Virtually More
By Carlo Longino, Wed Jul 23 10:00:00 GMT 2003

Several well-known European consumer brands have entered the MVNO fray lately, and it looks like just the tip of the iceberg.


MTV and retailer Tesco made news recently when they announced they'd become mobile virtual network operators (MVNOs), buying airtime in bulk from an established carrier in Sweden and the UK, respectively, and reselling it under their own brand and on their own terms. This looks to be just the beginning of companies capitalizing on their strong brands and expanding into the mobile world.

MVNOs are a winning proposition for brands that can attract a good number of subscribers. While many MVNOs are unknown brands that choose to battle incumbents mainly on price, others, like Virgin Mobile, have known names to which users flock. Virgin is keen to play up its outsider image, just as its done in the airline and other industries it has entered, giving users the idea that they're not dealing with traditional, stodgy companies and delivering solid value.

And they've been a runaway success in their first market, the UK, where Virgin has attracted more than 2.5 million users since 1999. It was also the fastest-growing UK carrier in the first quarter of 2003, and expects to bank GBP 450 million in revenue this year. Virgin banks on its brand name and the image the group's charismatic chairman, Richard Branson, gives it, but also one-ups its rivals with customer friendliness and simple, generally cheaper, tariffs and rate plans - something it can easily do since it's not burdened with the overhead and capital expenditure required to physically own, run, and maintain a mobile network.

Virgin is to MVNOs what Southwest Airlines is to low-fare airlines like Ryanair and EasyJet - validation of the concept and a model to follow. Virgin even admitted as much in a press release "welcoming" Tesco Mobile to market, says the grocers' offering will help raise awareness of UK virtual networks in general and further educate consumers that they have choices beyond the "big four" incumbent networks. But most MVNOs will be built on their model - keep fixed assets low (Virgin has only GBP 25 million worth, compared to O2's GBP 2.2 billion in the UK), and focus on pre-pay customers to generate cash flow.

Brand Alignment Key


The key for companies to make a successful jump to being an MNVO is to carefully align their network and its offerings with their brands. For MTV, this means catering to Sweden's young and trendy, and delivering to them the same things they expect from the broadcast or online versions of the music network. To this end, MTV has said it will offer content like pop charts and artist news, and of course the latest and greatest ringtones. But along with this are other elements like device choices - after all, what teenager wants to be seen with the same handset their dad carries?

For a retailer like Tesco, the proposition is a little bit murkier. But what are the core values their brand holds for customers? Value, first and foremost. Tesco's experience in the grocery industry, where success is built on sales volume and razor-thin margins, should serve them in good stead in the MVNO space. But their customers have also come to expect a certain level of innovation, convenience and service thanks to their successful Tesco.com clicks-and-mortar site, as well as their expansions into other non-grocery areas like personal finance, travel, insurance, and home electricity and gas.

But MVNO entrants must also realize when they don't fit their target market. The Financial Times, for instance, started the "FT Mobile" virtual operator in conjunction with retailer Carphone Warehouse in the UK in 2001, offering personalized industry, company, and market news to their subscribers via SMS. The service seems to have disappeared, however, with Marjorie Scardino, CEO of FT president Pearson, not even sure recently if the service was still active. "It's certainly not very big and I haven't thought about it in ages," she was quoted as saying in the Guardian. The article then helpfully points out Carphone Warehouse dumped the service some time ago thanks to the dearth of customers.

Perhaps in 2001, FT could have made some money from selling SMS alerts based on its well-respected coverage (something the newspaper now does), but it should have known better than to launch an MVNO aimed at the "international business executive and private investor". How many of these people, presumably at the upper reaches of executivedom, pay for their own phones, or are interested in carrying an FT-branded handset? It's a similar approach to what MTV is planning in Sweden - but to a far less receptive demographic.

Breaking Even


But when it comes down to it, an MVNO's success depends on their ability to attract users, with many estimates saying it takes about a million users to break even. Though they don't need a physical network, virtual carriers still need customer-service, billing and payment, and other back-end systems. But a new class of company is emerging, the MVNE or mobile virtual network enabler, that can take care of all of that, and bring that break-even point down to as low as 50,000 or 100,000 users.

One such company is Visage Mobile, which offers an "MVNO-in-a-box" product where a brand can break into the virtual network market for USD 3 to 5 million. The company also works with carriers to integrate its technology platform into their systems, creating a single interface through which a physical carrier can support multiple virtual ones. Another is Spinbox, which offers a turnkey outsourced approach, letting brands concentrate on content development, branding, and sales. They're running the MTV network in Sweden, and also support several existing Scandinavian MVNOs.

The market opportunity for virtual networks is huge, particularly in under-penetrated and less-competitive markets like the US - where it seems like strong brands with loyal customer bases like Wal-Mart or World Wrestling Entertainment. And though at first glace it would seem that carriers are cannibalizing their user bases and revenues by selling airtime deals to MVNOs, it's a winning proposition for them, too, as they take 40-50% of the airtime fees and don't have to deal with customer acquisition or support, the costs of which can quickly add up.

Carlo Longino is a freelance writer based in Austin, Texas. His previous experience includes work for The Wall Street Journal, Dow Jones Newswires, and Hoover's Online.