European network operators’ view of MVNOs (mobile virtual network operators) is shortsighted and reactive, according to a new report by Forrester Research B.V. (Nasdaq: FORR). Instead of hosting a few brand-oriented MVNOs out of fear, network operators should adopt a portfolio strategy that spreads risks and draws benefits across three types of MVNOs, resulting in expanded market reach into niche consumer segments, optimized network capacity utilization, and growth of data applications. Forrester defines an MVNO as: “A company that buys network capacity from a network operator to offer its own branded mobile subscriptions and value-added services.”
“Unlike familiar service providers that simply resell operator-branded subscriptions, MVNOs go further by applying their own brand and offering unique value-added services. We expect MVNOs to pursue a continuum of operating models and become a permanent fixture in Europe’s mobile industry over the next five years,” said Forrester Analyst Michelle de Lussanet. “While arguments rage as to whether network operators will see a net profit gain by hosting MVNOs, these arguments miss the point. Network operators will have no choice but to host MVNOs over the next five years as regulators demand competition, network operators need to fill spare capacity, and user saturation requires marketing help. While a few network operators actively pursue the MVNO hosting business, the vast majority see MVNOs as a necessary evil, and plan to host just a few, seeing only big consumer brands — stereotyped by early UK entrant Virgin Mobile — as important MVNO candidates. If operators continue in this reactive approach, they will permanently damage their position by lagging behind competitors, missing new opportunities and failing to diversify risk.”
Forrester advises that network operators need to maximize MVNO potential with a portfolio strategy instead of simply reacting to rivals or reluctantly trying to please regulators. This approach balances risks and draws benefits from three types of MVNO candidates: media, retail, and financial services firms that typify the brand MVNO; fixed, cable, and mobile-telecom firms; and device MVNO candidates, which might come from the automotive, entertainment, or utilities industries.
“The MVNO portfolio strategy applies to all types of operators, whether small or large, new or established — only the percentage of capacity allocated to MVNOs will vary,” de Lussanet added. “To keep benefits and diversify risk, network operators must exercise restraint and keep the portfolio balanced as the three overlapping waves of candidates emerge. To pick winners, operators should select candidates with a clear link between mobile services and the core business, and favor candidates with sound segmentation strategies, and sign long-term, exclusive agreements.
“Only a few telecom players will find it necessary to operate in large markets like Germany or the UK, and deals by 3G operators to roam on 2G have a limited lifetime and no need for renewal. Also, only a small number of fixed players will enter as mobile telco MVNOs since the need for bundled services remains unsure. Network operators should strike deals with telco MVNOs based on estimated capacity requirements and availability of bilateral agreements. Brand MVNOs will boom and bust within three years. Long development cycles and the wait for cost-effective high-speed mobile networks will delay device MVNOs. Network operators should not wait but should proactively form a business development team to cultivate device MVNO opportunities now. They should limit the number of device MVNOs hosted based on ability to meet SLAs, and should also steer clear of candidates with unattainable demands.”
For the report “Turning MVNO Pain Into Gain,” Forrester spoke with 30 senior executives at mobile network operators across Europe.