MVNO Benefits for MNO

MVNO benefits for MNO
Telecom operators cater their services and marketing to mass segments – in a so called ”one-size-fits-all approach. However, as customers have different taste, values and culture, some customers will feel they don’t belong and that the services are not aimed at them.

These customers are highly likely to seek  and move to another operator = Revenue from these subscribers is lost.

Figure 1: Subscribers churn to other operators. 

MVNO MNO Benefits 1
Subscribers churn to other operators | Click image for larger version
Value of partnering with an MVNO

This is where the value of partnering with an MVNO comes in. A MVNO will typically target niche segments where the telecom operator has less success, and thereby act as a magnet/filter, avoiding customers to churn to the competitors.

MVNO and MNO

Because the MVNO is a partner and hosted on the network of Telecom Operator 1 (MNO1), the MVNO will send back revenue to Telecom Operator 1 from these churning customers.

So even if some customers from Telecom Operator 1 decided to churn to the MVNO, Telecom Operator 1 would still make revenue on these lost customers, and this revenue would be pure profit for the operator, as the MVNO now has the associated (OPEX/CAPEX) costs e.g.: Marketing costs, Customer acquisition costs, Handset subsidies, Value-added services costs and ongoing Customer maintenance costs, etc.

Figure 2: The MVNO can act as a filter for churning subscribers.

MVNO benefits for MNO 2
The MVNO can act as a filter for churning subscribers | Click image for larger version

The other Telecom operators have the exact same problem, that some of their users feel they don’t belong, and will look for other alternatives. This creates a second traffic of revenue to operator 1, who partnered with the MVNO, as the MVNO takes on some of these churning customers from the other operators.

Figure 3: The MVNO taking subscribers from the competition.

MVNO benefits for MNO 3
MVNO taking subscribers from the competition | Click image for larger version

…and of course, further revenue to telecom operator 1 from new subscribers entering the market and choosing the MVNO from the start.

Figure 4: New subscribers in the market.

MVNO benefits for MNO 4
New subscribers in the market | Click image for larger version

This provides Telecom Operator 1, who is hosting the MVNO with 3 revenue streams.

Figure 5: The MVNO provides the host operator with 3 revenue streams.

MVNO benefits for MNO 5
The MVNO provides the host operator with 3 revenue streams | Click image for larger version

Because the MVNO is a partner and hosted on the network of Telecom Operator 1 (MNO1), the MVNO will send back revenue to Telecom Operator 1 from these churning customers.

So even if some customers from Telecom Operator 1 decided to churn to the MVNO, Telecom Operator 1 would still make revenue on these lost customers, and this revenue would be pure profit for the operator, as the MVNO now has the associated (OPEX/CAPEX) costs e.g.: Marketing costs, Customer acquisition costs, Handset subsidies, Value-added services costs and ongoing Customer maintenance costs, etc.

Key Takeaways
  • If a customer on the host operator churns to the MVNO, it is highly likely that the customer would have left anyway.
  • It is better that the customer churns to a MVNO on the MNO’s network, than to the competitor, because the MNO will still make revenue from the lost customer via the MVNO partner.
  • If the customer churns to the competitor or a MVNO on the competitor’s network, all revenue from that customer will be lost.
From a Single Brand to a Multi-brand/Segmentation Strategy

MVNOs often come with a strong brand, and a niche focus that provides the mobile operator the means to minimize the impact on churn. Partnering with, and including MVNOs into its marketing mix, the mobile operator can achieve revenue from specific market segments where the mobile operator hasn’t been successful.

In saturated – or near saturated markets, as organic growth wears off, competition becomes a quest for market share, and this challenge leads MNOs to seek for MVNO partnerships to sustain the overall market growth.

Figure 6: MNO market share without, and with MVNO.

MNO with MVNO market share
MNO with MVNO market share | Click image for larger version

Partnering with MVNOs will allow the MNO to address specific market niches, which the MNO has not yet tapped into – incurring lower Subscriber Acquisition Costs (SAC) and add efficiency to the value chain by creating offers aligned to the needs of each of the existing segments.

Figure 7: MNO Market Approach vs. Market Segment Approach with MVNOs.

MNO with MVNO market approach
MNO with MVNO market approach | Click image for larger version

The multi-segment, multi-brand approach is not new, but built on experience from other industries such as the automotive industry. Today, the automotive market is heavily segmented and most car manufacturers actually own multiple automotive bands, each focused on a specific market segment with the product tailored for the unique needs of that segment.

Figure 8: Volkswagen’s shift from a single brand to a multi-brand, multi-segmentation strategy.

