Mobile Virtual Network Operators: Blessing or Curse? An Economic Evaluation of the MVNO Relationship with Mobile Network Operators

Thu Sep 28 16:24:38 EDT 2006
By Christian Dippon and former NERA Vice President Dr. Aniruddha Banerjee

Mobile Virtual Network Operators (MVNOs), which are mobile operators that typically do not own wireless spectrum or network facilities, are a recent phenomenon in the telecommunications industry. Such operators maintain business arrangements with traditional mobile network operators (MNOs) to buy minutes of use for sale to their own customers. Unlike simple resellers of telecommunications services, however, MVNOs typically add value such as brand appeal, distribution channels, and other bonus items to the resale of mobile services.

In this book from NERA Economic Consulting, Vice President Christian Dippon and former NERA Vice President Dr. Aniruddha Banerjee examine market facts worldwide with respect to MVNOs and the regulatory and public policy actions taken regarding MVNO entry in the US and in the member states of the EU. The authors analyze the existence and market entry decisions of MVNOs using a theoretical economic model of a vertically integrated MNO with differentiated services and a discounted cash flow analysis based on plausible assumptions about MNO and MVNO revenues and costs and the MNO's wholesale discount rate.

Dr. Banerjee and Mr. Dippon conclude that MVNOs are thriving in unregulated environments in the US and most EU member states, since regulators in both places have increasingly seen the wisdom of refraining from mandating open wholesale access to MNO networks by MVNOs. Their findings also suggest that the paths taken by MVNOs in the US and the EU have differed due to the dissimilarities in the overall wireless penetration rates and the unique ways in which the prepaid segment has evolved in both places. Theoretical and financial (discounted cash flow) analyses both support empirical observations of MVNO market entry and growth by indicating the range of demand conditions and market structure characteristics under which voluntary MNO-MVNO relationships can be mutually profitable. In addition, the continued strong trend toward convergence among various communications technologies and service providers is further likely to stimulate the growth of MVNOs or similar competitive entities and further diminish the already weak need for regulation to induce such growth.

We are pleased to offer a complimentary PDF of the book upon request. To request a free copy, please fill out our Publication Request form by using the link below.