MVNO Business Essentials

This document has been created by NEREO BUSINESS CONSULTANTS. It is not complete unless supported by the underlying detailed analyses and oral presentation.

MBE - 200410

INDEX

THE MVNO BUSINESS

LAUNCHING A MVNO
CONCLUSIONS
ABOUT US

MBE - 200410

THE MVNO BUSINESS

What is a MVNO
A Mobile Virtual Network Operator (MVNO) provides mobile services without owning
spectrum and usually relies on the Mobile Network Operators (MNO) network
infrastructure.
MVNO

MNO

END-CUSTOMERS

Agreement at price level

Value proposition (SAC, products

and services)

Quality management (SLAs/KPIs)

Efficient management of the

customers retention (churn, SRC,
customer care)

Mechanisms to garantee the

relationships evolution (new
services, price update
procedures,)

Essentially, MVNO business consists in managing two key relationships:

Mobile Network Operator (MNO) and the end-user
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THE MVNO BUSINESS

Market entry strategies
... which means that MVNO business is mostly a market segmentation game for mature
marketplaces.

Handset /
Aplications
Bundling

Segmentation

MVNO
Brand

Cost

Distribution

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THE MVNO BUSINESS

Possible Suitors
To tap into the market, MVNOs must have existing valuable assets to leverage on
more efficiently than their respective Host-MNOs do, in order to add value to the
overall mobile services supply chain
CORE ASSETS

DESCRIPTION

Examples of MVNOs

Segmentation

Being able to address specific segments of the

market and/or within a particular geographical area

Retailing &
Distribution

Being in possession of an existing distribution

network with capillarity and large flow of customers

Customer Portfolio

Having an existing customer base on which perform

cross-selling of products and loyalty programs

Brand

Having a brand with renowned business prestige or

high level of recognition among the customers

Efficiency
of Operations

Being cost-effective with a lean & mean operating

structure

Applications/
Contents

Having valuable audio-visual content or innovative

applications to be delivered on mobility

Customer
Management

Being able to offer excellence in the customer

experience

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THE MVNO BUSINESS

How MVNOs create value for MNOs
In saturated markets, competition becomes a market-share game, so this new challenge
leads MNOs to seek for MVNO partnerships to sustain the overall market growth

Only one Market

Befor

Ownership
and Operation
Of the Mobile
Network

Services &
IT Platform

Customer
Care
Service

Marketing
& Sales

Push

Distribut.

Pull

Market Segments
Ownership of
Miblie Network

Currently

Operation of
Mobile Network

Services &
IT Platform

Customer
Care
Service

Marketing
& Sales

Distribut.

Pull

Distribut.

Pull

Distribut.

Push

Specific offers for each

market segment

Leveraging on selected partners through outsourcing

Executed in-house

...by creating offers

aligned to the needs of
each of the existing
segments

Outsourced to an external partner (MVNO)

...by dividing the value

chain and allowing the
entrance of new players
through:
Radically reducing costs
(increasing the EBITDA)
Reach new consumers in
market segments not yet
tapped
into
(new
distribution channels)

MVNO allow MNOs to address specific market niches which they have not yet tapped into, while
incurring lower Subscriber Acquisition Costs (SAC) adding efficiency to the value chain
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THE MVNO BUSINESS

Creating a new revenue stream for MNOs
. this lead MNOs to develop a completely new business, which is very common in other
telecom areas (e.g fixed telephony)

MVNO
(Partner)

WHOLESALE

MOBILE
NETWORK

MNO

MVNO
(Partner)

MNO

RETAIL
MNO

Through this strategy, MNOs can maintain its current retail business and tackle complementary
market niches by reaching MVNO partnerships with the appropriate local players
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THE MVNO BUSINESS

Benefits of MVNOs for the MNOs
Besides being a source of growth for the client portfolio, MVNOs create significant
advantages for the MNOs in terms of improving its business profitability
IMPACT OF MVNO BUSINESS ON MNOs FINANCIALS
SAC

ARPU

EBITDA margin

Slightly Lower

Substantially
Lower

Lower margin %

Without
MVNO

With
MVNO

Without
MVNO

With
MVNO

Without
MVNO

With
MVNO

For the Host-MNOs, the EBITDA margins for customers acquired

by MVNO is 3x the retail one

The Subscriber acquisition

cost (SAC) in the wholesale
business for an MNO is zero,
due to it falling on the MVNO.
The Average Revenue per
User (ARPU) in the wholesale
business is only slightly inferior
to the ARPU of the retail
business for the MNO.
In this way, the EBITDA
margin% of the wholesale
business is much higher than
that of the retail one for MNOs.

