There has been no shortage of MVNO announcements in recent weeks: MGA Entertainment launched a service based around its Bratz toy brand, Kajeet raised USD 27m to launch an MVNO aimed at ‘tweens’, Wal-mart announced its entry into the German market and Mobile ESPN rolled out its offering nationwide across the US to coincide with last week’s superbowl.
There is clearly enormous interest in the MVNO model from both existing brand owners and those who believe they can create new brands in niche markets. It it hardly surprising the mobile telecoms industry is now queueing up to offer a wide range of ‘enabling’ services targeted at these companies and broadly described by the acronymn ‘MVNE’ (mobile virtual network enablers).
Everyone from billing systems providers to interface developers is looking at ways they can position their technology as part of an MVNE offering. The MVNE business has also attracted several specialist companies which claim to offer a complete, ‘one stop’ solution, including Ztar Mobile (responsible for the 7-11 and Bratz services) and Visage Mobile (which launched ESPN for Disney). Visage alone has received more than USD 80m in VC funding.
“IF THEY LIKE YOUR BRAND, THEY’RE GOING TO LOVE YOUR WIRELESS.”
This slogan, emblazoned across Visage Mobile’s homepage, characterises the wide-eyed optimism fuelling the boom in MVNOs. The technological and economic barriers to launching own brand mobile services are falling rapidly. I recall a conversation I had this time last year with Tom Bobitch, then Senior Vice President of Business Development at Visage (he is now General Manager), when we talked about how the cost of setting up an MVNO had fallen from between USD 245m and USD 310m to just USD 15m – USD 25m, opening the market to many more entrants.
The result is a situation where where launching an MVNO is becoming more and more accessible, leading to a proliferation of branded service offerings. The market is becoming more open, but the competitive environment is also becoming more difficult. Put simply: as the number of MVNOs increases, mobile service providers will need to do more to attract customers.
To-date, the only MVNO to publicly claim profitability is Virgin Mobile, which established its market position primarily on price competition. It took a service people wanted, a brand people trusted and made it cheaper. The problem with this approach is that it’s not sustainable, even with a brand as powerful as Virgin. The company is now in merger discussions with NTL to form the first ‘quadruple play’ provider in the UK, offering broadband, mobile, fixed and cable TV in a single package – again, price competition is likely to be a primary driver.
I believe many brands will be burnt by their foray into mobile service provision. Most will simply lose money and close the business after a couple of years, some will end-up doing lasting damage to their overall brand perception and, of course, a few will meet with success.
There are several reasons for this pessimistic outlook – I’ll highlight the top three below:
1. Brand experience does not equal user experience
Far too many of the MVNOs I have seen so far are focused on reminding the user of the service brand, rather than trying to deliver a better overall experience. In many cases, this kind of overt branding actually prohibits good practice in user interface design.
2. Most brands won’t be able to offer sufficient differentiation
Costs may be falling for the basic building blocks of an MVNO, but there are no shortcuts with user experience – to create great products requires time, money and a deep understanding of customers and market dynamics. To offer a truly differentiated experience requires extensive handset customisation, seamless access to unique services, excellent customer service and an attractive retail experience. So far most MVNO launches (with the notable exception of Amp’d) have been little more than re-badging exercises using existing handsets and service infrastructure.
3. There are more compelling models waiting to be discovered
The MVNO approach will not be the only way for brands to provide access to exclusive content and services. At present, the MVNO model is attractive to large brands because they see it as the only way they can maintain control over the way their services are presented and billed. However, I believe incumbent network operators – particularly tier 2 and tier 3 players – will undergo a sea-change in their approach to working with content partners over the next 18 months. As mobile services become more freely and consistently acessible across all networks, many brands will be able to achieve the distribution they seek without the heavy investment in building an MVNO.
At the previous MEX conference in September 2005, we hosted a panel debate entitled ‘MEDIA OPPORTUNITIES, MVNO PARTNERSHIPS AND ALTERNATIVE BUSINESS MODELS’. It was one of the most contentious sessions, sparking some lively debate between the panellists and the audience.
At the next MEX, which runs in London from 31st May to 1st June 2006, we will again be looking at MVNO opportunities in detail. This time, however, we intend to give delegates the chance to experience for themselves how a successful MVNO is built, with expert guidance and a unique workshop format. If your company is active in this area and you’d like to be involved, please e-mail me at email@example.com to discuss further.