The History of MVNO

The History of MVNO

Although the first Mobile Virtual Network Operator (MVNO) in the world "Virgin Mobile UK", was launched in the United Kingdom on November 1999, the history of MVNO dates back to the early 1990's Europe, along with MVNO pioneers in the Nordic countries, especially Denmark and Norway.

Up until the late 1980's telecom markets and telecommunication infrastructure, was mostly dominated by government controlled monopolies.

Yet, the approach towards liberalization in telecommunication was broadened significantly in Europe in 1993, with the issuing of directives concerning liberalizations of voice telephony, and the interconnection of public and private networks.

The most important directive in that regard was: Directive 95/62/EC of the European Parliament, 13 December 1995 - The application of open network provision (ONP) to voice telephony1.

The History of MVNO: EU Directive 95/62/EC, Open network provision to telephony

The History of MVNO - EU Directive 95/62/EC, Open network provision to telephony
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The directive was the beginning to the liberalization of telecommunication infrastructure and services in Europe, as it required EU member states to secure that any service provider, which obtains a dominant position in the market (Significant Market Power or SMP), had to grant access to their network on a transparent, fairly priced, and non-discriminatory basis. 

By January 1st, 1998 - Any telecom operator had the right to interconnect with public networks at cost-related charges in Europe (EU).

THE NORDIC MVNO PIONEERS

Although the full liberalization of most EU member states’ telecommunications markets occurred in 1998, the Nordic countries, and Denmark in particular - was among the early adopters. The Danish government established a political agreement on liberalization in 1995, resulting in the introduction of full competition in July 1996 ahead of the European Union deadline2.

Two years later, in 1998 - the Norwegian company Sense Communication (Net system International), was ready to challenge the duoply of Telenor and Netcom in Norway3, and thus taking the first steps towards what we today know as Mobile Virtual Network Operator (MVNO).

Sense’s plan was to enter into interconnection agreements, with the mobile operators Sonofon in Denmark, Sonera in Finland, Telenor in Norway and Telia in Sweden.

However, Sense’s proposal included the use of its own Mobile Network Code (MNC) and Subscriber Identity Module (SIM) cards as part of the arrangement, which resulted in the mobile operators refusing to give Sense access to their networks, on the grounds that acceptance of another operator’s SIM card was considered roaming, and roaming was not interconnection.

As a consequence, of the rejection from the operators, Sense launched a dispute with the respective National Telecommunications Authorities (NRA).

In September 1998, the Norwegian NRA - Post- og teletilsynet (Nkom today) ruled in favor of Sense. "It is Post- og teletilsynets view, that Sense business idea could help reduce socioeconomic loss as a result of the lack of effective competition. Sense seeks to establish a virtual pan-European network that makes it possible to transport traffic in their own networks across borders, and by this establish an alternative to the existing roaming agreements. In our view, the pricing of international roaming, as is today, are not for the benefit of end-users"

The mobile network operators in Norway appealed against the ruling, and the Ministry of Communications decided to examine the matter, resulting in a report on the fundamental questions raised by the MVNO concept, being presented to the Norwegian Parliament in Autumn 1998.

In February 1999, the Danish NRA decided that the mobile operator, Sonofon had an obligation to meet Sense’s requests.

However, it decided that Sonofon was not required to route calls received from mobile terminals with SIM cards containing Sense’s own MNC code, because it constitutes the same functionality as roaming between mobile networks4.

Just like the Danish NRA, the Swedish NRA decided that the network operator, Telia, was not required to accommodate Sense’s request for access, on the basis that the form of connection requested, was roaming and not interconnection.

The National Telecommunications Authorities was now aware of the concept of Mobile Virtual Network Operators, and believed it would be beneficial to the competitiveness of the mobile market and as a result, proposed amendments which would oblige networks to provide access to MVNO’s5.

Although obtaining support from the National Telecommunications Authorities, it was too little - too late, and Sense succumbed due to the lack of agreements with the operators6.