MVNOs help MNOs to drastically improve their EBITDA margins by reducing SAC costs with
only a slight reduction in ARPU
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THE MVNO BUSINESS

MVNOs in Europe
Number of MVNOs and their market share in Europe (end of 2009)
MVNOs
Market share
<1%
1% - 5%
5% - 10%
10% - 15%
>15%

Norway: 16

Finland: 9

(Mobyson, Sense Talkmore)

(Saunalahti, Oyj)

U.K.: 25

Sweden: 18

(Virgin, Tesco)

(ACN, Sense)

Netherlands: 39

Denmark: 16

(Simyo, Tele2)

(CBB Mobil, Telmore)

Belgium: 35

Germany: 29

(Simyo, Transatel)

(Ay yildiz, Simyo)

Luxembourg:2

Austria: 5

(KISS, Transatel)

(Yesss!, Tele2)

France: 11
(Carrefour, Tele2, Virgin)

Italy: 14
(COOPVoce)

Portugal: 5
(UZO, Tele2)

Spain: 22
(Simyo, Lebara)

Switzerland: 5
(COOP Mobile, Tele2)

Source: Nereo Analysis with company data

MVNOs have been quite successful in garnering market share in most European countries

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THE MVNO BUSINESS

MVNO Transactions Exit strategies
MVNO transactions across Western Europe in the last few years serve to highlight that
exit strategies have been successfully achieved by investors.
Sense/TeliaSonera - Norway

Saunalahti/Elisa - Finland

Chess/Sense acquired by TeliaSonera

Value: 185 million EUR
Price per Customer: 457 EUR
Year: 2004$

CBB acquired by Sonofon

Value: 45 million EUR
Price per Customer: 103 EUR
Year: 2004

Virgin UK/NTL - UK

Sense/TeliaSonera - Sweden

Virgin UK acquired by NTL

Value: 1,060 million EUR
Price per Customer: 318 EUR
Year: 2006

Sense acquired by TeliaSonera

Value: 189 million EUR
Price per Customer: 104 EUR
Year: 2004

TELE2/VIRGIN - France

Bibob/Telenor Denmark

Tele2 acquired by Virgin

Value: 56 million EUR
Price per Customer: 140 EUR
Year: 2009
Tele2/Sunrise - Switzerland

Tele2 acquired by Sunrise

Value: 33 million EUR
Price per Customer: 63 EUR
Year: 2008

Bibob acquired by Telenor Denmark

Value: 12.5 million EUR
Price per Customer: 181 EUR
Year: 2009
Hutchison/CPW - Germany
Allmobility/Vodafone - Germany

Allmobility acquired by Vodafone AG

Value: 25 million EUR
Price per Customer: 62 EUR
Year: 2007
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Hutchison

acquired
by
(Carphone Warehouse)
Value: 52 million EUR
Price per Customer: 96 EUR
Year: 2003

CPW

INDEX

THE MVNO BUSINESS

Operational Models

LAUNCHING A MVNO
CONCLUSIONS
ABOUT US

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THE MVNO BUSINESS

Operational Models (I)
There are several options for MVNOs to build the required infrastructure over the MNO
radio access network...
FUNCTIONAL MODELS

Enabling
infrastructure and
network provision
Content & Service
Applications

Branded Reseller

Service Provider

Enhanced

SP

Full MVNO

Radio Spectrum
Network Switching
VAS
Service Platform
SIM Card

Operations

Billing
Pricing
Pricing Capability
Capability
Provisioning
Customer Care

Branding, Sales &

Marketing

Own Brand
Distribution

MVNO owns

MVNO may or may

not own
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MVNO does not own

THE MVNO BUSINESS

Operational Models (II)
Selecting a specific MVNO operational model depends mostly on the commercial strategy
that the new player wishes to implement in order to tap into the market
Telecommunication
companies.

