It’s the next big thing in marketing, a must-have for every cutting-edge 21st century brand: its very own mobile phone network.Top brands are flocking to become mobile virtual network operators (MVNOs). Virgin has led the way, launching its service last November using cheap airtime bought from One 2 One. Centrica, the owner of British Gas Trading, will launch its virtual mobile network next month through Vodafone, while Tesco and BSkyB are investigating launching their own networks through One 2 One and BT Cellnet (MW last week).
By next year, one industry insider estimates there will be over 20 brands with their own mobile networks using airtime bought from the four major network operators – Vodafone, BTCellnet, Orange and One 2 One.
Alternatively, brands could opt to buy airtime from an MVNO set up by Carphone Warehouse. The company plans to re-sell the airtime bought by its MVNO from One 2 One to other brands, through Value Telecom.
The attraction of mobile services for brands is obvious: they allow brands to be present wherever their customers are, to control their mobile Internet access, mobile content, advertising, e-commerce and billing.
Third generation mobiles
A host of MVNO opportunities are set to arise once third-generation (3G) mobile networks become operational, expected to be between 2002 and 2003. For example, Hutchison Whampoa-backed TIW, which is the only non-incumbent to win a 3G licence, will likely be looking for extra revenue opportunities to recoup the £4.4bn cost of securing the licence and the £150m cost of building the network. The Rupert Murdoch and Kerry Packer-backed Australian company OneTel has expressed an interest in being an MVNO on a UK 3G network.
In addition, the existing UK networks are considering launching sub-branded MVNOs to attract different audiences and segment their markets. Orange is one of them, says a source.
Branding, marketing and advertising firepower are certainly key to launching MVNOs successfully. The existing networks already spend over £200m a year on advertising to attract the UK’s 30 million mobile customers. So the MVNO trend may prove a boon to the advertising industry.
Service brands which already have a billing relationship with their customers – financial services, utilities, retailers, media and existing telecoms companies – are proving the front-runners to MVNO. But product brands – packaged goods, sports and fashion – are also expressing an interest.
Carphone Warehouse intends to offer what commercial director Andrew Harrison calls “networks in a box” for brands, through Value Telecom. According to Harrison, Carphone Warehouse is in talks with five major brands that have a “lifestyle” agenda. He expects deals to be announced within weeks, but declines to give names – although he lists Coca-Cola, Nike and newspaper, magazine and financial service companies as potential MVNOs.
“We will approach brands and businesses that have sales and marketing skills, not necessarily the inclination or ability to get involved in mobile networks but to whom there would be advantages in providing customers with a mobile service,” says Harrison. “We will accept all MVNOs with open arms.”
The plan is likely to bring Carphone Warehouse into confrontation with the existing networks, which it sells with a loud “impartiality” claim though its retail business. The launch of its own mobile Internet portal Mviva is already reputed to have caused consternation.
But Harrison maintains Value Telecom will not be dominant in its stores: “They [the networks] could get annoyed if Value Telecom came to take up a big part of our business. We don’t want to loose our impartiality in the retail business.”
Clash of interests
The answer lies in separating Value Telecom from the Carphone Warehouse retail business and distinguishing Carphone Warehouse Group from the Carphone Warehouse stores. “We intend to look at all the options. We could set up Value Telecom as a separate business,” adds Harrison.
He says MVNOs launched through Value Telecom will not necessarily be distributed through Carphone Warehouse stores but the company’s own media and retail channels.
However, one industry insider says the networks may begin pulling out of Carphone Warehouse, and suggests One 2 One’s nearest rival – Orange – as the first, although according to Harrison, Carphone Warehouse’s MVNO deals will not be exclusively with One 2 One.
At first sight, it seems a contradiction that the existing network operators would want to encourage competition in the form of MVNOs. Deutsche Telekom-owned One 2 One is at the forefront of MVNO deals but is also the UK’s smallest network, with only 6 million subscribers. But MVNO deals allow the networks to benefit from customers their brand would otherwise not have attracted.
One 2 One spokesman Neil Bent says MVNOs are a key marketing element in his company for three reasons: they soak up spare capacity, aid customer acquisition from rivals and provide new routes to market.
For example, One 2 One has heavy evening use but plenty of spare capacity mid-day. “MVNOs are a great way to use the spare capacity if we can find the right brand with the right proposition, stature and credibility,” explains Bent.
He adds that MVNO deals will be limited to how fast the network can be expanded to create new spectrum, and by the finite number of brands which complement One 2 One without encroaching on its own target audience. But Bent says: “We will talk to anyone who is serious about it.”
MVNOs also allow mobile network suppliers to poach rivals’ customers by the back door: “Virgin Mobile may take customers from us, but they’ll still be using our network. However, Virgin is much more likely to take customers from BTCellnet or Vodafone, maybe even Orange. Either way, we win,” says Bent.
