Virtual Networks, Real Competition: Serious Conflicts
By Mike Masnick, Tue Sep 21 23:45:00 GMT 2004

MVNOs are hot, but the carriers beneath the branding may want to think twice about the potential competition they're creating.

Plenty of companies are launching or preparing to launch MVNO operations. In the last few months alone, EasyGroup and Universal each launched MVNOs, and plenty of people are expecting everyone from Disney to ESPN to Wal-Mart to get into the game eventually.

From the carrier's standpoint it seems to make sense at first. They get the dollars on the network usage, but don't have to deal with acquisition costs or ongoing customer support. Also, many of the MVNOs focus in on niche audiences that a larger, nationwide carrier has no interest in crafting a separate marketing strategy to reach. It can be seen as a more efficient allocation of the network.

That would be absolutely true if the carriers were just "carriers' carriers." However, they're also consumer-facing carriers themselves, and that means they risk competing with their MVNO partners. If the market continues to grow, and there are always underserved niche audiences that can support a targeted MVNO there's not much of a problem. However, if the market does start to get saturated (and some are suggesting that's already happening) then the likelihood of channel conflict between MVNOs and their network providers is going to increase rapidly.

Carriers are already battling with handset makers over "customer ownership," suggesting that they're afraid the market is maturing. In a growth market, the focus is usually more on finding new customers, rather than getting more business out of existing customers. That same mindset is going to lead some network providers to wonder why they shouldn't go after the same customers their MVNO partners are targeting to get more of the revenue pie for themselves. While ABI Research is afraid what it means for the carriers, it could be much more damaging for the MVNOs -- especially successful ones where the customers will be even more appealing to their network providers. It's never a good situation when the main vendor providing the most important part of the product you're selling wants to take your customers away.