Nontelecom companies face two distinct MVNO (mobile virtual network operator) options, but Forrester advises European firms to think long and hard before committing to a potentially disastrous MVNO. The much-hyped brand MVNO will reward only those few firms with powerful brands, niche customer bases, easily mobilized core businesses, and strong management support. The unexploited device MVNO opportunity creates more certain value with less risk — but fewer firms can pursue it, according to a new report by Forrester Research B.V. (Nasdaq: FORR). 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.”

“While network operators don’t like MVNOs, most expect to host two MVNOs by 2004 and think that MVNOs will contribute 6% of operating profits that year,” said Forrester Analyst Michelle de Lussanet. “We believe that executives must snap out of their brand MVNO dreams; firms that have spent hundreds of millions on marketing and customer service to build their brands and earn customers’ trust have far more to lose than to gain from an MVNO play. Few MVNOs will execute perfectly or compete against cutthroat mobile operators effectively using a targeted market approach; in fact, such an approach can lead to failure, brand damage, and loss of customers in core product lines.”

“We expect dozens of potential brand MVNOs to ignore these risks and flood Europe’s telecom markets. As indirect support from regulators’ demand for competition creates fertile ground, network operators with spare capacity will cave in to MVNO requests, forcing their rivals to follow suit fearing traffic loss. The result will be a brand MVNO boom which will bust in three short years.”

This doesn’t mean that firms shouldn’t launch mobile services — instead, they should adopt alternative strategies with lower levels of commitment and associated risk than the brand MVNO approach to the market. Companies face the least risk by creating an SMS offering or a WAP site with no long-term commitments required of customers or carriers. Or they can take a middle-of-the-road approach by finding an existing driver of mobile traffic by distributing via a mobile portal. That comarkets the service. While this involves a commitment to a specific partner, short-term contracts can keep exit barriers low.

“But for a wide range of companies, including automakers, consumer electronics companies, and utilities providers, a device MVNO has the potential to bring important benefits with little risk beyond financial investments in equipment and product development,” de Lussanet added. “Device MVNO capabilities can help firms drive sales, reduce costs, and differentiate themselves from competitors. Firms will become device MVNOs because no network operator solution will support the connections to back-office systems they need. But we expect the introduction of device MVNOs to take time — it will take months or years to design, develop, and test new capabilities. High prices for data traffic and embedded GSM receivers will keep manufacturing runs low as long as returns remain difficult to quantify. Furthermore, network operators can’t yet meet device MVNOs¿ high requirements for reliability, uptime, and coverage. As a result, Europe’s device MVNO count will stay in the single digits until 2004.

“As mobile data speeds increase and networks can guarantee higher service levels, device MVNO barriers will erode. At the same time, consumers will come to expect their PDAs to have mobile network connections and their MP3 players to download songs anytime. Furthermore, machine-to-machine communication with a device MVNO approach will form the next frontier of productivity gains after ERP and supply chain systems have become de rigeur. The number of device MVNOs will rise tenfold between 2004 and 2006.”