There has been much comment about MVNOs (Mobile Virtual Network Operators) over the last year or so, not least of all trying to define just what they are. There used to be a technical definition, but this has got progressively more messy. So increasingly it’s become a simple market-oriented one, along the lines of “a fully fledged mobile operator but not one with its own network or spectrum licence”.

Why does it matter anyway? Why worry about definitions? The simple answer seems to be – because it may represent the best way to open up the mobile business to all the new service opportunities and ensure its long term success. It may also be an area where regulators need to step in.

Sometimes heavy, sometimes light

This market-oriented definition glosses over several shades of technical meaning, sometimes described as light (not “lite” yet though), medium and heavy.

UK retailer Sainsbury’s fits the light model with its Sainsbury’s One mobile service. It depends entirely on its host network, run by O2, for all services - network access, call completion, messaging, information services and roaming. Its unique offering is to guarantee customers the best deal using a unique system which checks calls against every standard tariff through the UK's four mobile phone networks and charges the lowest price available. It also has a well-known brand and can use this to market One to its own customer base. Virgin Mobile has also become the classic case of a light model. Based on T-Mobile’s network in the UK, Sprint in the US and Optus in Australia, it uses its branding and simple tariff structure to target the youth market.

Sense Communications, based in Norway, fits the medium model. Sense offers mobile service in Norway using both Norwegian PTT Telenor’s and Swedish PTT Telia’s networks. In Sweden, it uses Telia’s network. Its differentiation lies in services rather than a brand name, offering unique services developed in house like Sense Update, which gives subscribers single-click access to games and information services. It handles its own service provisioning, billing and customer care, but relies on its hosts for network infrastructure.

Under the heavy model, the MVNO controls the call. Swedish pan-European telecoms company Tele2 runs its own switches and network elements, but relies on its hosts – including Sonofon in Denmark - for radio masts and spectrum.

Tele2 making waves 

A recent announcement by Tele2 brings some of the implications more into focus. First muted in September, during November the company handed back its Norwegian 3G licence to the government following completion of its MVNO agreement with Telenor, which will provide 3G access to Telenor’s Norwegian mobile network.

Tele2 reckons that this MVNO agreement with Telenor presents significant cost advantages in that it avoids the need to build out 3G infrastructure in Norway. This had previously been estimated at costing somewhere in the region of Euro 500m.

On the face of it, this rather begs the question of who is most likely to make money out of 3G. On the one hand there are mobile operators (MNOs) who have paid enormous spectrum licence fees in some countries and are now having to invest heavily again to get the infrastructure built. On the other are MVNOs and service providers looking to piggy-back onto these networks with no need for spectrum licences and significantly less for infrastructure spend.

What’s in it for Telenor to create what looks like a low cost competitor?

More than meets the eye

First off, spectrum licences for 3G were awarded in Norway by beauty contest rather than auction and the cost to Tele2 of its licence was Euro 45m. The company will simply write that off together with a fee of Euro 1.6m to the Norwegian government for walking away from the contract. But the real issue in this case was the Norwegian government’s insistence that the operator must build 1,700 mobile masts by 1 December 2002. This seemed unreasonable to Tele2, particularly in view of no 3G handsets being available, among other things, and therefore no early prospect of a return on investment.

Whether they pressed the point or saw it as a convenient excuse to exit, it leaves the government in a bit of a bind. Of four 3G licences awarded, only two now remain: Telenor and Netcom Norway, a wholly owned subsidiary of Sweden’s Telia. The others were Tele2 and Broadband Mobile, which was subsequently declared bankrupt and consequently turned in its licence.

It doesn’t end there, though. Telia, the Swedish PTT, controversially failed to win a 3G licence in its own country. It all worked out OK, though. Because of the huge cost of building 3G infrastructure in Sweden, they quickly reached agreement with one of the licence winners in Sweden to share the winner’s network and compete on the basis of services offered rather than the network infrastructure itself. So who are they sharing with? Tele2.

In fact, Tele2’s agreement with Telenor in Norway is more extensive than a single MVNO agreement. It is in fact a two-way MVNO agreement to use each other’s domestic GSM and 3G networks for the next five years. So, Telenor gets network coverage in Sweden as part of the deal.

All part of the 3G game

It is also noticeable that Tele2 is now the only 3G network in Sweden not requesting a delay in implementation. Four 3G licences were awarded in Sweden (also by beauty contest rather than auction) to Europolitan (now Vodafone Sweden), HI3G, Orange and Tele2. Of these, Orange and now Vodafone in November have both requested delays to 3G roll-out for a variety of reasons. Vodafone has claimed problems with obtaining building permits for new masts from municipalities and the military. However, like Orange, it’s request has been turned down by the Swedish government. HI3G has also requested a delay, which is still being considered. Tele2 appears to have largely avoided this sort of problem simply because it is building its network with rival Telia - using the two companies’ extensive existing mast infrastructure for GSM.

Perhaps MVNO agreements and network sharing are now just an inevitable part of the landscape when it comes to 3G roll-out. Share on network costs, compete on services. Or is there a better way? 

Services – battleground or partnership?

The number of mobile licences that can be awarded for mobile is limited by the availability of a scarce resource – radio spectrum. However, the opportunities for services bear no relationship to the availability of radio spectrum. To quote a well-worn phrase: they’re limited only by our imagination. Does it make sense, then, to limit the provision of services to those few who won the licences? Are they so expert in all service areas that such limits would not reduce choice in the market?

The answer is clearly “no”. The trouble is, with high debts and consequent consolidation going on in the sector among licence winners, the choices are likely to become more limited still.

This is a tricky situation for regulators. MVNOs offer a means of increasing the degree of choice and competition in a market where there would otherwise be a limited number of players. However, requiring licence holders to support MVNOs is a big step – as is now the case in Sweden. Yet at the other end of the spectrum, Italy has banned such arrangements, probably fearing further fall-out from their difficult 3G auction process.

It is nevertheless likely that regulation will follow at an EU level, although the signs are that this would be introduced into GSM networks first rather than 3G. It may therefore be time for network operators to start considering a portfolio approach to MVNOs. This would mean choosing the best opportunities among brand names, telcos and device providers (M2M) that fit with their own planned services in a complementary rather than directly competitive way – before others grab them.

 © e-principles 2002

Robin Duke-Woolley

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