May 23, 2019 • Business Value Team
It has been 20 years since the debut of Virgin Mobile in the UK, the first true MVNO in the world. Early on, it was predicted that industry outsiders would sweep in and claim the mobile consumer business. The past 20 years, however, have proven that while some MVNOs indeed lived up to the prediction and disrupted their respective markets, many had not done that well.
The success of the MVNO model varies across markets, with an average of 70 players per market in developed economies compared to less than 20 in developing ones. Working globally with MVNO customers at different stages of their business — from pre-launch to mature, well-established customers — we use a simple, yet effective evaluation model — the MVNO Rosette Framework.
Optiva’s MVNO Rosette Framework
With this model, we evaluate both extrinsic and intrinsic factors of the business and market environment to establish the appropriate strategy. Then, we help our customers to execute the strategy.
The business ecosystem
By far, the legislative and regulatory environment plays the most crucial role because it sets the foundation for the MVNO businesses in the market. However, setting the legislative framework for an MVNO’s entry and license auctioning is rarely enough. In many cases, it leaves potential MVNOs at the mercy of MNOs when it comes to a hosting network. Instead, what is needed to maintain a healthy MVNO sector is ongoing regulatory activism that monitors market failures and strives to correct them.
For example, before merging with O2 (Telefonica) in Ireland, Three was required to commit to selling up to 30% of its merged network capacity to two MVNOs to gain the European Commission’s (EC) approval. Shortly after, the EC required similar terms for the approval of the O2 and E-Plus merger in Germany. Meanwhile in Greece, any MVNO attempting to penetrate the market ended up selling its customer base to an MNO due to a lack of financial viability. There are, of course, additional regulatory aspects that are directly linked to an MVNO’s success, such as mobile number portability (MNP), mobile termination rates (MTRs), and more.
In a market, the macroeconomic environment affects all businesses, and MVNOs are no different. Despite the nature of MVNOs, factors, such as interest rates, unemployment, GDP growth, and other KPIs impact the underlying business plan assumptions of emerging MVNOs. In some cases, they can even create opportunities.
Factors that also need to be evaluated are the competitive landscape and market environment in which the MVNO operates and interacts. Market “MVNOization” drives competition in the market and puts core telco service prices under pressure. Depending on a market’s maturity, price levels might already be too low to accommodate additional entrants. Where they are not, the overall value proposition should still be carefully evaluated and designed to ensure long-lasting, healthy growth.
Competencies and strategy
Intrinsic factors refer to variables that are internal to the MVNO and its parent company — its core competencies and strategy. When designing and assessing the value proposition of an MVNO, first, we establish what the proposition is founded upon. Is it the needs or lifestyle of a particular audience? Does it leverage the synergies of an existing business? Or is it simply a matter of technology? Answering such questions helps to determine certain aspects of the go-to-market strategy — from brand and acquisition to products, services, and pricing.
Next, we map the core competencies and synergies with adjunct service and product lines, channels, or logistics. MVNOs, by their nature, must operate lean. As such, it is necessary to take advantage of existing capabilities and leverage existing economies of scale or partner to create them.
For example, Poste Mobile, Italy’s biggest postal service and leading MVNO, effectively leveraged its company’s assets to offer an innovative digital wallet product that combines financial services and mobile. Poste also maximized the coverage and reach of its network of over 13K post offices to address and capture an untapped, unsatisfied mobile demand in a market that was disrupted by portability migrations.
In many markets, monetizing mobile services has already become a challenge. For MVNOs, which traditionally offer a basic product and service portfolio, it is even more so of a challenge. Understanding and defining the monetization strategy may, therefore, go beyond measuring success — it may define what success is.
One example is service bundling. In a market undergoing consolidation, where competitors offer triple or quad play, a cable operator may opt to launch an MVNO to protect its core market share — not necessarily to generate direct mobile service profit.
Optiva Business Value engagement
Recently, we engaged with an MVNO customer to support its pre-launch phase. The market in which it intends to operate is already packed, and with penetration rates well beyond 100% and widely prevailing dual SIMming, share of wallet and ARPU may become a challenge. Further, despite the supportive regulatory environment, recent attempts by a global MVNO group on this market were unsuccessful.
Before engaging the Optiva Business Value team, the MVNO had already chosen the youth segment as its target audience (an audience-driven value proposition). We guided the focus on the audience’s specific needs and to discern the consumer pain points. To succeed in such a competitive market and achieve a sustainable differentiation over competitors, we recommended fine-tuning the value proposition. While the enrollment journey had been fully digitized — a mandatory feature for this segment — it did not account well enough the dual-SIM nature of the market.
Therefore, without incorporating MNP into the digitized enrollment journey, low share of wallet would rapidly put pressure on ARPU. Similarly, the subscription products and direct debit options, which are crucial components for ARPU assurance and price plan adherence, would need to be offered as default options.
Also, as a lean operator relying mainly on digital self-service and crowdsourcing support, we mapped the various app journeys, fine-tuned them and defined the different metrics and A/B tests for optimization. We further extended our support to community building, a fundamental success factor in the operator’s strategy, based on our experience, global best practices and benchmarks.
Like other industries and even more so, telco is experiencing disruption as a result of a technology revolution and digital transformation. The Optiva Business Value team sees this as a time of opportunity for our customers to unlock business value and make impacts in their markets that their competitors can not match. It’s time to change the game.