What's Ahead For MVNOs?
By Carlo Longino, Fri Jun 10 15:45:00 GMT 2005

One analyst says no-frills MVNOs are in for major growth. Another says they will prosper on 3G by offering all sorts of data services and content. Who to believe?

No-frills, low-cost MVNOs like EasyMobile could account for 20 percent of the European mobile market, says one analyst firm, while another says it's content and data services over 3G will drive MVNOs. Two seemingly opposite points of view, but the reality, as usual, is somewhere in the middle.

Strategy Analytics is toeing the no-frills line, saying the 6 out of 10 European users on prepaid service are likely to be swayed by cheap calls. Its report leans heavily on EasyMobile, which has sparked something of a price war in the UK. EasyMobile just sells SIMs and low-cost basic service, and its rock-bottom prices were expected to attract users in droves, but that doesn't appear to be the case thus far. One problem is likely that the UK mobile market is so crowded, particularly with MVNOs, that marketing the new service -- and educating customers about the SIM-only service -- may be quite difficult. Now, even EasyJet's airline rival Ryanair has eased back on the throttle of its plans to launch a UK MVNO.

On the other side, Analysys says 3G will open up a new wave of MVNO action, with brands able to make a more comprehensive service offering by adding in relevant content and data services to their voice tariffs. Some services like this are already emerging, like Amp'd in the US, which will run on Verizon's EV-DO network and offer all sorts of music and video content, even letting users change around the UI of their phone via the MVNO's site. Other well-known brands, like ESPN, that are developing MVNO plays are creating applications and developing content that goes along with their offering -- and these are likely to be much more compelling than ringtones and SMS alert services.

So who to believe? A little bit of both, probably. Certainly 3G will let brands make a more complete, more interesting offering, and offer users a bit deeper connection than just a brand name. And there are plenty of customers for whom cheap voice calls and text messages are top priority, too, so there will be some success for discount operators.

The juggernaut in this, as usual, are the mobile operators. They're likely to look favorable upon content-driven 3G MVNOs -- first because they don't want to spend the money to develop such specialized content, and second because when MVNOs start doing really cool things with 3G, it almost becomes marketing for operators' own 3G services. But low-cost MVNOs are in a more difficult position. Operators watched what went on in Denmark, where discount operator Telmore led a bloody price war. And just like in that country, where incumbent TDC ended up buying Telmore and rolling its operations in to its own, operators can make discount moves too. In Germany, E-Plus launched Simyo, a SIM-only service, and approaches like Vodafone Simply look to offer users with low demands devices and tariffs better geared towards their needs.

The operator approach is likely to be one that emphasizes value, of which cost is just a component. While MVNOs like EasyMobile may undercut them on call charges, incumbent operators can bundle in some more services that low-cost users may still find useful, such as voicemail or SMS alerts, letting them offer a product that might carry a higher price, but represent a better value. And network technology is moving forward, too: things like Unlicensed Mobile Access that marry VoIP and mobile have the potential to significantly cut costs as well.