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Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
Scanning The MVNO Opportunity: Business Model Versus Reality
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Scanning The MVNO Opportunity: Business Model Versus Reality

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Introduction …

Introduction
MVNO Definition
Business Model
Market Reality
Differentiation Pools
Recommendations

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  • 1. Member of Scanning The MVNO Opportunity - Business Model versus Reality - Barcelona, June 7th 2006 Guy Alain Djopmo Komguep
  • 2. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 1 Detecon - your international partner in the consulting market Established: 1954 Diebold 1977 DETECON Reorganized: 2002 Detecon International GmbH Sales 2005: EUR 130 million 500 consultants Shareholder: T-Systems International GmbH Globalization Zürich Bangkok Bonn Johannesburg London Reston San Mateo Cairo Abu Dhabi BeijingIstanbul Beirut Riad
  • 3. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 2 Content 1. Introduction 2. MVNO Definition 3. Business Model 4. Market Reality 5. Differentiation Pools 6. Recommendations
  • 4. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 3 Key Questions Introduction Key Questions What is an MVNO? What is the essence of the business model? What is the reality on the MVNO global market? What are the recommendations for different players? Which boundaries shall be considered within the mobile Telco value chain? How do you to target a market and design a competitive strategy? What are the lessons learned from respective success stories and pitfalls? What are the leads for business growth and service differentiation? 1 2 3 4 Objective of the presentation is to provide suitable answers to predefined key questions.
  • 5. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 4 Content 2. MVNO Defintion
  • 6. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 5 The Gray Zone MVNO Definition  However, this broad definition is not always applicable to all MVNO business models deployed in diverse countries with different regulatory systems.  The first approach focuses on players which simply repackage network operator’s services and issue their own SIM cards by relying almost on the host’s facilities with a little product differentiation.  While the second approach consists of providers which have and operate their own core network infrastructure including switching, home location register, billing, customer care, value added services platforms and intelligent network systems.  In essence, most MVNOs fall somewhere between this Gray Zone according to their technological implementation choices, market strategies and the respective regulatory framework. Clarification An MVNO does not own a mobile spectrum license but sells mobile services under its own brand name, network code and SIM cards using a licensed mobile radio network.
  • 7. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 6 MVNO Worth MVNO Definition Illustration With regards into the mobile Telco value chain, the MVNO worth is swiftly clear. Classic Service Provider Enhance d Service Provider Network Service Provider MVNOSales Partner Reseller & Billing System Mobile Network Operator Numbering Range (IMSI, MSISDN) Service Delivery Platforms End user devices Sales Radio Network Core Network (MSC, HLR, GGSN, IN) SIM Card End User Contract Customer Care Billing Platform Branding Advertisement                                                    ServCoSalesCoNetCo
  • 8. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 7 Content 3. Business Model
  • 9. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 8 Targeting a Market Business Model Modus Operandi It is more important to do what is strategically right than what is immediately profitable. Market Regulatory Openness Mobile Penetration GDP Per Capita Market Size 3 4 1 2 Influence of political and lobbying forces Lead for market entry strategy Indicator to future growth potential Driver or Inhibitor for aspiring MVNO  Cost Equity per Subscriber  Demand Forecast  Churn Rate  Local MVNO Definition  Transparent Framework  Decision-making Process  Expected ARPU  Planned MoU  Pricing Strategy  Market Share  Segmentation  Competition Level
  • 10. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 9 Cornerstones Business Model  With respect to subscriber forecast scenario  Simulation of expected Churn Rate and Minutes of Use  Statement on current ARPU as well as identified customer segments  Awareness to existing tariffs packages and service offering portfolio ARPU level  Balance between the rate offered and the pricing for end-users (40-50% Margin)  Nationwide network coverage of the mobile carrier partner  Technological compatibility with the planned service offering  Suitable SLA in terms of duration, reliability and reaction patterns Wholesale stratagem  Opportunity for non-carriers, established service providers  Strengths of an outsourcing deal in terms of infrastructure management, time to market, risk assessment, etc.  Sound check of the MVNE business uncertainty on the long term prospect  Best scenario with a Mobile Network Operator playing also the MVNE role MVNE perspective Significant grounding points for the compilation of a MVNO business model are the Wholesale stratagem, the ARPU level and the MVNE perspective.
