MNO & MVNO Partnerships: From Old Fears to New Revenue

Fears of cannibalization, network strain, and empowering future rivals loomed larger than a 1990s mobile phone. However, the landscape has dramatically shifted as reality (finally) set in, and today, most MNOs recognize MVNOs not as threats, but as valuable strategic partners and significant revenue generators.

Yet, despite this widespread know-how, a few (and I mean very few) MNOs continue to cling to these debunked “tall tales” like rotary phones in a smartphone era, all to avoid engaging with MVNOs, MVNEs (MVNO Enablers), and MVNAs (MVNO Aggregators). This, of course, demonstrates a striking lack of adaptation to the modern telecom landscape.

“Cannibalization” – Ah yes, the broken record stuck on repeat for the few mobile network operators who’d rather invent problems than embrace mobile virtual network operators (MVNO) partners.

Honestly, if they invested as much energy in clinging to that word as they do in actually innovating, they would find themselves counting wholesale revenue instead of lost opportunities.

The primary concern among MNOs was the fear that MVNOs would simply “poach” their existing customer base, leading to a direct loss of revenue and market share. This “old view” envisioned a zero-sum game.

However, today’s view tells a different story. While some degree of cannibalization may occur, the wholesale revenue stream generated by MVNOs often outweighs any direct customer losses, contributing positively to the MNO’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This is due to several key factors:

• Customer Segmentation: MVNOs excel at targeting niche markets that MNOs, with their broad mass-market strategies, overlook. This includes specific demographic groups, IoT device connections, community or brands, tailored enterprise solutions, and much more. In addition many (about 1/3) of the MVNOs today, are companies, brands or communities using telephony services (data, voice, SMS) to sell more of their core business to their existing customers, rather than compete on telephone service prices. These customers represent incremental revenue for the MNOs that would not have been captured otherwise.
• ARPU Differential: MVNO customers typically have a lower Average Revenue Per User (ARPU) than an MNO’s direct high-value subscribers. However, if an MNO loses a low-ARPU customer to an MVNO it hosts, it gains wholesale revenue from that customer while freeing up its resources to focus on higher-value segments. This effectively allows MNOs to “outsource” their lower-value base.
• Cost Efficiency: MVNOs bear the significant costs associated with marketing, sales, customer service, and billing. The MNO’s primary responsibility is providing network capacity, which has a much lower marginal cost, leading to a highly efficient revenue stream.
• Filling Excess Capacity: MNOs build their networks to handle peak demand, resulting in significant unused capacity. Selling this excess capacity to MVNOs transforms a “wasted asset” into a profitable revenue stream. Any wholesale revenue generated from this underutilized capacity is almost pure profit.

Initially, MNOs worried that hosting MVNO traffic would unduly strain their existing infrastructure, necessitating costly upgrades or leading to degraded service for their own direct customers.

It’s truly ironic when these MNOs argue they don’t have room on their network for new customers. This creates a fascinating paradox: they want no MVNO partners to help retain existing customers (calling it cannibalization) and no MVNO partners to acquire new customers to the network. Essentially, they’re striving for a status quo that, in a dynamic market, ultimately limits their own potential for growth.

However, in the real world this concern has been mitigated. MNOs design their networks with substantial headroom, and the difference between peak and average utilization represents significant “wasted capacity” that can be profitably monetized. The marginal cost of carrying additional traffic on an underutilized network is exceedingly low.

This turns network capacity from a potential liability into a valuable asset. Yet, some MNOs still vociferously claim that adding MVNO traffic would cripple their networks, a position that flies in the face of modern network planning and utilization strategies. It’s like arguing that adding a few more passengers will make a Boeing 747 run out of fuel mid-flight.

The early days of MVNOs were indeed fraught with legitimate concerns about complex technical and commercial integration, often requiring significant custom development due to less mature standards.

However, the industry has evolved considerably. Today, well-established standards and solutions have simplified MVNO integration:

• MVNO Enablers (MVNEs) and Aggregators (MVNA): Third-party companies who specialize in providing the technical platforms (BSS/OSS, core network elements, roaming, billing mediation) and commercial aggregation for MVNOs. These “MVNO Enablers” significantly streamline the integration process for both the MVNO and the MNO. MVNAs, in turn, simplify the commercial relationship by aggregating multiple MVNOs for an MNO.
• Industry Standards: Standardized interfaces for signaling (SS7/Diameter), data (IP), and OSS/BSS integration are commonplace. While some bespoke elements may still exist, the foundational components are largely standardized.
• Experience Gained: MNOs (and MVNEs), that have already hosted MVNOs have accumulated invaluable experience, making subsequent integrations smoother and more efficient.
• Virtualization & Cloud: The ongoing shift towards Network Function Virtualization (NFV) and cloud-native network architectures is further simplifying and standardizing core network integration, offering greater flexibility and scalability for wholesale arrangements.

The fear that a successful MVNO could one day eventually transform into a full-fledged MNO or become a major competitor was a concern for MNOs in the past. Like worrying your pet hamster would eventually become a grizzly bear.

While theoretically possible (The MVNO not the hamster), this risk is less direct today:

• Capital Intensity: Becoming a full MNO by owning and operating a national network is incredibly capital-intensive, requiring billions in investment. Very few MVNOs possess the financial muscle to undertake such a leap.
• “Walled Garden” Effect: By the very nature of the ecosystem, where MVNOs purchase MNO capacity at a negotiated price, the MNO will always remain in a position of control. This control is inherent in the supplier-customer relationship and the MNO’s ownership of the core network infrastructure. While wholesale agreements are negotiated, the MNO sets the fundamental terms for network access – They define the “rules” of their garden.
• Limited MVNO Autonomy: While MVNOs have their own branding, marketing, and customer service, the connectivity part is reliant on the MNO’s infrastructure. This limits their technical and operational independence
• “Co-opetition”: The relationship between MNOs and MVNOs is often one of “co-opetition.” They may compete in the retail market but collaborate in the wholesale market. The MNO benefits from the wholesale revenue, even if the MVNO is a retail competitor.

