Scanning The MVNO Opportunity: Business Model Versus Reality

Member of
Scanning The MVNO Opportunity
- Business Model versus Reality -
Barcelona, June 7th 2006
Guy Alain Djopmo Komguep

SCANNING_THE_MVNO_OPPORTUNITY_BARCELONA_07062006.PPT
Page 1
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Page 2
Content
1. Introduction
2. MVNO Definition
3. Business Model
4. Market Reality
5. Differentiation Pools
6. Recommendations

Page 3
Key Questions
Introduction
Key Questions
What is an MVNO?
What is the essence of the business model?
What is the reality on the MVNO global market?
What are the recommendations for different players?
Which boundaries shall be considered within the mobile Telco value chain?
How do you to target a market and design a competitive strategy?
What are the lessons learned from respective success stories and pitfalls?
What are the leads for business growth and service differentiation?
1
2
3
4
Objective of the presentation is to provide suitable answers to predefined key questions.

Page 4
Content
2. MVNO Defintion

Page 5
The Gray Zone
MVNO Definition
 However, this broad definition is not always applicable to all MVNO business models deployed in diverse
countries with different regulatory systems.
 The first approach focuses on players which simply repackage network operator’s services and issue
their own SIM cards by relying almost on the host’s facilities with a little product differentiation.
 While the second approach consists of providers which have and operate their own core network
infrastructure including switching, home location register, billing, customer care, value added services
platforms and intelligent network systems.
 In essence, most MVNOs fall somewhere between this Gray Zone according to their technological
implementation choices, market strategies and the respective regulatory framework.
Clarification
An MVNO does not own a mobile spectrum license but sells mobile services under its own
brand name, network code and SIM cards using a licensed mobile radio network.

Page 6
MVNO Worth
MVNO Definition
Illustration
With regards into the mobile Telco value chain, the MVNO worth is swiftly clear.
Classic
Service
Provider
Enhance
d Service
Provider
Network
Service
Provider
MVNOSales
Partner
Reseller
& Billing
System
Mobile
Network
Operator
Numbering Range (IMSI, MSISDN)
Service Delivery Platforms
End user devices
Sales
Radio Network
Core Network (MSC, HLR, GGSN, IN)
SIM Card
End User Contract
Customer Care
Billing Platform
Branding Advertisement
      
     
     
     
     
    
    
   
  
 

ServCoSalesCoNetCo

Page 7
Content
3. Business Model

Page 8
Targeting a Market
Business Model
Modus Operandi
It is more important to do what is strategically right than what is immediately profitable.
Market
Regulatory Openness
Mobile Penetration GDP Per Capita
Market Size
3 4
1 2
Influence of political
and lobbying forces
Lead for market
entry strategy
Indicator to future
growth potential
Driver or Inhibitor
for aspiring MVNO
 Cost Equity per Subscriber
 Demand Forecast
 Churn Rate
 Local MVNO Definition
 Transparent Framework
 Decision-making Process
 Expected ARPU
 Planned MoU
 Pricing Strategy
 Market Share
 Segmentation
 Competition Level

Page 9
Cornerstones
Business Model
 With respect to subscriber
forecast scenario
 Simulation of expected Churn
Rate and Minutes of Use
 Statement on current ARPU
as well as identified customer
segments
 Awareness to existing tariffs
packages and service offering
portfolio
ARPU level
 Balance between the rate
offered and the pricing for
end-users (40-50% Margin)
 Nationwide network coverage
of the mobile carrier partner
 Technological compatibility
with the planned service
offering
 Suitable SLA in terms of
duration, reliability and
reaction patterns
Wholesale stratagem
 Opportunity for non-carriers,
established service providers
 Strengths of an outsourcing
deal in terms of infrastructure
management, time to market,
risk assessment, etc.
 Sound check of the MVNE
business uncertainty on the
long term prospect
 Best scenario with a Mobile
Network Operator playing
also the MVNE role
MVNE perspective
Significant grounding points for the compilation of a MVNO business model are the
Wholesale stratagem, the ARPU level and the MVNE perspective.

