Hard reality of virtual mobiles

Mobile virtual network operators – MVNOs for short – may sound an unappetising mouthful. But don’t be deceived: these virtual m-networks are becoming one of the hottest properties brand managers can lay their hands on. Virgin’s had one since late last year, Centrica’s getting one next month, while Tesco, BSkyB and no doubt a host of others are joining the queue.

In essence, they are very simple to understand. Existing mobile service networks, such as Cellnet or One 2 One, sell on excess airtime to non-licence holders interested in extending their brand presence. For major brands, such an opportunity is manna. They can ‘own’ a network without the investment and infrastructural management issues associated with ownership, yet capitalise on all the advantages.

Among these are ubiquitous brand presence, the ability to mould mobile ‘content’, the control of access and billing, plus advertising and e-commerce opportunities.

Brand owners are not the only beneficiaries of MVNOs, either. The costs of building awareness and communicating with consumers are not negligible. Existing licence-holders necessarily wield large promotional budgets, as the recent Orange review will have forcefully reminded readers. There is no reason to suppose that virtual networks will be any less of a bonanza for marketing services companies as the new sector blossoms.

For existing mobile service networks, MVNOs represent an opportunity to recoup expensive capital outlay – particularly in the case of those who have acquired, at an astronomical price, next generation (3G) licences in the recent government auction. But there’s more in it for them than that. Virtual networks soak up spare capacity and, so the licence holders imagine, aid customer acquisition from rivals.

So everyone’s a winner? Well, not necessarily. Existing mobile services should think carefully about how far they should go with this Faustian pact, which in some ways mirrors the dilemmas of own label. Is there not a danger that these newcomers will end up cannibalising the licence-owners’ own market?

In the short term, this may not matter too much. After all, every new Virgin customer also represents a financial gain for One 2 One, which is selling it airtime. The danger is that virtual networks will prove rather more adept at marketing than their ‘parents’, effectively diluting the value of the licence-holder brands. As the commercial director of Carphone Warehouse points out, people are looking for a way out of confusion marketing, and the added value provided by MVNO branded content, with its emotional appeal (imagine BSkyB’s, for example), may very well be that avenue.