  • 11. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 10 Competitive Strategies Business Model Competitive Strategies Funding requirements, service offering and customer segmentation are not just „garden- variety“ rudiments, but decisive dynamics determining the MVNO competitive strategy.  Telemore in Denmark  Simyo in Germany  Revolution Telecom in Australia Market Challenger “Budget MVNOs” attack leaders for future market share, prepaid services focus, no handsets and physical outlets; Market Follower “Convenience MVNOs” claiming product imitation advantages as product innovation strategy, rely on existing customer base and brand  7-eleven in USA  Jeans in Ukraine  M6 in France  Virgin Mobile in UK  Tele 2 in Sweden  Sense Communications in Norway Market Leader “Value-added MVNOs” with largest market share and offering innovative data and applications packages Market Nicher “Affinity MVNOs” with portfolio appealing individual lifestyles, usage patterns or special interests  Trident Telecom in Hong Kong  RCSC Mobile in Belgium  VOX mobile in Luxemburg
  • 12. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 11 Establishment Procedure Business Model MVNO Establishment Procedure The modus operandi for a suitable MVNO establishment consists of three basic steps such as targeting a market, mastering cornerstones and designing the strategy. GDP Per CAPITA  Minutes of Use  Demand Forecast Mobile Penetration Potential  Cost Equity Per Subscriber  Cost Equity per Population Market Size  Competition Level  Market Share  Innovation Grade Regulator Openness  MVNO Definition  Legal Transparency  Decision-Making Process Targeting a Market Mastering Cornerstones Wholesale Rate  Nationwide Network Reach  End-user pricing  Technological Compatibility  Service Level Agreement ARPU Level  Subscriber Forecast  Revenues  EBIDTA MVNE Perspective  Cost cutting via Outsourcing  Competence Consolidation  Economy of Scale  Rapid Time to Market Designing the Strategy Scenarios  Market Leader  Market Follower  Market Challenger  Market Nicher Tools  Customer Segmentation  Service Portfolio  Device Offering  Brand Approach 1. Assessment 2. Feasibility 3. Consolidation
  • 13. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 12 Business Model Pricing Strategy Nine Price – Quality Strategies  Diagonal strategies 1,5,9 can all coexist in the same market as long as related three group of buyers are present.  Strategies 2,3 and 6 are the way to attack the diagonal positions by convincing quality sensitive customers to buy from them and save money  Positioning strategies 4,7 and 8 amount to overpricing the product in relation to its quality with the risk to spread bad word of mouth about the company Reasoning 1. Premium Strategy 2. High-value strategy 3. Super value strategy 4.Overcharging strategy 5. Medium- value strategy 6. Good Value strategy 7.Rip-off strategy 8. False economy strategy 9.Economy strategy High Low Medium High LowMedium Price ProductQuality1 percent increase in price boosts profits two to three times much as a 1 percent increase in sales volume.
  • 14. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 13 Risk / Sensitivity Analysis Business Model Illustrative  The scenario analysis focuses on market potentials of best, base and worst cases.  The sensitivity analysis of the base case includes key variables and clarifies the significance on equity value.  The sensitivity analysis shows the impact of identified risks on the key financial indicators and ratios.  It also provides transparency between the risk level and profitability Rationale Scenario analysis Sensitivity analysis Freecashflow Base case definition e.g. stable sales Best case definition e.g. rising sales Worst case definition e.g. falling sales Probability Best case Base case Worst case Scenario determination and impact: Capital structure Sales growth Discount rate Exchange rate changes Working capital change Equity value Investment costs Selection of value influencing parameters: Equity value band Impact quantification:  Quantifying the impact of selected parameters on equity value The risk sensitivity analysis is a decisive exercise by designing the MVNO business case.
