Netherlands (the former O2), Telfort has already opened its network to discounters. Tele2 accounts for more than 25% of their customer-base.

In France, Debitel got an agreement to work as MVNO and are planning to enter the market by cutting SMS prices by 40%. Tele2 is also planning to launch n France within the near future.

In other words, all Mobile Operators and service providers in Western Europe may as well start preparing for the competition they are about to face from the Discount Mobile Service Providers – because it is not a question of whether the Discount Mobile Service Providers will arrive on their markets or not. The only question is whether their ETA will be in 3 or 6 or 9 months from today.

One question that must be one everyone’s lips is, if it will be the Media industry or the Content Providers who will jump on this burgeoning market.
More information “The Moment Of Truth” – A Portrait Of The Discount Mobile Service Providers Success

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