Page 10
Competitive Strategies
Business Model
Competitive Strategies
Funding requirements, service offering and customer segmentation are not just „garden-
variety“ rudiments, but decisive dynamics determining the MVNO competitive strategy.
 Telemore in Denmark
 Simyo in Germany
 Revolution Telecom in Australia
Market Challenger
“Budget MVNOs” attack leaders for future
market share, prepaid services focus, no
handsets and physical outlets;
Market Follower
“Convenience MVNOs” claiming product
imitation advantages as product innovation
strategy, rely on existing customer base
and brand
 7-eleven in USA
 Jeans in Ukraine
 M6 in France
 Virgin Mobile in UK
 Tele 2 in Sweden
 Sense Communications in Norway
Market Leader
“Value-added MVNOs” with largest market
share and offering innovative data and
applications packages
Market Nicher
“Affinity MVNOs” with portfolio appealing
individual lifestyles, usage patterns or
special interests
 Trident Telecom in Hong Kong
 RCSC Mobile in Belgium
 VOX mobile in Luxemburg

Page 11
Establishment Procedure
Business Model
MVNO Establishment Procedure
The modus operandi for a suitable MVNO establishment consists of three basic steps
such as targeting a market, mastering cornerstones and designing the strategy.
GDP Per CAPITA
 Minutes of Use
 Demand Forecast
Mobile Penetration Potential
 Cost Equity Per Subscriber
 Cost Equity per Population
Market Size
 Competition Level
 Market Share
 Innovation Grade
Regulator Openness
 MVNO Definition
 Legal Transparency
 Decision-Making Process
Targeting a Market Mastering Cornerstones
Wholesale Rate
 Nationwide Network Reach
 End-user pricing
 Technological Compatibility
 Service Level Agreement
ARPU Level
 Subscriber Forecast
 Revenues
 EBIDTA
MVNE Perspective
 Cost cutting via Outsourcing
 Competence Consolidation
 Economy of Scale
 Rapid Time to Market
Designing the Strategy
Scenarios
 Market Leader
 Market Follower
 Market Challenger
 Market Nicher
Tools
 Customer Segmentation
 Service Portfolio
 Device Offering
 Brand Approach
1. Assessment 2. Feasibility 3. Consolidation

Page 12
Business Model
Pricing Strategy
Nine Price – Quality Strategies
 Diagonal strategies 1,5,9 can all
coexist in the same market as
long as related three group of
buyers are present.
 Strategies 2,3 and 6 are the way
to attack the diagonal positions by
convincing quality sensitive
customers to buy from them and
save money
 Positioning strategies 4,7 and 8
amount to overpricing the product
in relation to its quality with the
risk to spread bad word of mouth
about the company
Reasoning
1. Premium
Strategy
2. High-value
strategy
3. Super value
strategy
4.Overcharging
strategy
5. Medium-
value strategy
6. Good Value
strategy
7.Rip-off
strategy
8. False
economy
strategy
9.Economy
strategy
High
Low
Medium
High LowMedium
Price
ProductQuality1 percent increase in price boosts profits two to three times much as a 1 percent increase
in sales volume.

Page 13
Risk / Sensitivity Analysis
Business Model
Illustrative
 The scenario analysis focuses on
market potentials of best, base and
worst cases.
 The sensitivity analysis
of the base case includes key
variables and clarifies the
significance on equity value.
 The sensitivity analysis shows the
impact of identified risks on the
key financial indicators and ratios.
 It also provides transparency
between the risk level and
profitability
Rationale
Scenario analysis Sensitivity analysis
Freecashflow
Base case
definition
e.g. stable
sales
Best case
definition
e.g. rising
sales
Worst case
definition
e.g. falling
sales
Probability
Best case
Base case
Worst case
Scenario determination and impact:
Capital
structure
Sales
growth
Discount
rate
Exchange
rate
changes
Working
capital
change
Equity
value
Investment
costs
Selection of value influencing
parameters:
Equity value band
Impact quantification:
 Quantifying the impact of selected
parameters on equity value
The risk sensitivity analysis is a decisive exercise by designing the MVNO business case.

Page 14
Content
4. Market Reality

Page 15
MVNO Hype Cycle
Market Reality
MVNO Hype Cycle
After the uninformed optimisms and consumed pessimism, we are moving to the realistic
optimisms.
Transition PhaseKick-Off Phase Saturation Phase
Awareness
Early adopters:
Virgin Mobile UK
1999, RSL Com
Finland 1999, etc.
Market followers:
Virgin Mobile USA
2002, Happy Many
Belgium 2004, etc.
Niche players:
Affinity groups,
Media brands,
City carriers,
Retailers, etc.
 Regulatory issues clarification
 First MVNO players in Europe
 Innovative market strategies
 Pan-continental MVNOs
 No frills brand MVNOs
 “Wait and see” strategies
 Global deployment of MVNOs
 Market saturation
 Consolidation strategies
Time
Today

