In the emerging countries, either the 3G services are yet to be launched or the 3G subscribers are below 10% of the total subscriber base. Only South Africa and Malaysia have higher then 10% subscriber base with 3G subscribers at 10.7% and 18.3% respectively. It is not surprising that these are the only two countries that have high 3G base as the ARPU in both these countries is higher than that in rest of the emerging nations and data ARPU is also higher. I have a theory that either the total ARPU should be over $10 per month or the data ARPU should be over 15% of total ARPU for the 3G services to gain traction. Any country that does not fulfill any of the above two criteria will find it difficult to have a viable 3G proposition. The reason for taking these two as criteria is that if the ARPU is low, it would take a long time to breakeven and it is very difficult to increase the ARPU in any market unless there is a genuine appetite for value added services which is reflected in the greater than 15% data ARPU criteria. In the chart below (click the chart to enlarge), the countries that fall in the lower part of the graph are likely to be less successful in the 3G space while the countries in the blue area are more likely to be successful. China, Indonesia and Philippines are the other three countries apart from Malaysia and South Africa that are likely to succeed in making the 3G a viable proposition. Sri Lanka is a borderline case but given the low ARPU of this market, I am more inclined to say that it would find it extremely difficult to be successful.

The consumers in the emerging nations are highly price sensitive and hence it is not surprising that most of the tariff related innovations have come from such countries. The fall in 2G tariffs led to increase in penetration but the falling tariffs could not compensate by the increase in usage (MoU) leading to sharp fall in ARPUs. Given the income levels in emerging nations, the average amount spent on communication services as percentage of total income is very high and hence I do not see the ARPU levels going up even if the quality of service improves. The consumers are well aware that for the price they pay, they would need to compromise on the quality of services and hence so do mind if the services are not at the same levels as some of the more developed countries. Hence, the consumers are not going to shift to 3G unless there is a killer application that would make them sit up and take note. Unfortunately, there is no killer application on 3G. Most of the current applications like email, chat, social networking, internet radio, etc. work well on the current 2G and 2.5G networks. It is only the experience that is better on 3G due to higher data speeds but there is no 3G only application that has a mass appeal. People initially were gung-ho about the video telephony but now it appears that not too many consumers are enthusiastic about it.

Another common myth is that 3G is more efficient than 2G in terms of operating expenses (OPEX) and hence it would result in higher operating margins for the operators. I do not deny that 3G is much more efficient than 2G but at capacity. 3G has three times more capacity than 2G but since most of the networks across the world are on 2100 MHz, the number of sites required to provide coverage are 2.5 times more than that for 2G on 900 MHz. This means to provide coverage, 3G would be more expensive as it needs more sites but the requirement for capacity sites would be smaller due to higher capacity of 3G. Hence, only if the network utilization were to cross a particular threshold, 3G would be beneficial.

Any operator while launching 3G services would go through the following three phases:

1. Roll-out for Retention: This is the first stage of 3G network roll-out. In this phase, the carriers are not too sure about the 3G potential and would launch the 3G services in the areas where the high ARPU consumers reside or work. This is essentially a step to retain their high ARPU base and the cost involved in launching full scale 3G services is very high.
2. Roll-out for Capacity: As the 3G usage increases and more consumers start to adopt 3G services, the carriers need to increase capacity and the coverage area. The business case starts to look better but this phase is the most capital intensive one as well.
3. Rollout for Cost Efficiency: This is the stage in which the real benefits of 3G services start to appear. The focus of the operators in this phase is to have an optimum mix of 2G and 3G subscribers and looks to switchover to 3G completely as the capacity benefits of 3G come into play. This stage has so far been crossed only in Japan and Korea. In Japan, the carriers stopped offering 2G services around two years back to reduce OPEX and complexity in managing multiple networks.

It is a mistake to assume that 3G services are more cost efficient as the cost efficiency roll-out is the last stage and it can only happen when the first two stages have been crossed. The high population density in developing countries does not mean that the first two stages can be crossed quickly.

I have my doubts on the business case for 3G services in developing countries and unless it can provide a compelling reason for its adoption, the 3G services would continue to pull the EBIDTA down for the carriers.

