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UK Mobile Virtual Network Operators (MVNOs) growing out of their niche

UK based mobile consulting firm Mako Analysis has announced that the UK could have as many as 15 mobile phone operators selling branded services by Christmas 2006. The rise in the number of Mobile Virtual Network Operators, or MVNO's, they claim is down to an increasing number of firms looking to extend their service portfolio into the mobile space and a relaxing of incumbent mobile operator selection criteria for potential wholesale partners.

For a number of years in the mobile industry the term Mobile Virtual Network Operator or MVNO represented a section of the market that could not be described as anything other than niche. Virgin Mobile enjoyed the crown of having perhaps the most successful international MVNO operation for a period following its launch in 1999. Even this seemingly stable outfit was not without its critics however as Virgin's business model never saw them rack up incumbent operator rivalling connection figures despite launching at the peak of the mobile telecoms boom. With the close of Virgin Mobile's Singapore outfit in 2002 it seemed the MVNO model would never pose a serious threat to the established cellular networks.

At the same time Virgin Mobile Singapore was starting to hit its rough patch, a new operation with an innovative approach to the MVNO business model started to gain favour with the Danish public. Telmore came aggressively into the market with an economically streamlined web based SIM card only proposition. This low overhead operation allowed the company to deliver some compelling pence per minute and SMS pricing the likes of which had never been seen in the Danish market.

Mako Analysis states points out that the Danish public clearly responded very favourably to this development, with Telmore acquiring a 10% market share in only 3 years. Denmark is now one of the cheapest markets in which to be a mobile phone user, with the average cost of making a call now being half of what it was prior to Telmore's entry. Today Denmark has nine mobile operators, both traditional and virtual in a country with fewer than 5 million inhabitants. Mako however poses the question that with so many potential service providers for such a small population has healthy competition been replaced with consumer confusion, or to put it simply how many mobile operators, of whatever persuasion, does a country need?

For analogous markets Mako Analysis takes a look at the reselling of services in other markets such as fixed line calling, internet service provision or even general utilities such as electricity or gas, stating that it is clear that these markets will support a great deal of competition. In the UK for example, it is possible to purchase some kind of broadband internet service from over 100 different providers. Now we can all agree that the mobile market is somewhat different to broadband access due to the unrestricted nature of the broadband infrastructure network in the UK. Mako feels a potential MVNO operation may not be so different however as the barriers to entry seem to be eroding.

In Mako's view, the two pillars of an operation such as Telmore or easyMobile are firstly a low cost online operation and secondly an incumbent mobile operator who is willing to provide access to their network.

Low cost online business models are what make the internet such a ruthlessly efficient route to market for businesses all over the world, companies can be set up in a matter of weeks with little financial outlay and require minimal influx of revenue to survive, thus making them a dangerous threat.

The second piece of the puzzle however, Mako Analysis feels is a little more challenging to acquire in many countries especially where regulatory pressure has not been exerted upon the incumbent operators. They do state that in the UK however T-Mobile in particular has made it clear that it is prepared to engage in wholesale discussions with just about any serious player who can put together a viable business model. T-Mobile are famously the operator who first broke the wall of silence with Stelios Haji-Ioannou to thrash out a deal for his immanent easyMobile operation. Mako feels however T-Mobile's more recent deal with fixed line and broadband provider Toucan, is by far a more concerning signal for the incumbent UK operators.

According to the UK analyst firm, Toucan is reported to have only approx 50,000 customers subscribing to their existing services in the UK, making the potential cross selling of a mobile proposition an incredibly marginal revenue stream for T-Mobile, who in an average week will connect well over 50,000 customers to their own network via traditional means.

A Mako spokesperson stated, "When we combine T-Mobile's apparent willingness to entertain deals of such apparent insignificance and the recent streamlining of their UK operation, it appears they are reconfiguring their business to facilitate the entry of many more MVNO's into the UK market". It is common knowledge that UK retail chain ASDA is assessing the launch of an MVNO operation after its main UK rival Tesco racked up half a million customers with its mobile proposition in approx one year. Tiscali, the European internet service provider is also rumoured to be chasing an MVNO deal.

According to Mako, a further half dozen firms are said to be in advanced talks with UK mobile operators (mainly T-Mobile) for the potential launch of MVNO operations.

Given the implications of the Danish MVNO model, a relaxing of incumbent operator wholesale deal criteria and the willingness of brands to extend into the mobile space Mako Analysis conservatively estimate that the UK could become a 15 player market (5 traditional operators, 4 existing MVNO's plus 6 new MVNO operations) by Christmas 2006.

Sun, 13 Mar 2005 17:55:00 +0000