Page 16
MVNO Landscape – Attractive Markets
Market Reality
Attractive Markets
MVNO “Sweet Spots” aka attractive markets include for instance USA, Japan, Germany,
Switzerland, and Canada.
 Mid 2004 almost 43%
of Canadians had access
to mobile services
 Capex continues to
decrease from big pending
year 2000 and 2001 down
Canada
 Verizon wireless as largest
mobile carrier has only
23% market share
 Semi-rural and urban areas
with digital coverage
remain green fields
USA
 Large population with
high GDP per Capita
 Transparent regulatory
system with opportunities
for niche players
Germany
 Early-adopter customers
for innovative services
 Transparent regulatory
framework
Japan
 European commission
pressure on regulator
to boost the scope of
Telco competitive services
 One of the highest GDP
per Capita in Europe
Switzerland
Source: DETECON Research and Analysis

Page 17
MVNO Landscape – Promising Markets
Market Reality
Promising Markets
Promising markets, in terms of future MVNOs deployment, include for instance China,
France, United Arab Emirates, India and South Africa.
 Fourth largest mobile
market in Europe and
fine regulatory openness
 69% mobile penetration
versus 86% western
European average
France
 Fastest Compound Annual
Growth Rates for the
period 1998-2003
 Green fields for MVNO
players
South Africa
 Major star performer in
Middle East, 10% growth
in 2005
 Early adopter market with
very high ARPU
United Arab Emirates
 35 Mio new subscribers
forecasted for 2005
 30% mobile users are
looking for better operators
 Average per minute charge
declined by 58% in 2004
India
 269 Mio subscribers in
2004, i.e. only 20% of
the population
 GDP is continuously
growing since 2000
China
Source: DETECON Research and Analysis

Page 18
Lessons Learned – Success Stories
Market Reality
Selected Cases
Global and pan continental players are performing well and continue to expand.
 Virgin Mobile UK: equity investments with established
brands with high growth consumer segments can bear
out extremely powerful.
 Tele2: experienced carrier can leverage on its internal
telecom skills, market footprint and image to realize
business development.
 Trident Telecom: “Niche MVNO” in early-adopter
customer-based markets could achieve business
development by offering bundled services.
Joint venture between Virgin Group
and network partner One 2 One
Fixed carrier which launched
Tele2mobile as alternative brand
Focus on Value Added Services
for business travelers in Hong Kong
MVNO
Success
Stories

Page 19
Lessons Learned – Pitfalls
Market Reality
Selected Cases
Technological advances are pushing for a double edged sword with which business
opportunities are created and destroyed.
 Sense in Norway: In short, market maturity, partner’s
cooperation and funding strengths are vital for the
successful outcome.
 Imagine in Ireland: smart selection of the host network,
suitable choice of the target market and prompt check of
the regulatory support are vital for a successful MVNO
establishment.
Sense in Norway
world’s first MVNO launched late 1998
and flop in early 1999
-Unfamiliarity of the concept and
financial difficulties
-MNO resistances to negotiate
access to their network
Imagine in Ireland
launched in April 2000 and closed
operations one year later
-wrong Volume Discount Agreement
-legal uncertainty over its right to
operate
MVNO
Pitfalls

Page 20
Content
5. Differentiation Pools

Page 21
Customer Centricity
Differentiation Pools
Customer Centricity
Metro-Zone
High mobility
Home / Office-Zone
Neighborhood-Zone
Cost Savings Performance SecurityConvenience
 one stop shop
 one contract
 one device
 one number
 one bill / tariff
 one customer care
service
 discounts
 value for money
 shared fixed-mobile
minutes
 free home zone
 speed and quality
of service
 control on
communication
 mobility / ubiquitous
access
 Seamless applications
 data security
 service security
 predictability of bill
Fixed Mobile Convergence and Quadruple Play are offerings which embrace and foster
the customer centricity trend.

Page 22
Market Offering Positioning
Illustrative Use Case
 Value perception
 Packaging
 Image
 Advertising
 Channel
 Accessibility
 Ordering ease
 Delivery
 Customer education
 Customer feedback
 Customer service
 Quality of service
 Features
 Reliability
 Warranty
High Low
LowHigh
Efficiency
3
1
4
2
Pool Impact Rationale
Sales 4
Distribution and
competence
Brand 4
Communication
and readiness
Customer care 5
Competitive
advantage
Product 3 Value proposition
1
2
3
4
Importance
Don‘t watch the product life cycle: Watch the market life cycle.

