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| By Susana Schwartz |
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| November, 2002 |
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These
days, you no longer have to be a telecom-related company to sell mobile
data and voice services. Whether retail companies such as Virgin,
Target, Harley-Davidson or Wal-Mart, or utility companies in oil,
energy and electricity, everyone seems to be getting into the mobile
space. The vehicle by which these companies hope to reach untapped
consumer bases with non-traditional offerings is mobile virtual network
operators (MVNOs). MVNOs are resale-oriented operators that purchase
bandwidth and spectrum from existing network operators.
The
advantage to existing network operators is that MVNOs can draw
subscribers to existing networks—a plus, in light of the 3G spectrum
debacle. “A resale model through MVNO opens up a way to perhaps reduce
debt, and increase cash position by increasing traffic to their
networks,” says Rick Findlay, director of wireless industry solutions
for Convergys.
In fact, the MVNO model is giving carriers, such
as T-Mobile, Cable & Wireless, Sprint PCS and Cingular Wireless, a
way to make money from extra bandwidth and spectrum.
Additionally,
traditional or new network operators that wanted to expand in the
mobile market without investing in 3G licenses have gone the MVNO
route. PwC Consulting reports in its white paper “Competitive Advantage
for MVNOs,” co-written with Convergys, that Telia Mobile in Sweden, for
example, aims to lease mobile network capacity from 3G operators in
Germany, France, the United Kingdom, Italy and Spain.
The Evolution
MVNOs
ride on top of the networks of existing wireline, cable and mobile
networks, enabling companies to enter markets where they possess no
licenses, or where they want to add new services to existing operations
without core infrastructure worries.
Some MVNOs may own a switch
and others network elements; some differentiate on services and
platforms; and some MVNOs forge a close relationship with a host
network operator through a joint venture.
Convergys and PwC break MVNOs into three segments: non-facility-based MVNOs, hybrid MVNOs and facility-based MVNOs.
Many
start out as a non-facility-based MVNO. They depend on the host
carrier’s infrastructure. Calls to and from subscribers are treated as
if they were calls to the host’s customers. All verification operations
are carried out by the host, most of the time using a partitioned Home
Location Register (HLR). That means the host has to gear its databases
to receive, process and supply data concerning the MVNO’s customers, as
well as its own.
“MVNO retail offerings may scarcely differ from
those available from its host; in fact, some MVNOs simply repackage the
host’s services, using the host’s SIM cards,” says PwC’s Mark Gregory,
a partner responsible for telecom strategy practice in Europe.
Packaging, branding and pricing of the service and some control of the
customer would rest with the MVNO. “The MVNO would make minimal
investment, possibly confining facilities to retailing and
distribution, customer service and billing,” he says. In such cases,
MVNOs will sell subscriptions for more than one host.
As MVNO
models evolve, so does the strategy for marketing. One common thread is
that branding is usually very strong—either to the masses, or to a
niche segment. By leveraging existing loyalties to certain brands,
MVNOs push messages of new value to existing and potential customers,
all without the headaches of building up core network requirements.
Brand MVNOs
An
increasing mobile population has attracted non-telecom players to look
at services that complement their products. Consumer-focused brand
MVNOs lead the market thus far, driven by strong brands and existing
customer loyalty. Virgin Atlantic, IKEA, Wal-Mart, Target, Nike,
Disney, Ford and General Motors are all making inroads to expand their
products with the addition of mobile services.
Companies with a
strong brand, a large loyal customer base and proprietary content will
get into the content wholesale game first as a means to test the waters
and see how others mitigate risk. These companies have established
loyalty, and can appeal to customers who previously would not consider
mobile service, either because they are unfamiliar with current
offerings or prefer to purchase from a well-known brand.
In the
United States, PwC’s Gregory notes that the MVNO segment is in its
rudimentary stages, with the most recognizable MVNOs emerging from the
data services and automotive segments. BlackBerry and Palm offer
data-oriented MVNOs to PDAs from RIM and Palm Computing. General Motors
offers OnStar, enabling users to access a broad range of information in
their vehicles through wireless connections.
