One of the interesting by-products of the dramatic rise of over-the-top service providers will be the redefinition of the MVNO, and the way it contributes to the mobile operator’s business case.
The MVNO – mobile virtual network operator, which offers cellular services by leasing capacity rather than building infrastructure – has already gone through several phases of development. Early examples tended to focus on cut-price offers, often for consumers the mobile carriers were not targeting. Then large non-telecoms brands, such as Virgin and Disney, saw the opportunity to bundle mobile phones and connectivity with all the other services they offered, and so extend their revenue streams, their brand and their share of a customer’s total spending.
As of this year, more regulators are allowing (or even insisting on) MVNOs, to increase competition by enabling firms to enter the space without the huge upfront costs of buying spectrum and building a network (though some operators have hybrid models where they own some capacity and lease others, as seen with Free Mobile in France). Most significantly, the Chinese government has not only permitted virtual operators but compelled the three carriers to support a minimum number, with major potential effects for those carriers.
However, the really disruptive effect will be felt in the next wave, when unlicensed spectrum enters the mix. In 2014, there are typically a handful of significant MVNOs per country, but by 2020, there will be hundreds, some of them very specialized – perhaps down to a single application. Some mobile operators will be primarily wholesale-driven by this point, but the success of that model will depend how skillfully the MNOs strike a positive balance with the WiFi/over-the-top community.
The new generation of MVNOs will be enabled by emerging platforms which allocate bandwidth dynamically as different service providers need it. This bandwidth might come from one or more cellular networks and from unlicensed sources such as WiFi. Rather than static, multiyear and expensive MVNO contracts, this will be the marketplace approach which is already creeping into WiFi via offerings like BandwidthX.
As proposed by Google back in 2007, we could see vertical or app-specific service providers paying by the hour for access to a mobile network, while relying primarily on WiFi, when its signal is good enough. This is a wholesale extension of the currently voguish ‘WiFi-first’ idea, in which MVNOs and even some actual MNOs offer low cost data plans which default to free WiFi connections when available, and only use the 3G/4G network for wide area coverage or high mobility.
It will be only a small step for large WiFi infrastructure owners such as cable operators to realize they, not the MNOs, have the largest store of valuable network assets in many areas, and to upturn the balance of power when negotiating the renewal of their MVNO fees.
Useful as WiFi has been to reduce strain on cellular networks via offload, it is a double-edged sword once it becomes part of a huge pool of wireless capacity which can support Google’s model of ad hoc MVNOs, but with only a minority of that usage – and therefore of the fees – going to cellular carriers.
Before we get to this fully dynamic world, of course, the bandwidth allocation platforms have to mature; the regulators have to go through their processes; the MNOs have to feel under sufficient pressure that they agree to participate in such schemes. All those developments will take time, but in the meantime, there will still be many changes in the MVNO landscape, and a far greater prevalence of those using WiFi-first (the US and European cablecos being the most important example).
We can expect to see more over-the-top and device providers having their own MVNOs in order to offer embedded wireless connectivity with no reference to the operator. This was pioneered with the Amazon Kindle ereader and will be particularly important in the internet of things. In the smart home or connected car, the operator will sometimes manage to seize the primary relationship with the consumer (as AT&T is seeking to do), but more often that will be the vendor of the car, the smart security system or the applications, with the connectivity included invisibly through an new type of MVNO deal geared to small amounts of data.
In a study conducted by Maravedis-Rethink in January 2014, it was found that the percentage of smartphone subscribers on MVNO deals will increase by almost 80% between 2013 and 2018, but would still be below 30% in all regions, and as low as 10% in some. However, when secondary connected devices are considered (tablets, consumer electronics, smart home and car), the global figure will be 64% by 2018.
As the graph indicates, the virtual operator space will be highly fragmented as new entrants appear, especially from the OTT world.
Figure 25. Types of MVNO by % of MVNO subscriber base
The challenge for the mobile operator will be to ensure that this proliferation of MVNOs becomes a golden goose, not an albatross. Some network owners will develop wholesale-driven models which will avoid the costs of marketing, handset subsidies and customer service – but they will still face pressure on the fees they can charge. Others will retain their retail offering, and will have to make difficult choices about how to balance the increasing complexity of managing so many relationships, with the additional revenue streams.