Multimedia
Companies

Utilities

Niche Operators

Retailers

MVNOs

Alternative MVNO structures

Branded Reseller

No network infrastructure
Can potentially have a VS

No network infrastructure
Can potentially have a VS

platform
No capability to set prices
No ownership of the client

platform
Capability to set prices
Possible ownership of the
client

SIM: not self owned

Prices: are based on

negotiations with an MNO under

a retail-minus regime for the
MNO prices
Brand: own brand or cobranding with the MNO
( powered by ).
Business Model:
Revenues: based on

revenue sharing with the

MNO
Costs: marketing, sales,
distribution

Enhanced SP

Service Provider

SIM: self owned

Prices: own and independent
from the MNO
Brand: own brand or cobranding with the MNO
( powered by ). Client
ownership possible
Business Model:
Revenues: from traffic of

its own customers

Costs: wholesale access

tariffs, marketing, sales,

distribution. OPEX and
CAPEX associated to IT
platforms

No network infrastructure
Own VAS platform
Own billing platform
Own Customer Care
Ownership of the client

SIM: self owned

Prices: own and independent
from the MNO
Brand: own brand. Complete
ownership of the client
Business Model:
Revenues: from traffic of

its own customers

Costs: wholesale access
tariffs, marketing, sales,
distribution. OPEX and
CAPEX associated to IT
platforms

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Full MVNO

Network Operator

With network infrastructure

(no radio)
Own VAS platform
Own billing platform
Own Customer Care
Ownership of the client

Radio Access Network

Complete network

infrastructure

SIM: self owned

Prices: own and independent
from the MNO
Brand: own brand. Complete
ownership of the client
Business Model:
Revenues: from traffic of

its own customers

Costs: wholesale access

tariffs, marketing, sales,

distribution. OPEX and
CAPEX associated to IT
platforms and network
elements

Level of ownership of
the mobile network
infrastructure

MVNO OPERATIONAL MODELS

Economics associated to each MVNO model
MVNOs can be classified broadly into the following 3 models, each with their specific
economic implications for the business

Host-MNO
Incoming
Revenues

Outgoing
Revenues

Host-MNO
%

Host MNO Charges

(incoming calls)

Host-MNO

MVNO
Margin
% of revenues +
commission per gross add

BRANDED RESELLER

MVNO has no control over retail pricing nor

over the client, who belongs to the H-MNO
MVNO agrees with the Host-MNO a certain
gross margin over the existing retail offer
The MVNO may also receive a commission
per client acquired
Interconnection revenues from incoming
traffic go directly to the Host-MNO

Incoming
Revenues

MVNO
Margin

Outgoing
Revenues

Incoming
Revenues

MVNO
Margin

Outgoing
Revenues
Host MNO
Charges

Host-MNO Charges
(outbound calls)

SERVICE PROVIDER

FULL-MVNO

MVNO can establish its own retail rates and

owns the client, but not the IMSIs
Wholesale rates may vary with the type of
call/sms (destination):
On/Off Net
National / International
Interconnection revenues from incoming
traffic go directly to the Host-MNO

MVNO has full control over the retail pricing

and also over the client with its own IMSIs
The MVNO pays the Host-MNO a certain
rate per min. for outgoing calls (A-leg) as
well as for incoming calls (B-leg) to its endusers
Interconnection revenues from incoming
traffic go directly to the MVNO

Full-MVNO operational model provides higher margins and total independence from the Host-MNO,
and it requires also the lowest effort to be implemented by the MNO
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THE MVNO BUSINESS

Operational Models Main Business Ratios
Depending on the MVNO operational model and the segment of the target market
selected, payback of the investment can be expected usually between 4 and 6 years

Subscr. Ownership

EBITDA Margin
(% of revenues)

Project Peak-funding

CAPEX

Branded Reseller

Service Provider

Full MVNO

The Client belongs

to the MNO

The Client belongs

to the MVNO

The Client belongs

to the MVNO

10-15%

15-20%

20-25%

4-6 Mill. USD

7-10 Mill. USD

10-15 Mill. USD

2 Mill. USD

3-5 Mill. USD(1)

12-15 Mill. USD(1)

Source: NEREO analysis

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INDEX

THE MVNO BUSINESS

LAUNCHING A MVNO
CONCLUSIONS
ABOUT US

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LAUNCHING A MVNO
Phases
The Launch of a MVNO can be broken down into 3 seperate Phases:

