Voluntary Relationships Among Mobile Network Operators and Mobile Virtual Network Operators: An Economic Explanation

01 February 2009
By Christian Dippon with Dr. Aniruddha Banerjee

Mobile virtual network operators (MVNOs) are an important development in wireless telecommunications. Like standard wireless carriers or mobile network operators (MNOs), MVNOs sell wireless (or mobile) communications services, sometimes along with other products and services. However, unlike MNOs, they do not hold spectrum licenses and own little or no network infrastructure. Rather, they resell mobile services by purchasing airtime at wholesale rates from MNOs. Unlike ordinary resellers, MVNOs rely on brand appeal and reputation acquired in other businesses to sell mobile services (often bundled with other products). Significant worldwide growth in voluntary MNO-MVNO partnerships, without intervention from public policies that mandate MVNO access to MNO networks, raises many interesting issues. Since MNOs that sell wholesale services to MVNOs potentially forfeit sales in downstream retail markets, voluntary relationships are plausible only if MVNOs add value by widening and/or deepening MNO-served markets. In this paper, which appeared in the February 2009 issue of Information Economics and Policy, NERA Vice President Christian Dippon and Dr. Aniruddha Banerjee provide sufficient conditions for profit-maximizing MNOs and MVNOs to form voluntary strategic partnerships based on resale, product differentiation, and rebranding. The two key factors are value of the MVNO's brand reputation, and wholesale discount at which the MNO offers service to the MVNO.