Telecom operators cater their services and marketing to mass segments – in a so called ”one-size-fits-all approach. However, as customers have different taste, values and culture, some customers will feel they don’t belong and that the services are not aimed at them.
These customers are highly likely to seek other options, and move to another operator = Revenue from these subscribers is lost.
Figure 1: Subscribers churn to other operators
MVNO IN TELECOM
This is where the value of partnering with an MVNO comes in. A MVNO will typically target niche segments where the telecom operator has less success, and thereby act as a magnet/filter, avoiding customers to churn to the competitors.
MVNO AND MNO
Because the MVNO is a partner and hosted on the network of Telecom Operator 1 (MNO1), the MVNO will send back revenue to Telecom Operator 1 from these churning customers.
So even if some customers from Telecom Operator 1 decided to churn to the MVNO, Telecom Operator 1 would still make revenue on these lost customers, and this revenue would be pure profit for the operator, as the MVNO now has the associated (OPEX/CAPEX) costs e.g.: Marketing costs, Customer acquisition costs, Handset subsidies, Value-added services costs and ongoing Customer maintenance costs, etc.
Figure 2: The MVNO can act as a filter for churning subscribers
The other Telecom operators have the exact same problem, that some of their users feel they don’t belong, and will look for other alternatives. This creates a second traffic of revenue to operator 1, who partnered with the MVNO, as the MVNO takes on some of these churning customers from the other operators.
Figure 3: The MVNO taking subscribers from the competition
...and of course, further revenue to telecom operator 1 from new subscribers entering the market and choosing the MVNO from the start.
Figure 4: New subscribers in the market
This provides Telecom Operator 1, who is hosting the MVNO with 3 revenue streams.
Figure 5: The MVNO provides the host operator with 3 revenue streams
If a customer on the host operator churns to the MVNO, it is highly likely that the customer would have left anyway.
It is better that the customer churns to a MVNO on the MNO's network, than to the competitor, because the MNO will still make revenue from the lost customer via the MVNO partner.
If the customer churns to the competitor or a MVNO on the competitor's network, all revenue from that customer will be lost.
FROM A SINGLE BRAND TO A MULTI-SEGMENTATION STRATEGY
MVNOs often come with a strong brand, and a niche focus that provides the mobile operator the means to minimize the impact on churn. Partnering with, and including MVNOs into its marketing mix, the mobile operator can achieve revenue from specific market segments where the mobile operator hasn’t been successful.
In saturated - or near saturated markets, as organic growth wears off, competition becomes a quest for market share, and this challenge leads MNOs to seek for MVNO partnerships to sustain the overall market growth.
Figure 6: MNO market share without, and with MVNO
Partnering with MVNOs will allow the MNO to address specific market niches, which the MNO has not yet tapped into - incurring lower Subscriber Acquisition Costs (SAC) and add efficiency to the value chain by creating offers aligned to the needs of each of the existing segments.
Figure 7: MNO Market Approach vs. Market Segment Approach with MVNOs
The multi-segment, multi-brand approach is not new, but built on experience from other industries such as the automotive industry. Today, the automotive market is heavily segmented and most car manufacturers actually own multiple automotive bands, each focused on a specific market segment with the product tailored for the unique needs of that segment.
Figure 8: Volkswagen’s shift from a single brand to a multi-brand, multi-segmentation strategy
FROM A SINGLE BRAND MNO TO A MULTI-SEGMENTATION MVNO STRATEGY
One of the key competitive advantages of brands is that they have a thorough knowledge of their users, allowing them to cater to that segment in a far more personal, relevant way than MNOs can, and the strategy has been adopted by various MNOs around the world.
Figure 9: Example of MNOs who have adapted the multi-segmentation MVNO model
SOUTH AFRICAN MNO CELL C’s MVNO MODEL
In July 2016, Cell C revealed that it’s MVNO partners had managed to attract more than a million customers. Cell C’s had invested in a MVNE platform, which allowed them to launch MVNOs in a very efficient manner.
- The MVNO own the customer
- Services are offered under the MVNO brand
- The MVNO design and decide the tariffs
- Customer relation is managed by the MVNO
- The MVNO is in charge of marketing, distribution, customer insights
Cell C CEO Jose Dos Santos: “Cell C has created a focused strategy to embrace sound partnerships with exceptional brands. This has allowed us to grow the MVNO base substantially.”
Figure 10: MNO CELL C’s multi-segmentation MVNO model
OMANTEL’S MULTI SEGMENTATION MVNO MODEL
Omantel’s statement on key achievements on collaboration with MVNOs
- Demonstrated Omantel’s intention to develop the telecom sector
- Minimized the risk of new direct competitors
- Gained network market share with no Subscriber Acquisition Cost and slowed competitor’s growth
- Addressed specific/niche market segments through MVNOs
- Introduced a new business stream via Wholesale operations
- Utilized idle network capacity on Omantel network.
- Became a “case study” example of MNO/MVNO success.
In 2014, Omantel was selected as one of the top three wholesale MNOs in world.
Figure 11: Omantel’s multi-segmentation MVNO model
FINANCIAL BENEFITS FROM MVNO COLLABORATION
Besides being a source of growth, MVNOs are creating a significant advantages for the MNOs in terms of improving its business profitability
With MVNO, the Subscriber Acquisition Cost (SAC) for an MNO is zero, as the Subscriber Acquisition Cost is transferred to the MVNO.
The Average Revenue per User (ARPU) for the MNO, is only slightly lower with MVNO than the retail ARPU for the MNO without MVNO.
The EBITDA margin percentage of the wholesale business, is much higher than that of the retail one for MNOs without MVNOs.
Figure 13: MVNO creating advantages for the MNO in terms of business profitability
For the MNO, the EBITDA margins for customers acquired by the MVNO is 3 times the margin from retail MVNOs help MNOs to drastically improve their EBITDA margins by reducing Subscriber Acquisition Cost (SAC) costs with only a slight reduction in Average Revenue per User (ARPU)
MVNO / MNO BENEFITS CONCLUSION
Network operators are continuously investing heavily into spectrum licenses and infrastructure to keep up with demand and new technology. These new investments are resulting in capacity which needs to be fully utilized as much and as soon as possible. A MVNO strategy can fill this gap and generate economies of scale for better network utilization.
A MVNO partnership brings the following benefits and opportunities for the mobile operator.
Financial Benefits: New revenue streams • Higher margins • Quicker return of investment • Reducing costs (increasing the EBITDA).
Strategic Benefits: Niche segment tapping • Use MVNOs in segments where the competitor is strong • Obtain greater share of the total market traffic • New distribution channels, reach new consumers in un-served/underserved market segments.
Operational Benefits: Network utilization • Share business processes to increase overall performance.
Marketing Benefits: Minimize churn • Grow market • Cross-sell • More value, innovation and choice for the end-users • Saved retail costs can be used to increase customer retention.