Research Notes

Service Provider Vs. full MVNO

– Who will dominate?
The fact that the mobile market is facing radical changes in the coming years are a fact. These changes will amongst other things focus on segmented virtual mobile operators and branded resellers. Many future mobile operators are facing the choice to establish themselves as a branded reseller or go all the way and establish an MVNO.
The different mobile providers types each have their advantages and disadvantages, and as a future mobile providers one must closely weigh the advantages against the disadvantages, and these will vary for each mobile provider.
MVNO’s have more revenue possibilities and more flexibility than Service Providers or Branded Resellers, however more costs are associated with an MVNO.
An MVNO can i.e. have revenue from both incoming and outgoing calls as the MVNO can establish their own termination agreements with either MNO’s or MVNOs. This makes it possible to make some other price concepts, differing between incoming and outgoing traffic. Normally a Service Provider do not receive revenue on incoming calls, as the MNO keeps this part of the revenue. Revenue on incoming calls are an often overlooked revenue source, and it is often key to create a sound business for a mobile provider. MVNOs can also receive revenue from their own roaming agreements, which makes interesting possibilities for an international mobile provider  or a mobile providers differentiation itself on foreign traffic.
An MVNO have the opportunity to get some large business advantages via centralised International operations. This is the consequence of the usage of their own technological equipment, not least their own HLR (Home Location Register), IN (intelligent network) and MSC (Mobile Switching Centre). All this hands ownership of amongst other things the SIM cards to the MVNO, and the possibility for their own network services independent of the network provider (host mobile operator), and it makes it possible to change network provider (host mobile operator). Laws in different countries  however do put some challenges into user registration, which puts limits on how the HLR can be centralised.
However establishing an MVNO compared with a Service Provider or Branded Reseller do not only possess advantages. The establishment cost of an MVNO is relative high, as the MVNO need to pay a start fee to the network provider in connection with the establishment, and this of course all hangs on the MNO’s interest in opening up to MVNO’s. It is a known fact the MVNO’s are a bigger risk for mobile operators as they have the ability to change network provider. In many European countries the MNOs are regulatory obligated to make agreements with MVNOs on reasonable terms, however they can still put many challenges in the way of an agreement.
The before mentioned infrastructure is a costly investment, and this investment totals around 13 million Euro, which holds many players back from establishing themselves as MVNO instead of starting a SP or Branded Reseller.
It is also not always an advantage to make your own roaming and termination agreements, as it is not sure that the MVNO can make favourable agreements with the host mobile operator
The MVNOs status as ”equal” partner with the MNO also means higher cost in connection with certain calls and services, which SPs or Branded Resellers do not have. An MVNO will pay 2 “call legs” when 2 of their own customers call each other, where a SP will pay for 1 “call leg” and in some situations, when a “middle station” in the network is used, the MVNO will pay for 3 “call legs”. The SP potential can offer cheaper end-user solutions than the MVNO, and this makes it more risky to offer fixed priced products.
As we analysed in our report ”How to get success in the second Generation MVNO Market” these conditions makes it questionable if smaller mobile markets can support an MVNO operation. The investment and the drift costs must be compatible with the revenue potential and the extra possibilities an MVNO have compared to a SP or Branded Reseller.
As the coming phase in the mobile market in many ways will be dominated by smaller mobile providers, putting innovation and segmenting to the end-user experience, these mobile providers will more likely use MVNEs or MNEs to lower the time-to-market and cost associated with the set-up.
How to get success in the second Generation MVNO Market

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