VW brand new model
VW brand new model | Click image for larger version
From a Single Brand MNO to a Multi-brand/Segmented MVNO Strategy

One of the key competitive advantages of brands is that they have a thorough knowledge of their users, allowing them to cater to that segment in a far more personal, relevant way than MNOs can, and the strategy has been adopted by various MNOs around the world.

Figure 9: Example of MNOs who have adapted the multi-segmentation MVNO model.

MNO MVNO Multi-brand multi-Segmentation models
MNO MVNO Multi-brand multi-Segmentation models
CELL C’s MVNO Model

In July 2016, Cell C revealed that it’s MVNO partners had managed to attract more than a million customers. Cell C’s had invested in a MVNE platform, which allowed them to launch MVNOs in a very efficient manner.

  • The MVNOs owns the customers
  • Services are offered under the MVNOs brand
  • The MVNOs design and decide the tariffs
  • Customer relation is managed by the MVNOs
  • The MVNOs is in charge of marketing, distribution, customer insights

Cell C CEO Jose Dos Santos said: “Cell C has created a focused strategy to embrace sound partnerships with exceptional brands. This has allowed us to grow the MVNO base substantially.”

In 2017, Cell C’s wholesale business chief Björn Flormann said its MVNE setup and mobile virtual network operator business, had contributed 25% to the company’s growth. “If you break it down, it is probably R600-R800 million ($44.7 to 59.6 million) of Cell C’s revenue”.

In the beginning of 2018 Cell C reported that it had 19 MVNOs on its network with 1.7 million customers between them, and Cell C generated revenues of $36.2 million from these MVNOs in the first half of 2018.

Figure 10: MNO CELL C’s multi-segmentation MVNO model.

MNO Cell Cs MVNO Model
South African MNO, Cell C's MVNO model
MVNO strategy pays off for Tele2 Russia

In May 2017, Russian operator Tele2 launched its “MVNO factory” strategy. The strategy enabled Tele2 to host a range of MVNOs in various niches.

The “MVNO factory” has been a vital part of the operators rapid growth in the market. In the period 2017-2018 the overall MVNO subscriber base in Russia grew to 3.2M with Tele2´s MVNOs accounting for 1.75M of those, representing a growth of 75%

At the end of 2019 – Tele2 had 21 MVNOs in the “factory”, serving 3.75M subscribers out of 10M total MVNO subscribers in the market (4% of total mobile subscribers in Russia), increasing Tele2’s revenue from the “factory” 133% year on year.

As of December 2020, Tele2 MVNO partners served a combined subscriber base around 4.5 million. The MVNOs include: Rostelecom, Sberbank, Virgin Connect, Tinkoff Bank, Centr2M, MS-SpetsTelecom, MCN Telecom, TTK, Easy4, SIM SIM, V -Tell, Gazprombank, VTB Bank and others.

Financial Benefits from MVNO collaboration

Besides being a source of growth, MVNOs are creating a significant advantages for the MNOs in terms of improving its business profitability

  • With MVNO, the Subscriber Acquisition Cost (SAC) for an MNO is zero, as the Subscriber Acquisition Cost is transferred to the MVNO.
  • The Average Revenue per User (ARPU) for the MNO, is only slightly lower with MVNO than the retail ARPU for the MNO without MVNO.
  • The EBITDA margin percentage of the wholesale business, is much higher than that of the retail one for MNOs without MVNOs.

Figure 11: MVNO creating advantages for the MNO in terms of business profitability.

MVNO impact on MNOs Financials
The MVNOs positive impact on MNOs Financials

For the MNO, the EBITDA margins for customers acquired by the MVNO is 3 times the margin from retail MVNOs help MNOs to drastically improve their EBITDA margins by reducing Subscriber Acquisition Cost (SAC) costs with only a slight reduction in Average Revenue per User (ARPU)

MVNO/MNO Benefit Conclusion

Network operators are continuously investing heavily into spectrum licenses and infrastructure to keep up with demand and new technology. These new investments are resulting in capacity which needs to be fully utilized as much and as soon as possible. A MVNO strategy can fill this gap and generate economies of scale for better network utilization.

A MVNO partnership brings the following benefits and opportunities for the mobile operator.

Financial Benefits: New revenue streams • Higher margins • Quicker return of investment • Reducing costs (increasing the EBITDA).

Strategic Benefits: Niche segment tapping • Use MVNOs in segments where the competitor is strong • Obtain greater share of the total market traffic • New distribution channels, reach new consumers in un-served/underserved market segments.

Operational Benefits: Network utilization • Share business processes to increase overall performance.

Marketing Benefits: Minimize churn • Grow market • Cross-sell • More value, innovation and choice for the end-users • Saved retail costs can be used to increase customer retention.

Author: Allan Rasmussen
Managing director at Yozzo. Allan’s expertise includes the development and execution of growth strategies, market insights, trends and opportunities, new business models and strategies
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