Phase I

Phase II

Negotiations

Market Entry Analysis

II

A
DEFINITION OF
STRATEGIC
POSITIONING

Phase III

III

C
BUSINESS
PLANNING

Launch
Preparation

C
NEGOTIATIONS
WITH MNOs

Management Decision
(Go No Go)

17

Start-Up

D
PROJECT PLAN LAUNCH

MVNO Agreement
with Host MNO

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START UP

LAUNCHING A MVNO
Strategic Positioning
The strategic positioning has to be examined in the light of the following variables:
Offers for churners

Client
Management Positioning

Distribution
Channels

Products
& Services

Prices

Offers for churners

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Offers for new users

Offers for new users

Branding &
Communication

INDEX

THE MVNO BUSINESS

LAUNCHING A MVNO
CONCLUSIONS
ABOUT US

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CONCLUSIONES

MVNOs are an instrument to stimulate the growth of mobile market once it is

approaching or has reached saturation in terms of penetration
The MVNOs create value in a mature market by segmentation, with offers focussed
on the target market and leveraging their assests to introduce efficiency in the
value chain as a whole
MVNO experiences in many countries have demonstrated the importance of an
adequate regulatory framework in helping the MVNOs flourish.
The regulatory framework should explicitly define the rights and obligations applicable
to the agents in the business relationship; the MVNO, the Host MNO & the
Consumer

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INDEX

THE MVNO BUSINESS

LAUNCHING A MVNO
CONCLUSIONS
ABOUT US

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CREDENTIALS
Telecom Practice
NEREO has an extensive experience in the mobile telecoms space worldwide.
Entry strategy within the
Spanish market for one of
the leading pan-European
mobile operators

Assistance in the
acquistion of a TV
Broadcast Infrastructure
Provider in Spain

Developing the entry strategy

within several European market
for one of the leading panEuropean mobile operators

Consultancy for

multinational IT firm for

SMS Premium services
within the Spanish market

Providing support to one

of the Spanish MNOs in
connection with regulatory
issues

Assistance

to
a
multinational IT firm in
topics related to Mobile
Number Portability

Developing the entry

strategy
into
the
Spanish market for a
German MVNO

MVNO strategy in Spain

for a well known
American Media and
Movie Company

Carrying out Due

Diligence processes on
European MVNOs for a
Middle-Eastern client with
aims of acquiring said
operators

MVNO strategy and

launch activities in Costa
Rica
MVNO strategy and
negotiations for an ethnic
MVNO

Defining the MVNO

strategy and Negotiations
with Host MNO for an
Islamic MVNO in Malaysia

Technical assistance for

defining Mobile
Termination Rates
Assistance in the
valuation of a local GSM
operator

Valuation of a
fixed and mobile
telecom player

Assessing the feasibility of

MVNO business for a Saudi
based company

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Negotiating a MVNO
agreement in Oman for a
Bahraini Telecom Firm

Assistance in the
development of a Private
Placement Memorandum
for a Kuwaiti Firm

CREDENTIALS
Our MVNO Expertise (I)
NEREO has assisted clients in identifying business opportunities, negotiating with Host
Network operators and launching MVNOs of all models in over 10 countries.

MVNO Experience

Geographical Distribution of MVNO projects

Central America

EUROPE

Middle-East &
Asia

1 Project

17 Projects

3 Projects

PROJECTS EXECUTED

MVNO
Function
al Model

Branded Reseller

Service Provider

Full-MVNO

14

We have executed over 20 projects in the last 4 years leveraging on our MVNO Specialisation

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CREDENTIALS
Our MVNO Expertise (II)
NEREO has gained a unique experience in developing projects of all business models in
different countries of the world
COUNTRY

MNO

ON GOING

MODEL

COUNTRY

MNO

MODEL

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

FULL
MVNO

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CREDENTIALS
Our MVNO Expertise (III)
COUNTRY

MNO

MODEL

COUNTRY

MVNO

MODEL

n/d

BRANDED
RESELLER

FULL
MVNO

n/d

BRANDED
RESELLER

FULL
MVNO

BRANDED
RESELLER

FULL
MVNO

SERVICE
PROVIDER

FULL
MVNO

SERVICE
PROVIDER

n/d

ENHANCED
SERVICE
PROVIDER
FULL
MVNO

SERVICE
PROVIDER

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www.nereoconsulting.com

NEREO BUSINESS CONSULTANTS

C/ Jorge Juan, 15. 28001 Madrid
+34 914 35 35 61

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