Despite the obstacles, Sense managed to return7 from bankruptcy, under a new form in April 1999, with another MVNO operational model, aligning themselves more with the mobile network operators.

The History of MVNO: Press Release - Telenor and Sense signs MVNO agreement
MVNO History Telenor and Sense signs MVNO agreement
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In November 1999, Sense Communications signed a service provider agreement with Telenor and Swedish Telia for GSM network capacity access, allowing Sense to offer its services, to its own customers in Norway and Sweden.

Sense launched its service in Norway on January 17, 2000 - two month after the launch of the first MVNO in the world (see below), with a yearly target of 70.000 subscribers and a promise to break up the mobile duoply in Norway8.

The History of MVNO - Norwegian MVNO Sense website
The History of MVNO - Norwegian MVNO Sense Website
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During the first 3 months of operation, Sense manage to add 35.000 subscribers, half of its yearly target, and 4 times as much as the second mobile operator in Norway, NetCom (8.671 new subscribers). Sense’s host operator, Telenor managed to add 81.598 subscribers in the same period for a total of 2.060.157 subscribers.

WORLD’S FIRST MVNO LAUNCHED IN THE UK

Meanwhile in the United Kingdom, The Office of Telecommunications, Oftel (now: Ofcom) had become aware of what was now known as Mobile Virtual Network Operators (MVNOs).

Oftel’s review of the MVNO concept, had been to obtain an assessment of the state of policy development on this issue in other European countries, and had noticed the Sense’s negotiations in Scandinavia, demonstrated some regulatory issues, when commercial negotiations failed.

In June 1999, Oftel launched a consultation document to gain possible stakeholders views on the potential introduction of MVNOs into the UK market.

Five months later, on 11-11-1999, the world saw the launch of the first MVNO "Virgin Mobile UK", a 50:50 private joint-venture company (Virgin Mobile Telecoms Ltd.) between Virgin Group, and Deutsche Telekom's One2One.

The History of MVNO: MVNO Virgin Mobile UK website early 2000's
The History of MVNO - MVNO Virgin Mobile UK website early 2000's
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Virgin Mobile was targeting 1 million customers by March 2000, which would give it a 6% market share.

The launch was to be followed up with an advertising campaign of £20 million. Virgin expected to invest around £50 million before seeing a return in the company's second year.

Richard Branson of Virgin Group told the Register9, that Virgin Mobile would have one tariff. Calls would be priced per day. The first 10 minutes would cost 15 pence per minute, the next 10 minutes would be ten pence per minute, and the rest of the day is charged at five pence per minute.

On the choice of One2One as host operator, Richard Branson said the company was "braver" than the other networks, and would let Virgin Mobile compete direct in the market.

NOT ONE, NOT TWO BUT THREE MVNO'S

The Danish mobile network operator Sonofon, who initially refused access to Sense Communications back in 1998, entered into two MVNO agreements on August 2000, with the MVNO's Club Blah Blah and Tele2 A/S. 

Club Blah Blah, became Denmark’s first MVNO, when it launched on 1. October 2000.

The History of MVNO: Club Blah Blah first Danish MVNO
The History of MVNO: Club Blah Blah first Danish MVNO
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Tele2 A/S became Denmark's second MVNO when it launched 9. October 2000, 8-days later than Club Blah Blah.

The History of MVNO: Tele2 Second Danish MVNO
The History of MVNO: Tele2 Second Danish MVNO
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Meanwhile the MVNO Telmore, had also finalized an agreement with Danish incumbent TDC, and launched Telmore, on 30. October 2000.

The History of MVNO: Telmore third Danish MVNO to launch
The History of MVNO: Telmore third Danish MVNO to launch
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Telmore was founded by ICT entrepreneur, Frank Rasmussen and was Rasmussen's second venture after the internet service company Image Scandinavia, which was sold to World Online in 1999.