  • 15. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 14 Content 4. Market Reality
  • 16. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 15 MVNO Hype Cycle Market Reality MVNO Hype Cycle After the uninformed optimisms and consumed pessimism, we are moving to the realistic optimisms. Transition PhaseKick-Off Phase Saturation Phase Awareness Early adopters: Virgin Mobile UK 1999, RSL Com Finland 1999, etc. Market followers: Virgin Mobile USA 2002, Happy Many Belgium 2004, etc. Niche players: Affinity groups, Media brands, City carriers, Retailers, etc.  Regulatory issues clarification  First MVNO players in Europe  Innovative market strategies  Pan-continental MVNOs  No frills brand MVNOs  “Wait and see” strategies  Global deployment of MVNOs  Market saturation  Consolidation strategies Time Today
  • 17. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 16 MVNO Landscape – Attractive Markets Market Reality Attractive Markets MVNO “Sweet Spots” aka attractive markets include for instance USA, Japan, Germany, Switzerland, and Canada.  Mid 2004 almost 43% of Canadians had access to mobile services  Capex continues to decrease from big pending year 2000 and 2001 down Canada  Verizon wireless as largest mobile carrier has only 23% market share  Semi-rural and urban areas with digital coverage remain green fields USA  Large population with high GDP per Capita  Transparent regulatory system with opportunities for niche players Germany  Early-adopter customers for innovative services  Transparent regulatory framework Japan  European commission pressure on regulator to boost the scope of Telco competitive services  One of the highest GDP per Capita in Europe Switzerland Source: DETECON Research and Analysis
  • 18. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 17 MVNO Landscape – Promising Markets Market Reality Promising Markets Promising markets, in terms of future MVNOs deployment, include for instance China, France, United Arab Emirates, India and South Africa.  Fourth largest mobile market in Europe and fine regulatory openness  69% mobile penetration versus 86% western European average France  Fastest Compound Annual Growth Rates for the period 1998-2003  Green fields for MVNO players South Africa  Major star performer in Middle East, 10% growth in 2005  Early adopter market with very high ARPU United Arab Emirates  35 Mio new subscribers forecasted for 2005  30% mobile users are looking for better operators  Average per minute charge declined by 58% in 2004 India  269 Mio subscribers in 2004, i.e. only 20% of the population  GDP is continuously growing since 2000 China Source: DETECON Research and Analysis
  • 19. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 18 Lessons Learned – Success Stories Market Reality Selected Cases Global and pan continental players are performing well and continue to expand.  Virgin Mobile UK: equity investments with established brands with high growth consumer segments can bear out extremely powerful.  Tele2: experienced carrier can leverage on its internal telecom skills, market footprint and image to realize business development.  Trident Telecom: “Niche MVNO” in early-adopter customer-based markets could achieve business development by offering bundled services. Joint venture between Virgin Group and network partner One 2 One Fixed carrier which launched Tele2mobile as alternative brand Focus on Value Added Services for business travelers in Hong Kong MVNO Success Stories
  • 20. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 19 Lessons Learned – Pitfalls Market Reality Selected Cases Technological advances are pushing for a double edged sword with which business opportunities are created and destroyed.  Sense in Norway: In short, market maturity, partner’s cooperation and funding strengths are vital for the successful outcome.  Imagine in Ireland: smart selection of the host network, suitable choice of the target market and prompt check of the regulatory support are vital for a successful MVNO establishment. Sense in Norway world’s first MVNO launched late 1998 and flop in early 1999 -Unfamiliarity of the concept and financial difficulties -MNO resistances to negotiate access to their network Imagine in Ireland launched in April 2000 and closed operations one year later -wrong Volume Discount Agreement -legal uncertainty over its right to operate MVNO Pitfalls
  • 21. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 20 Content 5. Differentiation Pools
  • 22. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 21 Customer Centricity Differentiation Pools Customer Centricity Metro-Zone High mobility Home / Office-Zone Neighborhood-Zone Cost Savings Performance SecurityConvenience  one stop shop  one contract  one device  one number  one bill / tariff  one customer care service  discounts  value for money  shared fixed-mobile minutes  free home zone  speed and quality of service  control on communication  mobility / ubiquitous access  Seamless applications  data security  service security  predictability of bill Fixed Mobile Convergence and Quadruple Play are offerings which embrace and foster the customer centricity trend.
  • 23. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 22 Market Offering Positioning Differentiation Pools Illustrative Use Case  Value perception  Packaging  Image  Advertising  Channel  Accessibility  Ordering ease  Delivery  Customer education  Customer feedback  Customer service  Quality of service  Features  Reliability  Warranty High Low LowHigh Efficiency 3 1 4 2 Pool Impact Rationale Sales 4 Distribution and competence Brand 4 Communication and readiness Customer care 5 Competitive advantage Product 3 Value proposition 1 2 3 4 Importance Don‘t watch the product life cycle: Watch the market life cycle.
