The MVNO paradox

Thomas Husson | November 03, 2006, 10:39 AM

The MVNO market is still buoyant in Europe with new countries opening up and with many new entrants. Carrefour and Auchan, among the main French retailers finally launched their offerings and follow the examples of Tesco in the UK or Albert Heijn in the Netherlands. Nothing really new here in the sense that those guys are already able to sell a significant amount of connections per year, to target untapped segments (older demographics and new entrants, family offerings), to benefit from a huge daily traffic and can integrate telecom in their loyalty programs. After all, they sell journeys, books, oil…Why not increase margins by selling minutes?

More interestingly, there is a new range of MVNOs that have been launched recently across Europe. One of particular interest is Ten, launched on Orange France network by the former CEO of Tele2 France, Jean-Louis Costanza. This MVNO has a unique positioning on mobile e-mail and IM. You can for example access to Windows Live Messenger unlimited for 5 euros per month. The interesting point here is the way the service is promoted:
1- Select your Internet service
2- Choose your voice package
3- Select your handset

This is exactly the reverse approach traditionally used to answer client needs. That being said, the marketing and advertising has been clever (mass market TV spots to raise aware ness of the brand and guerilla marketing as highlighted on this website where interactivity with consumers and contributions are promoted). They are currently filling the existing gap between major operators’ defensive strategy model (based on a per event pricing with proprietary solutions) and a full D2C Internet experience. The idea is to promote a sort of Blackberry offer for the masses. The challenge will be to remain competitive on voice pricing (not really the case today), to compensate for the lack of a high street presence and the need to continue to spend money for the promotion of the brand.

There are many other companies launching MVNOs and increasingly Media MVNOs and niche players. A year ago, I posted a comment on this issue here. It reminds me of the early days of the Internet when every single company wanted to be an ISP. I am not saying there are no opportunities (there are significant ones for telecom-literate companies such as cable companies, ISP, alternative operators) but that few of the 150 European MVNOs will really succeed.

I would just like to highlight a couple of paradoxes in the MVNO space:

1) The competition paradox. MVNOs have been fostered by regulatory bodies to increase competition and benefit consumers with lower prices. It is true this model has worked well in the Nordic countries and that prices have gone down. So significantly that incumbents ARPU have been eroded. At the end of the day, incumbents have reduced competition by acquiring their competitors: TeliaSonera/ Chess in Norway or TDC/Telmore in Denmark are good examples

2) The content paradox. Many media MVNOs have launched either full-MVNOs or licensing agreements with mobile operators to sell unique content and increase their margins. Music video clips, live TV and full-track music downloads and 3G networks are not really available for TF1 Mobile (the main broadcaster in France, whose positioning is still highly questionable), VIVA (a MTV brand in Germany) or Universal Music and NRJ in France. The reality is that those companies need to license their content to the widest audience possible and have a very short window of opportunity to offer exclusive content if they do no want to cannibalize their existing licensing revenues

3) The target paradox. Most of these companies target the most lucrative segment for multimedia services: the youth generation. The only trouble is that many of them are on prepay and do not precisely spend that much money on services. They want a fair pricing. NRJ in France recently decided to slash tariffs. Finally, what will happen when tweens and teens age? Will they remain loyal? My take is that this is part of the reason why Disney decided not to launch a MVNO with O2 UK. Beyond a different brand perception in the UK than in the US, a different competitive landscape and ESPN difficulties in the US (see the post of Julie Ask here and here, one of the question probably not answered is: how long time will it be cool to have a Mickey phone?

To have a concise view of the MVNO market in Europe, click here to access our latest report.

Updated: Ten is now offering Windows Live Messenger for free. Following the agreement between Orange and Windows Live Messenger, we thus have a complex differentiation battle between the MVNO and its host network.