THE HISTORY OF MVNO: CHRONOLOGY OF MVNO LAUNCH DATES

LAUNCH DATE MVNO HOST COUNTRY
11. November 1999 Virgin Mobile UK One2one UK
17. January 2000 Sense Telenor Norway
01 October 2000 Club Blah Blah Sonofon Denmark
09. October 2000 Tele2 A/S Sonofon Denmark
30. October 2000 Telmore TDC Denmark

 

THE MVNO CONCEPT PROVED SUCCESSFUL

According to the Danish National IT and Telecoms Agency (Telestyrelsen)10, the number of mobile subscriptions nationwide end of 2003, grew by 7% to a total of 4.785 million (88.9% penetration).

However, the collective customer base of the five Mobile Network Operators: TDC, Sonofon, Orange, Telia and Hi3G, fell by 2.4% to 3.69 million, while the three Danish MVNOs: Telmore, debitel and CBB Mobil, saw their combined subscriber base rise by a staggering 74% from 558,000 to 973,000.

Telmore alone, managed to attract an impressive market share of 9% (453.815).

The History of MVNO: Danish Telecom statistics - Second half of 2003

The History of MVNO: Danish Telecom statistics - Second half of 2003
Click on the image above for a larger version

Faced with falling subscriber additions, the Danish incumbents had been forced into competition, resulting in the average cost of a mobile voice minutes falling almost 50% in the last six months of 2003. 

With 3G around the corner, the Danish mobile operators were looking at ways to inject much-needed growth into their operations, including acquisition.

The dominant Danish incumbent TDC, which at the time controlled around half of the market, made the move in December 2003, having already acquired 20% of Telmore in April 2003 for DKK 100 million (U$ 15,025,155), TDC bought the remaining 80% of Demark’s leading MVNO Telmore11.

In total TDC paid DKK 400 million (U$ 60,131,000) to take over Telmore, and its 460,000 customers, which was DKK 869,50 (U$ 130.63) per subscriber.

Telmore has long been regarded as the text book example of correct MVNO execution in a fiercely competitive market12 13.  

With a small workforce (From 20 employees in 2001 to 70 in 2003), online distribution only, and no subsidized handsets, Telmore had far lower costs than established operators, which is the ABC in wholesale business.

The success of Telmore is underlined by its rapid growth from just 130,000 customers mid-2002, to 460,000 by the time TDC took over. In fact, the success and user satisfaction was so strong, that TDC still brands the former MVNO as Telmore today.

Between its launch in late 2000 and 2003 Telmore (and CBB Mobile) collectively acquired 43.7% of all new mobile customers in Denmark. They introduced competition into the market, resulting in prices falling 50% - but overall volumes of mobile traffic increasing. End of 2003 Telmore was responsible for 36% of all e-payments made in Denmark14.

Frank Rasmussen, the founder of Telmore went on to open the MVNO Bibob, which was launched in 2007 and sold to Telenor for DKK 93 million (U$ 13.96 million) in May 2009 when it had 69,000 subscribers.

In 2011 he launched MVNO Systems, a OSS/BSS solution for telecom operators and MVNO's, which he sold the same year to Telenor. In 2014 he launched the MVNO Justfone, which TDC invested in, and TDC has also invested in Frank Rasmussen's latest venture CubeIO, which is an app with a modern take on voicemail.   

The other Danish MVNO Club blah blah, changed its name to CBB Mobil, and had 191,639 customers at the end of 2003. CBB was also the subject of interest after putting itself up for sale at the end of January 2004. 

Virgin Mobile and Telenor was mentioned as potential suitors by industry sources. However it was Sonofon (host operator) who bought the MVNO for 130 million DKK. (U$ 19,546,625) in 200415. Sonofon itself was rebranded to Telenor in 2005/2006.

The MVNO Tele2, expanded its territory into Austria, the Netherlands and Central Europe, and is today a European telecommunications operator, with about 14 million customers in 9 countries16.

In Norway, Sense had obtained a 4.7% market share (180,000) in 2003.

