Service providers or carriers have existed in the past by charging for voice calls made on systems that use licensed spectrum. The cost of this spectrum is increasing, with huge amounts of money being paid for 3G spectrum to enable high-speed data services in addition to quality voice calls.

But licensed spectrum won’t be enough for the service operator of the future. Value for wireless consumers will come from carriers that can provide end-to-end connectivity across both licensed and unlicensed spectrum. As wireless connectivity becomes more of a commodity, carriers will focus more on other aspects of service such as security, privacy, storage, and network intelligence features.

As we move towards 3G another type of service provider model will  emerge,  the  Mobile  Virtual  Network  Operator (MVNO). MVNOs will own no spectrum but will own or operate switches, customer care and billing systems that connect into another provider’s radio system.

MVNOS—SPLITTING THE SYSTEM INTO TRANSPORT AND MARKETING

Wireless service providers have traditionally owned and operated the entire wireless system. This system included elements such as the radio transmission equipment, subscriber management systems, billing, and customer care and, of course, the license to use a certain amount of wireless spectrum. The service provider created a brand (not always with a plan for their brand, some had more of an accidental reputation than a strategic branding effort) and ran the whole system of buying spectrum, building a network and billing system, selling wireless handsets, signing up customers, and setting up customer care department to answer the phones and solve customer issues. Some service providers were better at various parts of this process than others.

Several factors have made this process more difficult as the industry matures.

• Spectrum has always been and still is limited. The sheer size and financial requirements needed to purchase spectrum in today’s world favor the larger entities.

• Consumers that originally had two wireless carriers to choose from (if they were lucky) are now faced with upwards of 3-5 options in the larger metropolitan markets.

• Network equipment is increasing in capacity and available features but at the expense of increasing complexity and the need for various technical network specialists.

• Billing systems are evolving from simple time-based voice only billing to both voice and data charges, circuit- and IPbased,  and  a  growing  number  of  constantly  changing promotions and affinity programs not always based on time or even volume of traffic.

• Branding is becoming more important as service providers reach out beyond the traditional customer base to appeal to new groups of users each with specific needs and desired features.

• Subscriber acquisition costs average $300 and can go higher as markets reach saturation. Subsidizing handsets purchases for new subscribers ties up capital and lengthens the time to profitability for each new subscriber.

• Data capability is bringing the need for readily available content tailored to individual needs and desires.

• The costs involved in keeping the network up to date in functionality and services depends on increasing network utilization  and  efficiency.  Even  small  variances  in  capacity utilization can be the difference between profit and loss.

So essentially  the  environment  for  the  wireless  service providers  is  one  of  increasing  capital  expense  for  network equipment that handles voice and data as well as provision wireless Internet content and services. The ability to leverage well-known brands to attract specific customer segments is necessary to quickly build traffic and improve time to revenue while maximizing network capacity. Service providers are looking at MVNOs as one way to increase the number of subscribers  in  an  attempt  to  pay  down  these  investments  in network build out and maintenance.

Existing service providers may find that other companies with established brands in noncommunications markets are interested in leveraging their consumer relationships, content access, and knowledge by entering the mobile space as an MVNO.

MVNOs would not have the licensed spectrum needed to operate their own network, but would have other elements required offering services to the consumers. Some of the pieces an MVNO may choose to control and own include noncore network elements such as:

•   Voicemail systems

•   Billing systems—prepaid or subscription

•   Customer care centers

•   WAP servers and gateways

•   Retail facilities

These noncore elements would be minimal compared to the cost of spectrum and core network equipment. Despite a limited investment in equipment, connecting to more than one existing service provider could further leverage an MVNO’s brand and mobile equipment resources. This would allow the MVNO to sell services on more than one radio network. An example might be an MVNO that offers services over both a GPRS network as well as a CDMA network all under the same branding.

MVNOs would rely on the network capabilities of the underlying operator and focus their efforts on marketing and promotion efforts to build a subscriber base.

The MVNO might be a partner that has a well-known brand name and also access to content that could be resold to the service provider. Content and services could then be marketed not only under the brand of the MVNO but repackaged for the existing operators offerings.

The effect  of  MVNOs  on  existing  network  operators includes:

•   Ability to increase the total number of users on their network
albeit under two separate brands. The alternative branding offered by the MVNO could very well help an operator to appeal to new target markets not reached by the existing operators market positioning.

•   Access  to  content  and  promotions  made possible by the MVNO’s pre-existing business. An example of could be a record label that has access to popular new music content leveraging it’s artists content and brand names to attract new mobile users to their particular MVNO service.

•   Faster loading of customers on newer feature rich networks could help in generating the traffic  needed  to  maximize return on infrastructure investments.

Not all companies will have a strong enough brand to carry over into a new mobile service, some are more experienced at brand extension than others.  One of the more successful MVNOs is Virgin Mobile in the United Kingdom. Launched in 1999, Virgin Mobile is a combination of Richard Branson’s Virgin group (famous for Virgin record stores as well as Virgin airlines) and U.K.-based network operator One2One.
MVNOs are poised to assist network operators that wish to leverage  investments in infrastructure  by  reselling  network capacity to well know brands that are capable of providing targeted services to customers attracted to a familiar name and brand image.

Freedom from the challenges of owning and maintaining the radio transmission equipment allows MVNOs to focus on creating new services that leverage new network capabilities for voice and date while attracting and keeping customers.
Companies with strong brands could create an MVNO without the need to purchase spectrum. MVNOs would only need to negotiate with traditional carriers that have excess capacity to sell. Freedom from the challenges of owning and maintaining the radio transmission equipment allows MVNOs to focus on creating and maintaining services that attract and keep customers.