MVNO? That’ll be an abbreviation – another pointless four letter one no doubt…
Right and wrong. MVNO stands for mobile virtual network operator – and it refers to a rather intriguing slice of the mobile pie.

I’m listening…
Building and operating a mobile network is an expensive business, not least because it requires radio spectrum, so the number of mobile network operators (or MNOs) is limited to, at most, a handful per market. For instance, the UK market has five: 3, O2, Orange, T-Mobile and Vodafone.

Spectrum does not come cheap. The auction for 3G licences in the UK – way back in 2000 – ended with five companies shelling out a whopping £22.47bn for the privilege of flogging third-generation services to Brits. So the requirement for large capital expenditure to set up a mobile network goes some way to explaining why actual networks are not 10-a-penny.

But in many markets – especially in Europe and North America – there are more mobile services than networks and this is where virtual network operators come in.

But what exactly are MVNOs?
In basic terms, an MVNO buys ‘traffic’ – wholesale minutes and texts, and potentially data – from an MNO and resells it to customers under a different mobile service brand. However, the definition of an MVNO can vary – and there are several different types of MVNOs in a kind of ‘degrees and degrees’ way.

For instance, some MVNOs handle the related wrap of services and processes – such as billing and traffic management – in-house, while others outsource that and just concentrate efforts on selling a branded service to the customer.

MVNOs are sometimes categorised as follows: ‘full MVNO’, ‘thin MVNO’ and ‘service provider’ – with a ‘full MVNO’ being one which sets up and runs its own infrastructure (with the exception of the radio network) and manages all related customer services and processes itself; while a service provider simply resells a service and outsources the other business processes.

An example of a full MVNO would be Virgin Mobile, the first MVNO in the UK market launching back in 1999 – which is also something of an exception in the MVNO world as it has many more subscribers (running to several million) than the average. The majority of MVNOs fall into the ‘thin’ or ‘service provider’ categories – and are more likely to have thousands of subscribers each.

One more thing to note here: there are also MVNEs – or mobile virtual network enablers – who are basically middlemen who oil the wheels of the relations between MVNOs and network operators, and may also provide services to MVNOs such as billing, admin, support etc.

Sounds complicated! So most MVNOs are small fry then?
Well they certainly can be – and when compared to the mobile operators most probably are. But the majority of MVNOs are not attempting to compete directly with operators – rather their business models aim to identify niches the big boys necessarily overlook owing to their mass-market focus.

What kind of niches are we talking about?
Well one way of being a successful MVNO is to identify a social group such as an ethnic minority to whom you can market uniquely tailored mobile services.

The more specialised and targeted the services of these MVNOs (often called ‘ethnic MVNOs’) the better – think: cultural references, minority languages – because their business opportunity is founded on anticipating and serving the needs of a particular social group. An example would be Calao Mobile in Belgium which offers mobile services to the country’s Congolese community.

What about low cost calls? I think I’ve seen ads for MVNOs offering really cheap calls…
There is often an element of low cost pricing (aka ‘discount MVNOs’) especially for MVNOs that tend to offer low cost international calls to a particular ethnic group’s country of origin. But virtual operators in general have to find ways to make their businesses sustainable and simply offering low call costs over the long run can be a risky strategy because voice and text are increasingly looking like commodities in the mobile industry.

Undercutting the operators on cost alone is thus likely to be viable only for businesses large enough to bankroll a mobile arm to gain other brand-extension benefits. An example would be flat-pack furniture giant Ikea which recently launched an MVNO in the UK called Family Mobile that claimed to offer the lowest priced pay-as-you-go calls and texts in the country.

Of course not many MVNOs have the brand clout (and war coffers) of an Ikea or a Tesco – or a Virgin, which can also leverage other services in its arsenal (like fixed-line broadband) to attract customers with the promise of good value service bundles.

But scores of smaller players do thrive in this space by identifying very specific communities with a common interest or connection – even fans of a particular football club – and then tailoring services to them. Examples include low cost international calls, customer services in minority languages and easy access to relevant (paid-for) sports content.

Are there any other notable business models?
Well – as with the football club MVNO example mentioned above – another way of making a business work is to provide a particularly innovative/appealing service in addition to the basics of voice and text.

A good example of this is PosteMobile in Italy that offers mobile-banking services to BancoPosta customers – thus providing an attractive value-add service on top of everyday comms. PosteMobile has reportedly signed up hundreds of thousands of subscribers in its first year of operation so a bit of smart thinking clearly goes a long way to making a virtual operator business viable.

Blyk is another European MVNO with a twist: it provides mobile services for absolutely nothing. Of course there is a catch: in return for free voice minutes and texts, subscribers must be willing to receive several ‘brand messages’ per day – i.e. adverts.

However, the service is not open to just anyone. Only European residents between the ages of 16 and 24 can sign up so this MVNO works by monetising a youth demographic that’s very attractive to advertisers.

It seems so – Blyk claims to have signed up more than 100,000 subscribers in the UK in its first six months of operation.

But surely mobile operators are crazy to wholesale their network to companies which end up undercutting them. Why do they do it?
In many European states EC pressure has led to markets being opened up to MVNOs. But in the end this should not be viewed as just another diktat from Brussels designed to make mobile operators’ lives a misery: in mature markets especially, MVNOs can be a clever way for operators to increase their market share and drive traffic over their networks – which is obviously good for business.

Moreover, MNOs are not above buying MVNOs in order to acquire their customers and grow their business – another reason virtual operators need to be smart and think sustainably to stave off acquisition by the big boys.

Anything else I need to know?
Remember MVNOs are local animals – their character and success varies considerably from market to market. Moreover, Europe is a particularly fertile ecosystem for them – being so mature in mobile terms – so globally there are many regions where MVNOs have yet to make a serious mark.