It was sold to Chess Communication AS in 2005, and the following year, Chess/Sense (400,000 subscribers) was sold to TeliaSonera for NOK 1,619 billion (U$ 192,006,439)17  which was NOK 4047,50 (U$ 477.50) per subscriber. 

With the purchase, Telenor's rival TeliaSonera immediately increased its market share to 38% while the now former host operator Telenor, was estimated to have lost 600-800 million NOK.

In the UK, Virgin Mobile reported its Q3 2003 results18

  • Total customer base 3,183,347 (30. September 2003)
  • 269,681 net connections (Q3 2003)
  • Customer growth up 56% (2,013,382) QoQ
  • Q3 2003 turnover of £112,6m
  • 9 month EBITDA of £67m
  • 9 month operating profit of £59m
  • 9-month turnover of £309m

At the end of 2003, Virgin Mobile UK had managed to attract 7% of the UK mobile market (3,7 million). 

Virgin Mobile was acquired by NTL Telewest in 2006, before joining the quadplay of Virgin Media services, when NTL Telewest rebranded into Virgin Media in 2007.

As of March 2016 Virgin Mobile UK had 3.0 million mobile subscribers19.

THE HISTORY OF MVNO

The liberalization and the introduction of MVNO’s has transformed telecommunication markets the world over. The benefits include price reductions, service innovation, greater consumer choice, and increased market penetration.

According to GSMA Intelligence20, between June 2010 and June 2015, the number of MVNOs worldwide increased by 70%, reaching 1,017 in June 2015.

The report further noted that the 10 countries with the largest number of MVNOs as of June 2015, was:

  1. Germany - 129 MVNOs
  2. U.S. - 108 MVNOs
  3. UK - 76 MVNOs
  4. The Netherlands - 56 MVNOs
  5. France - 49 MVNOs
  6. Australia - 43 MVNOs
  7. Denmark - 43 MVNOs
  8. Spain - 35 MVNOs
  9. Poland - 27 MVNOs
  10. Belgium - 26 MVNOs


Written by: Allan Rasmussen, 
Yozzo.com | 01. August 2016 


 

References

1. Directive 95/62/EC of the European Parliament, 13 December 1995 - The application of open network provision (ONP) to voice telephony

2. Competition Policy in Telecommunications: The case of Denmark | International Telecommunication Union (ITU) | PDF

3. Ikke tilstrekkelig konkurranse på mobiltelefoni | Digi.no | 30. September, 1998 

4Sense får samtrafikk - ikke roaming | Digi.no | 16. February, 1999

5. Sense ved stupet | Digi.no | 27. February, 1999

6Slutt for Sense | Digi.no | 17. March, 1999

7Sense selges for noen millioner | Digi.no | 7. April, 1999

8Sense lover å bryte mobilduopolet | Digi.no | 17. January, 2000

9Virgin shakes up mobile market with One2One deal | The Register | 11 November, 1999

10. National IT and Telecom Agency, Denmark (IT- og Telestyrelsen) | Telecom Statistics - Second half of 2003 | PDF

11. TDC acquires 100% of Telmore | TDC Press Release | sec.gov

12From Strategy to Business Models and to Tactics | Harvard Business School | Ramon Casadesus-Masanell, Joan Enric Ricart | 2009 | PDF

13Telmore - Disruption in the Danish Mobile Market | Case Study | European School of Management and Technology | Jamie Anderson | 2004 | PDF

14Fremgang for e-handel i Danmark skyldes ét firma | Computerworld.dk | 29 January, 2003

15SONOFON acquires CBB Mobil | Telenor Press Release |30 april 2004

16Tele2 | Wikipedia

17Chess-salget endelig i boks etter priskutt | Digi.no | 29 August, 2005

18Virgin Mobile enjoys its best ever Q3 - and pips Orange! | Internet Archive

19Virgin Media | Corporate

20Report: Number of MVNOs exceeds 1,000 globally | FierceWireless | 2 September, 2015

 

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