“The dynamic to
watch is the fact that a lot of the bigger companies will essentially
play the role of wholesalers of their content to carriers for MVNOs, as
an MTV, for example, will provide content to a Virgin Mobile,” says
Paul Hughes, Yankee Group analyst. Yankee Group has recently released
“Emerging MVNOs: Examining the Billing and Customer Care Requirements,”
a report examining MVNOs abroad and in the United States.
“All
are looking for a simplistic way to bring services to market and
demonstrate that it’s a value,” says Hughes, noting that Wal-Mart,
Office Max, Staples, AOL, GM, Harley-Davidson, NASCAR and MTV all
represent different segments, yet all have the chance to target prepaid
or youth segments. The youth and senior citizen demographics are two
market segments most analysts agree have strong brand loyalty and
intergroup loyalties that MVNOs can target.
“They are all
evaluating how to minimize customer acquisition costs,” says Hughes,
noting that such costs can range up to $200 per subscriber. “If you
already have customers in your store,” he says, “the acquisition costs
can be much lower.”
A Closer Look: Virgin Mobile
Virgin Mobile believes churn is a major reason host operators will consider heavily branded MVNOs.
“T-Mobile
was struggling in its attempt to grow; they had extra capacity, so they
married up with us to explore parts of the market they wouldn’t
normally tap into,” says Steven Day, director of corporate affairs,
Virgin Mobile. Despite the potential for cannibalization, there seems
to be a stronger argument for the added value MVNOs bring to the host
carriers. “If the incumbents are losing one in four customers to a
rival, then they might as well have the partnership with one of those
‘rivals’; then, you gain that traffic anyway. You’d rather lose a
customer to your partner than to Vodafone,” says Day. With high churn
becoming a problem, MVNOs are an alternate retail distribution channel,
thus stemming large acquisition costs and churn.
“Our churn
rates are 45 percent lower than other U.K. carriers because of the
personalized service we offer,” says Day. He adds that the partnership
has also increased traffic on T-Mobile’s network. Virgin represents
almost 2 million of the 11 million subscribers on T-Mobile’s network,
making T-Mobile the fourth largest carrier in the United Kingdom, and
Virgin Mobile the fifth. “An MVNO should be a true partnership,” Day
says, “for then each party has a vested interest in doing its best to
please the customer.” In Virgin Mobile’s case, there is a 50-50 split
between Virgin Mobile and T-Mobile. Virgin Mobile also resells wireless
services using T-Mobile’s network infrastructure in Australia.
It
is too soon to say whether economic and cultural differences in the
United States will impede similar success here in the United States for
Virgin’s partnership with Sprint PCS. Also, the United Kingdom and
Europe in general have a high prepaid customer base, which lends itself
to the MVNO model.
Mobile’s “confusion marketing” is infamous
for making it incredibly difficult for customers to feel they are
really getting a good deal. “Mobile carriers demand consumers sign
one-year contracts for services they don’t even understand; there’s
just too many options, too much credit scoring,” says Day.
“Traditionally, in mobile, subscribers have to choose what the company
offers rather than what they want. It’s ridiculous.” In contrast,
Virgin Mobile plans to pioneer subscriber-friendly mobile services in
the United States. “We will grow quickly here as well, as we will have
effective, fun, clear packaging that does not confuse subscribers. They
will not be surprised at the end of the month when they get their
bills.”
Also, rather than offering “heavy” packages, Virgin
will focus on fun and easy services that Day believes will gain
popularity mostly through word of mouth. “Sure, we’ll offer text and
WAP and all the leading-edge services, but what people really want is
their lifestyle to be enhanced,” he explains. “If you’re an ardent fan
of ‘Friends,’ for instance, you will be able to get an update on what
happened in the episode you missed, or scores for your favorite sports.
