Virtual cellular operators are good news for those who operate the real live mobile networks. They come, they see, they mess everything up.... 

MVNOs – or mobile virtual network operators, to give them their full and utterly unsexy title – are a moderately irritating pain in the posterior for most companies that operate full-blown 2G and 3G cellular networks. That they inspire fear in many network operators is a symptom of the protective and defensive approach which regulators and cellular operators use to deal with the MVNO phenomenon.

It begins in ‘tick bird and rhino’ territory. The only way to see sense from this, however, is to recognise that the MVNO is not the ‘tick’ but the ‘tick bird’; the ‘tick’ is the customer; the less efficient celco may be a rhino but one or two are zebras, or elephants or other animals that would stretch this analogy to breaking point (giraffes?).

This Doolittle-esque diversion suggests that MVNOs may be harmful to indigenous cellular species. Not at all.

The rest of this article is one of those which lists pedantic points in order. The idea is that by the end you agree with me, but there’s a 50/50 chance you’ll be asleep before you get to the last paragraph. There is also a 50/50 chance that I’ll be asleep by then, too.

Three’s company
Here are three steps to something which is never likely to be heaven for MVNOs:
1) I came
The arrival of an MVNO into a multi-carrier GSM market looks apocalyptic;.
2) I saw
Network operators control the length of leash on which MVNOS are allowed to expand;
3) I conquered
Network operators sit back as MVNOs compete against each other rather than the network-based players.

Fab five
Although we will shortly pick over the bones of these three phases, it’s worth a rapid ramble through cellular history. It’s fast, fun and fortuitous. Five factors:

1) Mobile telephony began in earnest in the late 1970s and, even when galvanised by transborder systems such as NMT, the agitprops accepted that 10% penetration was the ultimate achievable aim;

2) regulators, notably in Europe and Japan, hopped onto the bandwagon and attempted to ensure regional dominance with a view to global hegemony in terms of the underlying technology. They failed in Japan while in Europe they did just enough to claim responsibility for the whole, crazy, market-driven phenomenon;

3) across the world, spectrum allocation whether conducted according to ‘beauty contests’ or ‘auctions’ set the rights of operators in stone while cementing the principle of regulation based on the idea of ‘finite spectrum resource’;

4) national and super-regional regulators detect signs that pricing under the licensing regimes they have sanctioned are cartelist. Mobile communications is both a prerequisite for the digital economy and an elite premium-priced service for its favoured few, except for a growing mass pre-pay market not yet weaned from SMS onto voice;

5) MVNOs are designated as a way to leverage the wholesale-retail differential and bring down mobile charges. Where network-based operators are finite in number, MVNOs are infinite…

Supposing they gave a war...
Nobody came to the first call for MVNOs in Europe. With most markets featuring one or more of Vodafone, TeliaSonera, T-Mobile or Orange this was not surprising in the second half of the 1990s, however hideously over-extended these powerhouses had become. In almost every European market these big players were competing against a national champion – Telenor in Norway, TIM in Italy, etc.

A typical cellular market in Europe, therefore, would contain a national champion ( who may or may not be owned by one of Europe’s ‘champions’) likely to control 50% of the market and later entrants with 30%-50% of the market between them. Not only was that making it hard to shift market share, it was making it hard to enter the market at all.

MVNOs were thus intended to take up the ‘slack’ in price competition with which network-based cellular operators were clothed. True, the world stumbled on its axis for a brief moment but was soon merrily whizzing around in its normal fashion. MVNOs were ‘new age’ levers of mobile policy.

You can spot five types of MVNO
1) FMC players: companies like BT, which was shorn of its UK mobile arm in 2001, and others like Tele2, which has pursued fixed-line accounts in the corporate sector are, for different reasons, poised to co-opt mobile calling into single FMC service packages and billing. They are climbing mountains and only a handful of customers are watching;

2) utilities: energy companies are pushing combined billing, despite their own appaling brand identity, as some weird route into converged mobile and utility services. Lose no sleep over this one;

3) brands: most famously, Virgin in the UK has promoted its MVNO on the back of the established ‘Virgin’ brand (airlines, music, vodka, financial services, etc). Circa one million MVNO customers. A problem with beards;

4) retailers: this week, Tesco (a UK-European supermarket retailer) entered the MVNO foray in the UK. It could possibly afford to use mobile phone service as a loss leader to all the other products which result in 15% of UK expenditure in retail outlets being spent in its favour. Scary;
 
5) cellular giants: this has hardly begun, but do not expect the global cellular brand owners to amputate toes in the spots where their footprints do not register. They already run global branding campaigns. Marketing campaigns come next.

Sonambulant
The conclusion, such as there is one, is that the MVNO circus is now turning on itself. It’s tick bird versus tick bird and the rhino sleeps tonight. It dreams of the money it counts from the MVNOs.

The retail players are ripping the margins out of each other rather than out of the network operators. An active and competitive MVNO market poses little threat to the folks who built the cellular networks. Someone has to carry the calls but, without sufficient care, the MVNOs have to carry the can.

Unless and until the MVNOs can negotiate the wholesale prices downwards – and here one would favour the likes of retail giant Tesco, rather than silly little alternative billing shops from the energy business, but in truth one would favour no third party at all – the network-based carriers are safe. Unless and until...
Jim Chalmers