Bedtime Stories

Apparently there's something about a mobile virtual network operator (MVNO) that inspires bedroom analogies.

“Be careful,” warned Michael Davies, Mercator Partners founder (www.mercatorpartners.com), during a panel at CTIA's Wireless Agenda, as he discussed the relationship between mobile carriers and MVNOs. “You're sleeping with the enemy.”

Later during the same panel, Steven Day, Virgin Mobile spokesman (www.virginmobile.com), used the catchphrase that originated with Richard Branson, Virgin founder: “Around the world networks will get into bed with many other companies. But whenever you can, I think it is preferable to go to bed with a Virgin.”

Although Day said he could not confirm a U.S. partner, he made it clear that the U.S. market holds much potential as Branson seeks to make Virgin Mobile the first global MVNO.

“No network will be able to survive without some form of (MVNO) participation,” Day predicted.

Virgin Mobile was formed in the United Kingdom as a 50-50 joint venture with One 2 One, which is owned (www.one2one.co.uk) by Deutsche Telecom (www.dtag.de/english). Although One 2 One competes with Virgin Mobile for customers, it also has a financial interest in seeing Virgin Mobile attain success.

Doug Johnson, Ericsson director of (www.ericsson.com) MVNO business development, said the MVNO is a natural evolution in the market.

“As a product becomes a commodity, non-traditional players will enter the market to develop new business models,” he said. He spoke of the convenience stores that started selling gasoline and then the gasoline stations that added convenience stores as examples of how this happens.

Johnson described three types of MVNOs:

• The basic carrier that brands the phone and resells minutes

• The enhanced carrier with a service network for personalization, e-commerce — services the network may not provide currently

• The independent MVNO with its own switches that has a network number appear on the roaming tables so that people can roam onto it.

A newer model is a shared network where companies pool their spectrum, build a 3G network and then each is an MVNO on that network.

MVNOs, though, are not resellers. The MVNO has one home-network partner, is multidimensional with equity interests from both parties, is based on value-added services and has an established brand. In contrast, the reseller has wholesale agreements with multiple partners, is 1-dimensional and is trying to build a customer base and an identity at the same time.

The MVNO sells airtime to subscribers but also can charge a partnering access fee for access into the content community or host other services for other brands.

The home network can back charge the MVNO for hosting, billing, customer care, IN services and location-based services, along with airtime.

The mobile Internet will give carriers an opportunity for a big increase in value.

“You can raise the amount of money you take out of each customer's pocket by 200% or 300% of current levels,” Davies said. But voice alone will not raise enough to finance 3G.

Any company that wants to tackle mobile internationally should embrace the MVNO concept, Davies said. There is no single blueprint to doing it right. But he said the “glory days” of wireless are past, and carriers need new strategies to make money.

In a survey of North American operators by the U.K.-based ARC Group (www.the-arc-group.com), 33% predicted MVNOs would account for 11% to 20% of wireless service revenues in 2005.

MVNO Success

Doug Johnson, Ericsson (www.ericsson.com) director of MVNO development, said a successful MVNO will have:

• An established brand pull

• Low customer-acquisition and- retention costs

• Established distribution channels

• Customer intimacy.