S-38.042 Seminar on Mobile Operator

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Mobile Virtual Network OperatorsIntroducing the
business concept of "One doesnt 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

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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

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What is a Mobile Virtual Network Operator?

• Mobile Virtual Network Operator
• doesnt 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

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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

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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
• gt1500 emplyees
• gt6000 distribution outlets

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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

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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

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MNOs and MVNOs in Finland

• Three GSM licenses, four UMTS licenses gtgt four
  MNOs
• Currently ten MVNOs, with very heterogenous
  backgrounds

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Modeling MVNOs The Big Picture
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Conclusions the business opportunity

• its as real as life, which we can see from the
  figures put on the table by Virgin Mobile
• we dont 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

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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

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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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Thank you! Its time for questions and answers.
virtual service operator
capacity
network operator
virtual service operator
virtual service operator
virtual service operator
services
virtual service operator