Also Read: Mobile Broadband-Drivers and Inhibitors

Read other articles from Mohit at http://www.telecomcircle.com

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A mobile virtual network operator (MVNO) is a company that provides mobile phone service but does not have its own licensed frequency allocation of radio spectrum, nor does it necessarily have the entire infrastructure required to provide mobile telephone service. As per the MVNO directory 2009, there are 366 active MVNOs and there are another 89 potential MVNOs. The concept of MVNOs was coined by Sir Richard Branson of Virgin Mobile in UK in 1999 and Virgin is still the largest MVNO with over 4 million subscribers in UK. There are currently over 50 MVNOs in US and Netherlands. However in almost every country, the share of subscriber base with MVNO is less than 10% 

There are various forms of MVNOs depending on the value chain activities they cover. The figure below provides an overview of the various activities performed by different entities: 

Image Copyright with Telecom Circle

 The fourth entity depicted as MVNO in the above diagram is essentially the “Thick MVNO” and is the most prevalent form of MVNO.  Key examples of Thick MVNO are Virgin, Lebara, Helio and while that of Mobile Virtual Network Enabler (MVNE) are Ztar, TMNG, Convergys and ASPIDER Solutions. 

What does MVNO offer?

MVNOs normally try to leverage on one of the three strategic assets – Brand, Distribution or Existing Customer Base. The existing customer base can be non-mobile customer base that can be cross-leveraged for mobile services. There are MVNOs that try to offer better services for their customers, e.g.  Rabo Bank launched its own MVNO to serve its banking customers better. Communities of interest can come together to form a community MVNO, e.g. fans of Manchester United or McLaren can potentially brand an MVNO to display their sporting affinity. Wal Mart can use its distribution reach and loyal customer base to venture into the MVNO space.

The key strategic asset that MVNO brings to the table also defines its positioning in the market place. The broad classification of MVNOs is as follows

Business MVNOs focus on catering to the mobile services needs of business houses, e.g. Abica in UK offers cost savings on business mobile, landline and broadband services

Discount MVNOs provide cheaper services to their customers and price is their key differentiation

Niche MVNOs focus on a specific niche of the market and charge a premium for the brand

Ad Funded MVNOs have a business model that is based on advertisements and offer to provide free mobile services to their customers return for viewership of the advertisements, e.g. Blyk in UK

Ethnic MVNOs targets ethnic communities or other communities of interest by offering significant value to their customers, e.g. Lebara in UK offers reduced tariffs to its ethnic customers for calling their home countries

Convergence MVNOs are set of MVNOs that leverage on convergence, e.g. BT Mobile in UK and Italy. BT Mobile encompasses not only GSM but all wireless telecoms technologies and leads the field in Fixed-Mobile convergence­

Why do carriers (MNOs) find MVNOs attractive?

Operators look at MVNOs as an outsourcing partners to either reduce cost or increase productivity by reaching out to more customers profitably. No market is homogenous and consists of various segments which may not be equal in size. Operators may find it difficult to profitably target all the segments. MVNOs are a medium to implement a more specific marketing mix to suit the needs of the niche segments. MVNOs also help carriers reduce their costs as they take away a significant portion of operator costs like customer service delivery, billing, marketing, etc. MVNOs are able to offer these services at a lower cost by leveraging on their current assets. MVNOs may also help increase the revenues by way of reduced churn and increased ARPU.

Operators are particularly interested in MVNOs to better utilize their excess capacity. They can off load their excess capacity at marginal costing (at a discount to the normal tariffs) and can thus offer discounts to specific segments without having to offer it to its entire base.

Future of MVNOs

Despite the benefits that MVNOs can bring, the current share of subscribers in most of the markets they operate in is less than 10%. I am not sure if any MVNO is really making enough money to cover its expenses. The reason for this is that there is now a new entity in the form of MVNO that is trying to gain a pie of the value chain without increasing the value of the chain. This means that the margin needs to come from the carriers or through operating efficiencies. There is not enough inefficiency in the operator domain and hence the high margin opportunities are limited. The carriers are already under margin pressure and have a threat of getting marginalized and hence feel squeezed with the arrival of MVNOs.

An MVNO is only as strong as its ability to differentiate its services. An MVNO can differentiate itself through niche segments, its distribution depth and loyal customer base.

According to Whitey Bluestein, widely recognized as the creator of the first MVNO when he developed a virtual network operation for pre-WorldCom MCI in the mid 1990s,

There are three key areas that most new entrants simply have not thought out either tactically or strategically: distribution, customer churn and industry technology.

In many cases, the MVNOs do not have a clear technology roadmap and hence are not able to transition from 2G to 3G to 4G. Being asset light (read headcount), most of MVNOs have a limited ability to forecast future trends, pace of technology changes and hence miss out on opportunities. They have limited access to latest handsets in the operator driven markets unless they tie-up with the operators themselves for the handset deals.