The pricing will be clear, and the phone won’t cost anything unless the
phone is used; no 12-month contract or monthly fee; just pay for what
you use.”
Virgin also wants to eliminate the concept of peak
rates. “We want to encourage people to use the phone all day—that way
we spread the use of the network over a 24-hour period for better ROI,”
says Day. “We didn’t want to confuse potential customers with peak and
off-peak rates.”
Virgin Billing and
Customer Care
Of
course, critical to Virgin’s success, or that of any MVNO, will be the
service quality. That will require strong customer management, billing
and customer care applications to manage dropped calls and customer
service.
“Despite our lack of experience with telecom-specific
challenges, we learned quickly that billing systems must evolve at the
same speed as networks now moving toward 2.5 and 3G,” says Day.
Virgin
has licensed ADC’s Singl.eView convergent billing and commerce product
to put in a new billing platform for real-time prepay, postpay and
pay-as-you-go accounts. It provides real-time authorization of voice,
data, content and commerce services. SingleView will give Virgin Mobile
complete control of its own billing operations for the first time since
the company’s inception. During the World Cup, for instance, Virgin
offered premium content services where subscribers were charged per
session for video and audio on demand.
Affinity MVNOs
Other
than the popular, household names creating MVNOs, quickly emerging will
be an alternative segment called affinity MVNOs. “While brand MVNOs’
customer bases are usually a ‘mile wide and an inch deep,’ affinity
MVNOs are usually an inch wide, a mile deep,” says David Dague,
Sentori’s director of marketing. Sentori works with two affinity MVNOs:
Working Assets and Accel Wireless.
Because affinity MVNO
customers are usually less price-sensitive, these types of MVNOs will
have a longer lifetime value with lower churn.
“They are also
less of a threat to host carriers in terms of subscriber
cannibalization, because they serve a narrow market where the host is
sure to be under-penetrated; it’s not a situation where they will be
swapping retail customers for wholesale revenue, like the typical brand
MVNOs,” says Dague.
In these MVNOs, messages are very targeted to a base that strongly supports certain ideals, concepts or brands.
A Closer Look:
Working Assets
One
of the more successful case studies in this category is Working Assets,
which has earned more than $5 million for 60 nonprofit groups through
its resale efforts. The money has been garnered from its long-distance,
Internet and credit card services and the social, economic and
political messages it promulgates on its Web site
www.workingforchange.com.
“Our message resonates strongly within
our subscriber base,” says Sue Green, director of the company’s
wireless division, noting the company now has 20,000 subscribers in
wireless and 380,000 long-distance customers. “The subscribers strongly
believe in its cause as a multiservice communications reseller offering
long-distance and wireless services to the consumer market, as well as
credit card and business long-distance services,” she adds.
The
organization fosters an environment where users offer donations for
progressive nonprofit groups through service bundles subscribers buy.
Small percentages of revenue are garnered from bundled services, which
are then used as a proposition for parties affiliated or interested in
certain environmental, social or political issues.
Because its
customers are more concerned with its ideals than its financial
contracts, price-driven loyalties are mitigated and churn issues that
worry most network-based wireless carriers are eliminated. “Therefore,
theirs is a much more profitable customer base,” says PwC’s Gregory.
That will result in higher ARPU, lifetime value and enhanced
profitability. PwC has worked closely with Sentori to help Working
Assets develop a standalone bill.
Working Assets is working to
phase in the standalone platform to rate tolls and charges, and then
pass them to the billing system used for long distance. EUR Systems
generates and prints the final bill.
Working Assets’ combined
outsourced system includes Sentori Billing Solutions’ 3G billing and
customer care platform, which is hosted via a strategic relationship
with EUR Systems. Sentori brings billing and customer care software
focused on wireless, while EUR provides the hardware, hosting, systems
management, and operation and support services, including bill
print/stuff/mail, payment processing and contact center services.
