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New Book from NERA Economic Consulting Provides Comprehensive Analysis of the Market for Branded Cell Phone Services
28 September 2006
Book Explores Economic and Regulatory Issues Raised by the Partnership between Resellers of Wireless Services and Facilities-Based Providers
Cessation Of ESPN Service Is The Exception And Not The Rule In A Booming Market That Shows Little Need For Regulation, The Authors Suggest
Just this week, Walt Disney Company announced that it is shutting its mobile ESPN wireless telephone service and licensing it to existing mobile providers. This development spotlights the complexities of the market for branded cell phone services offered by mobile virtual network operators (MVNOs) -- an industry that, despite a major failure, continues to grow. Its economics are the subject of a new book from NERA Economic Consulting: Mobile Virtual Network Operators: Blessing or Curse? The book was written by Christian Dippon, Vice President in NERA's Communications and Intellectual Property Practices, and Aniruddha Banerjee of Analysis Group.
To order a copy of the book ($39.99 USD), please fill out our Publication Request form. Complimentary copies are also available for selected industry participants. We do not charge for shipping and handling.
Using extensive analysis and economic models, the authors provide a comprehensive profile of the wireless market, exploring the relationship between MVNOs and their critical partners, mobile network operators (MNOs) -- the established, facilities-based companies that provide the wireless network that MNVOs rent and resell to consumers, under their own brand name, through their own distribution channels, and with market specific services and features.
The book explores the strategies of major MVNO players including TracFone, Virgin Mobile, and Boost Mobile in the US, and Tele2, Transatel, and EasyMobile in Europe, among others. Such MVNOs purchase cell phone services from MNOs such as Sprint, Verizon Wireless, T-Mobile, among others.
MVNOs differ from ordinary resellers in two respects. First, they frequently do not have any prior telecommunications experience. Second -- and more importantly, the authors note -- they rely on brand appeal and reputation acquired in other lines of business to cross-sell cell phone services.
MVNOs frequently target customers in particular niche market segments -- for instance, teens, sports fans, or budget-conscious consumers. Recently launched MVNOs include entertainment companies and retailers that have marketed cell phones with branded features. Despite abandoning its ESPN MVNO service, the Walt Disney Company continues to offer wireless phone service through the Disney brand name. The Disney MVNO offers Family Monitor, which monitors a family's wireless spending, Call Control, which controls when and to whom a child can make calls, and Disney Zone, which consists of Disney applications such as Disney radio and games.
There are now more than 250 MVNOs worldwide. By 2005, over 50 MVNOs were operating in the European Union. Some 42 providers are operating in the US, with 13 new launches expected over the next 18 months. Total MVNO revenues in the US are expected to rise from $9.6 billion this year to $29.6 billion by the year 2010, according to NERA and industry sources.
MVNOs provide various benefits to MNO partners. They include, among others, established access to market segments, such as pre-paid cellular phone service users, where MNOs have not traditionally succeeded. However, the authors warn, MVNOs can go after the same customers as an MNO, thus leading to the cannibalization of the MNO's customer base.
Dippon and Banerjee employ theoretical economic models to illuminate the key factors that influence the relationship between MNOs and MVNOs. The primary factors are (1) the value of the MVNO's brand reputation and (2) the level of the wholesale discount at which the MNO offers service to the MVNO.
The economics of this fast-growing market raises questions about the need for regulation currently being debated in some countries. "The dramatic growth of MVNOs in a few short years (in both the US and EU)...indicates that prevailing mobile market circumstances favor spontaneous emergence of voluntary MVNO-MNO relationships," the authors write. "Based on surveys of the US and EU member states, the empirical evidence strongly suggests that the case for regulatory intervention is weak to non-existent."
The long-term prospects of MVNOs will depend on how effectively the industry can move beyond a cost-based market strategy and exploit opportunities with mobile commerce, global positioning system applications, personal databases, and other offerings.
"With prices at or near marginal cost, future MVNO success stories will not be based on further discounting, but on value-added positioning. Some MVNOs will achieve this by relying on their brand value (e.g., Disney), innovative marketing (e.g., amp'd), or expansive distribution channels (e.g., 7-Eleven). Other MVNOs or prepaid operators will succeed in this market by targeting the needs of substantial and well defined groups, such as ethnic groups, travelers, and youths."
They conclude: "The greatest survival challenge for MVNOs -- and a source of new opportunities as well -- is the ongoing process of convergence...the ability to offer a combination of voice, video, and data...over any one of several alternative platforms...MVNOs must continually introduce new features and services in order to stay ahead of the game."
"Disney's failure with ESPN underscores the importance of providing cell phone service to consumers that has more than simply a different brand name. You need to be able to target a niche market more efficiently than the established players -- and provide some kind of added value," comments Dippon on the recent failure of ESPN Mobile.
Among other data in the new book:
- Countries with the most MVNOs are the US (55 expected), Netherlands (38), Belgium (31), and Germany (25).
- There are about 25 million MVNO subscribers in the European Union, and about twice as many as in the US. The number of MVNOs in Europe has more than doubled between 2003 and 2005. EU MVNO subscribers are expected to almost double from 26.6 million to 47 million by 2009.
- Some 43 mobile virtual network launches are expected in the US by the end of 2006, over 30% more than in 2005 and four times the number launched in 2003.
- Between 2005 and 2010, US MVNO subscribers should double as a percentage of all mobile phone subscribers -- rising from 6.6% to 12.5%. MVNOs currently account for more than 10% of all US mobile phone subscribers.
- MNVO growth in both the US and EU has been driven by appealing to the budget-conscious market, often with discounted or pre-paid phones aimed at specific demographic segments. "Fifteen (or 27%) of all US MVNOs are discount MVNOs that target budget-conscious, credit-challenged, or low-income customers," the authors note. Among EU users of MVNOs, the largest portion, 23% are characterized as "budget-conscious." European MVNOs have appealed to groups ranging from footballers to cannabis smokers.
- Average Revenue Per User (ARPU) for phones marketed by MVNOs is higher in the EU than in the US. But this advantage is being eroded by price wars in Europe.
Chapters in NERA's book include "MVNOs and the Role of Regulation," "Design and Strategic Issues," "The Value Proposition of MVNOs to MNOs," "Economic and Financial Models of the MNO-MVNO Relationship," and "Forward-Looking Issues."
To learn more about Mobile Virtual Network Operators: Blessing or Curse? or to order a copy, please visit the NERA website at www.nera.com/mvno.
NERA Economic Consulting (www.nera.com), founded in 1961 as National Economic Research Associates, is a unit of Mercer Specialty Consulting, an MMC company.
About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For more than six decades, we have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real-world industry experience to issues arising from competition, regulation, public policy, strategy, finance, and litigation.
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