Also Read: The future of Data Only MVNOs

Read other similar articles on www.telecomcircle.com

Views expressed by Authors/Users/Subscribers etc on this website are completely their personal views and in no way reflect the views of their employers or any connected parties. Please view our detailed Terms & Conditions.

Aspiring Consultants can seek free & valuable advise by Clicking Here

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Read my other articles at www.telecomcircle.com

In this post, I would discuss the current and emerging business models in the wireless industry.

The key activities in the value chain of the business model are Service Creation, Identity Management, Service Provisioning and Billing. The key players in the ecosystem are the carriers, handset vendors, platform owners (e.g. Symbian, Android), application providers and the content partners. In different business models, different ecosystem players try to control most of the activities. There are broadly 4 business models that exist today in some form or the other.

1. Carrier Dominance Model: In this model, the users visit the portal screen of the carrier and download/use services from the portal (also called the walled garden). The walled garden directs the user’s navigation within particular areas, to allow access to a selection of material, or prevent access to other material. Traditionally, the carriers have followed the walled garden business model and controlled all the entities of the value chain of the business model. This model got prominence when the wireless industry was in infancy. The carriers took upon themselves to offer end to end solutions to the users. In this model, the content providers need to tie-up with the carriers for their presence on the carrier portal. The carrier is responsible for marketing of the service to the users and also for billing and collection. In return, the carriers charge a huge revenue share (as high as over 50-60%) plus the user access charge. Common examples of this model have been Vodafone Live, NTT Docomo’s i-mode, Airtel Live. AOL followed the most successful walled garden on the web and at one point of time, as per Economist magazine, 40% of the time Americans spent on web was within the confines of the AOL walled garden
2. Device Dominance Model: In this model, the device vendor is controls the device, platform and the content & application partners. Service provider tie-up with the device vendor who puts the service either on its application store or on its own portal. In this case, the device vendor controls the key activities of service creation, identity management, service provisioning and billing. Carriers get the access revenues and have a shared responsibility for identity management. This results in the highest differentiation for device vendors but the least for the carriers. In this situation, the data adoption and usage is normally high and the revenue share is better for the content partners. However, the content partners are expected to take some load of marketing, billing and care in return for higher revenue share. Also, the development cost of services is likely to be high as separate development is required for each device vendor. Common examples of this approach are Apple and RIM. Both Apple and RIM have complete control over the value chain and they decide on which services to offer
3. Platform Dominance Model: In this model, the mobile OS platform takes the dominant position. The platform is available across many device vendors and hence the development effort on part of the content and application partners is lower. There are limited service differentiation opportunities for the carriers or the device vendors. The content players need to partner with the platform owner. The carrier gets the user access revenue and the service revenue is shared between the platform owner and content partner. In this model, the platform replaces the device vendor in the device dominance model. The content partners get better revenue share (up to 70%) in return for billing, care and marketing. Symbian and Android are examples of this kind of approach
4. Application Dominance Model: This model is very much similar to the web model. The application is accessed using the carrier as pipe. The carrier gets the user access charges but entire service revenue goes to the content and application owner. The activities of service creation, identity management, service provisioning and billing are all done by the application owner. The marketing and care responsibilities also lie with the application owner. The role of the device and platform owner does not change in this case. Due to multiplicity of the devices and platforms, the service/application development cost is very high. Facebook, Linkedin, Google gmail client could be examples of this approach. However there are not many examples of paid applications in this model

There are many changes taking place simultaneously in the wireless space. The platforms are changing from proprietary in-house operating system (OS) to proprietary industry OS to collaborative open industry OS. Carriers are lowering the walls of the walled garden due to demands of the users as well as pressures from the content and application vendors. New opportunities are evolving which enable the content providers to completely by-pass of the carrier. All these changes require a change in the business model in the wireless industry

The emergence of the optimal business model needs to ensure that the consumer interests are taken care of and the consumer interests are the weakest if the entire or most of the value chain is controlled by one single large player. In that respect, the platform dominance model probably is best suited to the consumer needs. Due to higher base, the development costs are likely to be lower and all the ecosystem players are likely to have an equal say in the platform dominance model. However, the outcome of the success of any business model would depend on the outcome of the power play between the different entities of the ecosystem

Views expressed by Authors/Users/Subscribers etc on this website are completely their personal views and in no way reflect the views of their employers or any connected parties. Please view our detailed Terms & Conditions.

Aspiring Consultants can seek free & valuable advise by Clicking Here

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