Bent admits one way for Carphone Warehouse to gain market share would be to set up its own MVNO “particularly in the business market”, but garnering new customers could also be done by launching another brand or through affinity partnerships – “all of these are being looked at,” he says.
One 2 One is gathering new customers through its deal with Virgin Mobile launched last November at a cost of £100m. The network owns half of the venture, and the price Virgin must pay for One 2 One’s airtime is undoubtedly improved by the company’s joint-ownership, allowing Branson to compete on price. Most MVNOs can expect bulk buy, pre-rated wholesale prices for airtime.
Virgin Mobile corporate affairs director Steven Day explains how the company is the final piece in the Virgin jigsaw, which is probably why Mobile has the highest ad spend of all the Virgin companies, about £25m last year: “Virgin Mobile brings the Virgin world into one device.”
Virgin Mobile plans to be the world’s first global MVNO. It recently signed deals with Singapore’s Singtel and Australia’s Optus and deals in Japan, Europe and the US are in the pipeline. In the UK, Virgin Mobile has about 350,000 customers and plans to go into profit two years from launch.
The value-added services Virgin Mobile offers include Xtras – discounts on other Virgin services such as CDs, holidays, and savings on high street electrical and white goods – and Recommends, its WAP portal which links customers to information from 12 content partners.
The value of e-commerce transactions over the mobile far outweighs the revenue gained from calls. To capitalise on this, Virgin Mobile will soon launch a mobile Internet portal which will enable customers of other networks to access – and pay a premium for – the packages which Virgin Mobile customers can subscribe to.
This is an opportunity which existing mobile networks have been slow to exploit. “The existing networks were extraordinarily slow off the mark,” says Virgin Mobile’s Day. “They were obsessed with competing on customer acquisition and international expansion and missed the boat.”
But BTCellnet is developing its Genie Internet mobile portal and is considering MVNO deals with BSkyB, its partner in interactive TV venture Open, and has already signed a MVNO deal with Kingston Communications for the business market.
France TÃ©lÃ©com-owned Orange is being touted as a possible MVNO partner for cable company NTL, in which France TÃ©lÃ©com has a 25 per cent stake. And business-to-business telecoms company Energis will use Orange to launch its MVNO this autumn. Under the three-year agreement Energis is responsible for sales and marketing while Orange will provide customer services, technical support and billing which Energis may eventually bring in house. The deal also has a reciprocal clause which allows Orange to sell Energis fixed line service to its own customers.
Energis director of market development Simon Downs says the company decided against bidding for a 3G licence in favour of launching an MVNO because it “allows us to get to market more quickly and with less cost.”
He refuses to reveal the pricing mechanism: “We’re not buying straightforward wholesale airtime. With BT or Vodafone, everyone would get the same wholesale price,” he says, but maintains Energis can be competitive with the existing networks.
Downs believes MVNOs are a natural extension for many brands but, echoing the dot-com rush, wonders how many will survive.
To aid survival, new business models are being developed. Rather than purely reselling airtime, control over in-coming calls and “intelligent” components of a service such as billing would give maximum independence from the net work supplier, but would require infrastructure investment.
Cap Gemini Ernst & Young’s telecoms team is developing an MVNO business model which separates the value-added cellular services from the mobile infrastructure.
Telecoms consultant Lindsay Watt says the MVNO holds significant benefits for all interested parties: “The MVNO gains market entry and direct access to consumers. The network operator gets a profit on every call minute on its network, and the consumer will benefit from the resultant pressure on pricing.”
But Watt says investment in infrastructure, equipment and marketing, and the cost of advertising and interconnection fees to the networks are potential restrictions on MVNOs.
And the fact that regulatory legislation of MVNOs is hazy at best and non-existent at worst, could make brands think twice before getting involved, although Watt says this could also give companies a great opportunity to get involved early on.
Telecoms regulator Oftel only regulates networks operating under licence. It views Virgin Mobile, for instance, as a retail business. But the Government is likely to follow Dutch and Scandinavian governments in regulating for MVNOs, to increase competition.
But in the short-term, consumers, already confused by the networks, tariffs, functions and handsets offered in the mobile market, may have an even tougher time understanding what represents a good MVNO deal.
MVNOs will be hoping the confusion will spark a new way of choosing a mobile – one based on content, not tariffs. It will be difficult for them to compete on price: the networks supplying airtime will not want to be undercut.
A ‘lifestyle’ choice
According to Carphone Warehouse’s Harrison: “People will start choosing a mobile for emotional rather than rational reasons – not for the best tariff but for the best added values and exclusive content.”
Virgin Mobile’s Day says: “Content will have to be clearly differentiated. The operators will have to be a very attractive consumer brand with simple products and tariffs.”
One 2 One’s Bent goes further: “If there were the same tariffs across the industry it would make the marketing of telecoms very interesting. If you took price out of the equation, people would make their choice on things such as customer service, brand, content and handsets.”
The deals with network suppliers and content providers will form the backbone of an MVNO but, it seems, the quality of marketing and brand will determine its success.