With the exception of a few conservative MNOs still holding onto outdated perceptions, the mobile industry has recognized that hosting MVNOs is a potent strategic revenue generator. It allows MNOs to monetize excess network capacity, explore new market segments without substantial retail investment, and maintain a competitive edge.

The lingering resistance from some MNOs often stems from:

• Legacy Mindsets: Old fears are slow to die, and some MNOs continue to operate with outdated perceptions of MVNO risks or use them as an excuse to avoid wholesale partnerships with MVNOs, MVNEs, and MVNAs. Their continued reliance on these debunked tall tales showcases a failure to adapt to industry evolution and a resistance to leveraging new revenue streams.
• Lack of Commercial Imperative: In markets without strong existing competition or regulatory pressure for wholesale access, MNOs may not feel compelled to aggressively pursue MVNO partnerships.
• Internal Integration Challenges: The internal processes, legacy systems, and organizational structures of MNOs can still make integration seem complex and burdensome to them, even if the technology for MVNA/MVNO is readily available and based on industry standards.
• Different Timelines and Agility: Some traditional MNOs operate on significantly longer development and deployment cycles, often measured in years. They can feel uncomfortable and resistant when more agile MVNOs, which can launch new services or iterate on offerings in a matter of weeks or months, enter the market. This disparity in operational speed can lead to a perception of threat rather than opportunity.
• Negotiating Power / Perceived Brand Dilution: A dominant MNO might simply prefer not to engage with MVNOs if they believe it could “dilute” their own brand. This perspective, however, speaks volumes about a lack of trust in their own established brand value, if a smaller MVNO, operating with a minuscule fraction of the MNO’s budget and manpower, is perceived as a significant threat to their market position.

In conclusion, while some of the historical concerns about MVNOs might have been legitimate 25 years ago, they are now widely understood to be manageable, often exaggerated, and frequently outweighed by the evidence of substantial commercial benefits.

The ongoing challenge among the few MNOs who still think telegraphs are the future of communication, lies in fostering a broader shift in perception and incentives across all MNOs to fully embrace the MVNO model as a vital component of their strategic growth, and to recognize that clinging to outdated fears only hinders their own potential in a dynamic market.

Influencing change to those MNOs who continue to cling to these debunked “tall tales” is reality, albeit it requires some nudging:

Regulators: Regulators play a crucial role by either encouraging or mandating MVNO wholesale access. Mandating access, as seen in some markets, can drastically boost competition, spur innovation among service providers, and ultimately lead to improved services and pricing for end-users.

Beyond mandates, regulatory bodies can actively inform and educate the public, businesses, and even MNOs themselves about the opportunities and benefits that robust MVNO ecosystems bring, dispelling myths and fostering a more open market environment.

Shareholders/Investors: The MNOs are, perhaps unwittingly, leaving significant revenue opportunities on the table by neglecting MVNO partnerships. Shareholders and investors, driven by the desire for maximized returns, are positioned to nudge management.

By highlighting the untapped wholesale revenue streams, the increased network utilization, and the potential for greater market penetration through MVNOs, they can nudge the MNO leadership to seriously explore and commit to these strategic alliances, turning dormant assets into profitable ventures.

MVNA/MVNEs: Mobile Virtual Network Aggregators (MVNAs) and Mobile Virtual Network Enablers (MVNEs) are key facilitators in the MVNO ecosystem. They can actively engage hesitant MNOs by offering compelling business cases tailored to the MNO’s specific market conditions and excess capacity.

This includes providing proof of concept deployments that demonstrate seamless integration and revenue generation, alongside comprehensive solutions that effectively address perceived risks regarding the network, integration complexity, or cannibalization. Their expertise can de-risk the MVNO journey for MNOs.

Successful MVNOs/MNOs Success with MVNOs: Nothing speaks louder than success. The continued growth, profitability, and innovative service offerings of successful MVNOs, as well as MNOs that have effectively leveraged MVNO partnerships, serve as powerful, real-world examples.

Disseminating detailed case studies, hosting public discussions, and participating in industry forums to openly demonstrate the tangible benefits can significantly sway the opinions of reluctant MNOs, illustrating the concrete advantages rather than theoretical fears.

Analysts/Consultants: Independent analysts and consultants wield influence due to their objectivity and data-driven insights. They can provide robust market data, in-depth research, and independent analyses that systematically debunk the “tall tales” or outdated fears held by some MNOs.

In addition, they can outline best practices for structuring profitable and sustainable MVNO partnerships, offering strategic guidance from commercial models to technical integration and risk mitigation.

Competitive Pressure: The dynamics of the telecommunications market often force adaptation. If competing MNOs within the same market, or even in adjacent markets, successfully leverage MVNO partnerships to capture new customer segments, generate substantial wholesale revenue, or expand their brand presence, the resistant MNO will eventually have no choice but to adapt.

This direct competitive pressure can serves as a catalyst, compelling previously hesitant MNOs to explore MVNO strategies to avoid losing market share and falling behind their more agile rivals.

See Also:

• MVNO Benefits for MNO
• Mobile Virtual Network Aggregator (MVNA)
• Mobile Virtual Network Enabler (MVNE)
• MNO’s MVNO strategy : (YouTube Video) TechAfrica News – CEO Jorge Mendes on Cell C’s Strategy for a Sustainable, Customer-Centric Future. Cell C’s MVNO strategy moves beyond traditional wholesale models to deep, integrated partnerships tailored to partners’ industry needs.