On-the-Fly Customization
To
enable MVNOs to host multiple brands, ostensibly multiple companies off
the same network, the vendor market is coming up with ways to repackage
and rebundle with different pricing. “Systems will have to have
strengths in rating flexibly,” says Joan Marwitz, Portal’s senior
manager for wireless marketing solutions. “Companies like Disney or
Nike will tailor to segments, putting bundles out and seeing how they
do; they have to adapt quickly. While some vendors do a lot of
customization to make changes, in the MVNO model it will be more
advantageous to have systems that enable the client to do the
customization on the fly, but with the same scalability as is possible
when the vendor does it.”
Portal is strengthening its position
in the MVNO market by enhancing Infranet with MVNO-specific
capabilities. For example, its “branding” is a core capability that
enables carriers to create brands within brands. Marwitz explains that
in its database, all brands and associated data are segmented for
billing, cross-selling and marketing.
Additionally, MVNOs’ systems must be able to interface to different content providers.
Billing and Customer Care
As
more wireless users begin to delve into wireless data services through
their handsets, billing will have to handle such issues as real-time
rating and QoS. Data streams will have to be closely gauged to ensure
that SLA expectations are met.
Scalability also will be a key
factor for MVNOs that expect back-office infrastructure to support
millions of subscribers. Also, EBPP, Web self-care and call center
support will be at the core of customer care functionality that will
set MVNOs apart from competitors. Billing and OSS challenges revolve
around unique MVNO requirements, such as time to market, partner
management, revenue-sharing, innovative pricing models, convergent
prepaid services, robust customer care and scalability.
Most
emerging MVNOs will not have much wireless product experience with rate
plans and services, or handset selection, service procurement and
distribution challenges. Nor will they have experience with networks
and host carrier selection and local number provisioning, roaming and
interconnect. Nor will they have experience with billing and customer
care in wireless, so identifying all the interfaces needed to work in
this environment will be challenging, as they must work with
fulfillment houses, credit scoring houses, credit card clearing houses,
bank interfaces, handset insurance providers, bill printers, call
centers (if they outsource that function) and host carrier interfaces.
“They will struggle with how to deploy a customer management platform,
implement workflow, manage provisioning and mediation and customer
care, rating and billing,” says Dague at Sentori.
Because of
that complexity, most MVNOs will outsource the billing platform to
competitive billing providers, or work with a billing vendor that can
rapidly upgrade existing systems by dropping pre-developed system
components into existing systems.
The costs of outsourcing
versus keeping billing and customer care have to be measured.
Initially, outsourcing is more cost-effective, but as MVNOs grow, the
billing and customer care functions are going to be brought in-house.
Yankee Group predicts the “build-operate-transfer” model will prevail,
as more outsourced systems are being made flexible enough to migrate
in-house.
Much of the billing industry has already bolstered
its offerings to handle voice, data and convergent platforms, and many
are enhancing systems to handle the MVNO model of business. According
to PwC, the customer care solutions in the MVNO model far surpass those
of their host carrier, lending to the success of the model in Europe
for the past couple of years.
As MVNOs proliferate, host
carriers also will need to implement the necessary billing and OSS
infrastructure to reap the many benefits of hosting MVNOs, and they
will have to create wholesale business models to accommodate new
distribution channels. Key technical functionalities, according to PWC,
will be hierarchical billing, event repudiation and convergent prepaid
event monitoring, with postpaid settlement between partners.
Hosts
will require a comprehensive, end-to-end billing and customer care
system to support both their retail and wholesale (MVNO) requirements.
Additionally, a robust architecture is required to provide the
scalability to handle rapidly expanding subscriber bases. In addition,
they need to ensure sufficient spectrum and bandwidth to support an
MVNO’s current and future growth needs. Those will include network
quality that meets stringent SLAs; accurate usage information provided
to MVNOs to reconcile billing errors; and secure access by MVNOs to
their OSS for billing, provisioning and mediation. |
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