Page 23
End-User Devices
Integrated Mobile Device Management and Peer to Peer applications will revolutionize
the perception of end-user devices and therefore the mobile communication industry.
Wireless Subscribers Growth 2005-2011 (Millions) Mobile Computing Devices Growth 2003-2008 (Millions)
3.156
2.968
2.764
2.547
2.320
2.085
1.851
0
500
1.000
1.500
2.000
2.500
3.000
3.500
2011200920062007 200720062005
Source: Insight Research 2006
680655630595
500 560
265260245
225
210
195
340
320
305
240
220
205
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
470 475 480
2008200720062004
440
2003
420
2005
455
Source: Insight Research 2006
Asia / Pacific Europe North America Rest of World

Page 24
Mobile Broadband Technologies
Mobile Broadband Technologies Grid
 To assess future wireless
broadband technologies not only
data rates are important.
 Depending on the intended
application, factors such as
coverage, mobility, security, quality
of service and roaming have to be
considered.
 One major aspect, which should
not be neglected is the regulatory
situation and the spectrum
available for different wireless
broadband technologies.
Reasoning
0
1
2
3
4
Price per Bit
Coverage
Mobility
Quality of ServiceData Rate
Security
Roaming
0
1
2
3
4
Price per Bit
Coverage
Mobility
Security
Roaming
0
1
2
3
4
Price per Bit
Coverage
Mobility
Security
Roaming
WiMAXWiFi
HSDPAW-CDMA
0
1
2
3
4
Price per Bit
Coverage
Mobility
Security
Roaming
Future wireless broadband technology develops along two directions: one evolutionary
path from W-CDMA to HSDPA and one revolutionary path comprising WiFi and WiMAX.

Page 25
Technology Roadmap
W-CDMA Technology Roadmap
W-CDMA provides a coherent and evolutionary roadmap to higher bandwidths and reduced
latencies. However, these promising enhancements still need frequency spectrum.
W-CDMA / (UMTS) HSDPA HSUPA HSOPA
 Early deployments were
based on Release 99
specifications of the
UMTS standard
 Peak downstream rate
of 2 Mbps—although
current networks are
configured for only 384
Kbps.
 In real-world
environments, users
can expect 150 Kbps to
250 Kbps over
commercial UMTS
networks.
 High Speed Downlink
Packet Access (HSDPA)
was included in Release
5 of the UMTS standard.
 HSDPA increases
downlink speeds to a
maximum of 7.6 Mbps
 Maximum rates
supported by the current
generation of HSDPA
devices is 1.8 Mbps.
 Future upgrades of
HSDPA will eventually
provide the theoretical
maximum peak rate of
14.4 Mbps.
 The next step in the
evolutionary process is
High-Speed Uplink
Packet Access (HSUPA)
 As specified in 3GPP
Release 6, this
enhancement will
eventually increase
uplink speeds to a
maximum of 5.8 Mbps.
 This will be essential for
applications that require
a more symmetric link
such as real-time
gaming.
 We may see High-
Speed Orthogonal
Frequency Division
Multiplexing Packet
Access (HSOPA)
emerging as a standard
in 2008.
 It will incorporate OFDM
and multiple-input
multiple-output (MIMO)
technologies to provide
up to 37 Mbps on the
downlink.

Page 26
Content
6. Recommendations

Page 27
Items for Regulators
Recommendations
Items for Regulators
Regulators and standards bodies have the attempt to settle suitable framework for the
usage of available frequencies.
Despite EU regulation, wide international variations in MVNO regulation remain.
The lack of a clear MVNO definition hampers regulatory intervention.
MVNO can truly add value to off-the-shelf services offered to end-users.
Network access requirements to MVNOs should remain mobile operator’s prerogatives.
Mobile Operators will be loath to surrender their licence privileges.

Page 28
Notes for Carriers
Recommendations
Notes for Carriers
Move forward from the usual “wait and see” strategy to a clear portfolio strategy.
MVNO opportunity is really a viable stratagem to enter new market – Globalization.
After the 3G license burden, used spectrum can be leased to MVNO player.
Managed services and outsourcing offerings are lucrative new revenue streams – MVNE.
Fixed carriers should rely on the MVNO opportunity to embrace the convergence path.
Joint venture with aspiring MVNO is an opportunity to address niche markets.

Page 29
Slice of the Cake for Potential MVNO
Recommendations
Slice of the Cake for Potential MVNO
Affordable, reliable, and ubiquitous wireless services continue to alter profoundly the
way people access the global communications network.
40%-50% margin for voice and higher for data is essential to finalize the wholesale deal.
MVNE perspective provides significant assets to tackle operational risks.
Potential MVNO must have reliable financial backing during the negative cash flow period.
Fixed Mobile Convergence and Quadruple Play are leads for differentiation.
Technology enhancements enable today the provisioning of state-of-the art data offerings.

Page 30
Contact
Thank you very much!
Integrated management and technology consulting worldwide
Guy Alain Djopmo Komguep
Detecon International GmbH
Oberkasseler Str. 2
53227 Bonn (Germany)
Phone +49 228 700 2826
Fax +49 228 700 2107
Djopmo.Komguep@detecon.com

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