  • 24. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 23 End-User Devices Differentiation Pools Integrated Mobile Device Management and Peer to Peer applications will revolutionize the perception of end-user devices and therefore the mobile communication industry. Wireless Subscribers Growth 2005-2011 (Millions) Mobile Computing Devices Growth 2003-2008 (Millions) 3.156 2.968 2.764 2.547 2.320 2.085 1.851 0 500 1.000 1.500 2.000 2.500 3.000 3.500 2011200920062007 200720062005 Source: Insight Research 2006 680655630595 500 560 265260245 225 210 195 340 320 305 240 220 205 0 200 400 600 800 1.000 1.200 1.400 1.600 1.800 470 475 480 2008200720062004 440 2003 420 2005 455 Source: Insight Research 2006 Asia / Pacific Europe North America Rest of World
  • 25. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 24 Mobile Broadband Technologies Differentiation Pools Mobile Broadband Technologies Grid  To assess future wireless broadband technologies not only data rates are important.  Depending on the intended application, factors such as coverage, mobility, security, quality of service and roaming have to be considered.  One major aspect, which should not be neglected is the regulatory situation and the spectrum available for different wireless broadband technologies. Reasoning 0 1 2 3 4 Price per Bit Coverage Mobility Quality of ServiceData Rate Security Roaming 0 1 2 3 4 Price per Bit Coverage Mobility Quality of ServiceData Rate Security Roaming 0 1 2 3 4 Price per Bit Coverage Mobility Quality of ServiceData Rate Security Roaming WiMAXWiFi HSDPAW-CDMA 0 1 2 3 4 Price per Bit Coverage Mobility Quality of ServiceData Rate Security Roaming Future wireless broadband technology develops along two directions: one evolutionary path from W-CDMA to HSDPA and one revolutionary path comprising WiFi and WiMAX.
  • 26. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 25 Technology Roadmap Differentiation Pools W-CDMA Technology Roadmap W-CDMA provides a coherent and evolutionary roadmap to higher bandwidths and reduced latencies. However, these promising enhancements still need frequency spectrum. W-CDMA / (UMTS) HSDPA HSUPA HSOPA  Early deployments were based on Release 99 specifications of the UMTS standard  Peak downstream rate of 2 Mbps—although current networks are configured for only 384 Kbps.  In real-world environments, users can expect 150 Kbps to 250 Kbps over commercial UMTS networks.  High Speed Downlink Packet Access (HSDPA) was included in Release 5 of the UMTS standard.  HSDPA increases downlink speeds to a maximum of 7.6 Mbps  Maximum rates supported by the current generation of HSDPA devices is 1.8 Mbps.  Future upgrades of HSDPA will eventually provide the theoretical maximum peak rate of 14.4 Mbps.  The next step in the evolutionary process is High-Speed Uplink Packet Access (HSUPA)  As specified in 3GPP Release 6, this enhancement will eventually increase uplink speeds to a maximum of 5.8 Mbps.  This will be essential for applications that require a more symmetric link such as real-time gaming.  We may see High- Speed Orthogonal Frequency Division Multiplexing Packet Access (HSOPA) emerging as a standard in 2008.  It will incorporate OFDM and multiple-input multiple-output (MIMO) technologies to provide up to 37 Mbps on the downlink.
  • 27. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 26 Content 6. Recommendations
  • 28. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 27 Items for Regulators Recommendations Items for Regulators Regulators and standards bodies have the attempt to settle suitable framework for the usage of available frequencies. Despite EU regulation, wide international variations in MVNO regulation remain. The lack of a clear MVNO definition hampers regulatory intervention. MVNO can truly add value to off-the-shelf services offered to end-users. Network access requirements to MVNOs should remain mobile operator’s prerogatives. Mobile Operators will be loath to surrender their licence privileges.
  • 29. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 28 Notes for Carriers Recommendations Notes for Carriers Move forward from the usual “wait and see” strategy to a clear portfolio strategy. MVNO opportunity is really a viable stratagem to enter new market – Globalization. After the 3G license burden, used spectrum can be leased to MVNO player. Managed services and outsourcing offerings are lucrative new revenue streams – MVNE. Fixed carriers should rely on the MVNO opportunity to embrace the convergence path. Joint venture with aspiring MVNO is an opportunity to address niche markets.
  • 30. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 29 Slice of the Cake for Potential MVNO Recommendations Slice of the Cake for Potential MVNO Affordable, reliable, and ubiquitous wireless services continue to alter profoundly the way people access the global communications network. 40%-50% margin for voice and higher for data is essential to finalize the wholesale deal. MVNE perspective provides significant assets to tackle operational risks. Potential MVNO must have reliable financial backing during the negative cash flow period. Fixed Mobile Convergence and Quadruple Play are leads for differentiation. Technology enhancements enable today the provisioning of state-of-the art data offerings.
  • 31. SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT Page 30 Contact Thank you very much! Integrated management and technology consulting worldwide Guy Alain Djopmo Komguep Detecon International GmbH Oberkasseler Str. 2 53227 Bonn (Germany) Phone +49 228 700 2826 Fax +49 228 700 2107 Djopmo.Komguep@detecon.com

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