Market Opportunities for B2C Fourth-Generation MVNOs White Paper

White Paper
Market Opportunities for B2C
Fourth-Generation MVNOs
Prepared by
Berge Ayvazian
Senior Consultant, Heavy Reading
on behalf of
October 2012
Executive Summary
The mobile virtual network operator (MVNO) market will continue to expand faster
than the mobile market worldwide over the next five years, based on new
research from Heavy Reading and Pyramid Research, telecom research units
within UBM Technologies. In its most recent report, MVNO Strategies Beyond the
Traditional Ethnic and Discount Models (February 2012), Pyramid Research projects
that the global MVNO subscriber base will grow at a CAGR of 10 percent over the
next five years and capture almost 214 million subscribers in 2016, equal to 2.7
percent of mobile subscribers worldwide (see Figure 1). In both North America and
Western Europe, MVNOs accounted for 12 percent of mobile subscribers by yearend 2010 and Pyramid forecasts the share of MVNOs in these markets will grow to
about 16 percent of total mobile subscriptions by 2016. This growth is based both
on the traditional prepaid voice and text MVNO approach, as well as new datacentric service offerings, business models and marketing strategies that will lead to
resurgence in the MVNO market over the next five years.
Figure 1: MVNO Market Forecast – As a Percentage of Total Mobile Subscribers by Region
Source: Pyramid Research Mobile Data Forecast Q4 2011
Outside of North America and Western Europe, MVNOs have had a limited appeal
due to poor regulatory frameworks and established operators' strategies for
addressing niche markets. To date, MVNOs have generally emerged in competitive, mature market environments, where more and more companies in multiple
industries have embraced the MVNO business model as an additional revenue
stream. We believe MVNOs will keep carving out additional niches to address new
customer segments, going beyond the traditional ethnic and discount models. As
mobile operators focus on migrating their customers to 4G and try to offset
declining voice revenue with attractive data-based offerings, they simply cannot
address all possible market niches. MVNOs, thanks to their strong focus on a
specific target consumer customer groups and ability to develop innovative and
fresh services, will be able to find a sweet spot in these markets.
MVNO Market Growth and Segmentation
Based on Pyramid Research's model for the global MVNO market, shown in Figure
2, first-generation MVNOs are mass-market prepaid, voice-centric MVNOs. In the
U.S., three quarters of established second-generation MVNOs offer only prepaid
services, while European countries have a high number of postpaid MVNOs. Many
of these are lifestyle or ethnic MVNOs that create a significant revenue opportunity for mobile operators, since they are willing to invest in a payment platform. For
example, GreatCall is a first-generation MVNO offering handsets and services
designed for targeting the elderly population and senior citizens' lifestyle. Shaka
Mobile was the first ethnic MVNO in the U.S. to target the African niche market by
offering voice packages linked to their home countries. Other ethnic MVNOs
include PlatinumTel, Movida, Liberty Wireless and Total Call Mobile, which target
ethnic communities by providing inexpensive calls to their home countries.
Figure 2: Four Generations of MVNOs
Source: Heavy Reading and Pyramid Research 2012
Second-generation MVNOs are still consumer-oriented, but target niche segments
with either prepaid or postpaid packages. Customer loyalty programs have
become a key model in the retail segment. Kroger, the second-largest grocery
retailer in the U.S., first launched its i wireless national MVNO service in 2005.
Operating on the Sprint network, i wireless is now sold online and at more than
2,200 Kroger retail locations across 31 states. In addition to providing an affordable
wireless service using the Sprint network that reaches more than 280 million users, i
wireless also ties in closely with Kroger retail customer loyalty programs. For
example, with its "Free Minutes" rewards program, subscribers can earn free
wireless service just for shopping at Kroger stores. The Free Minutes program is
considered a game-changer for Kroger, and it is the thing that has really differentiated Kroger from any other wireless industry MVNO model.
The other national grocery success story is Tesco in the U.K., where 2.25 percent of
this retailer's profit is now generated by its MVNO business, Tesco Telecoms. Tesco is
currently seeking to significantly expand its market reach with its recent announcement to double their profits in the sector by pushing into traditional sectors
of the Telco market such as broadband and home phones. The Walmart Family
Mobile service is often described as an MVNO on the T-Mobile network, but
Walmart and T-Mobile are in reality more like partners rather than a traditional
MVNO retailer and wholesaler. T-Mobile is the service provider and is responsible
for customer service, billing and of course operating the wireless network. As with
other national carrier plans, Walmart facilitates the sales and marketing of the
Walmart Family Mobile service, but does not own the customer, buy airtime or
operate in any capacity as an MVNO.
The first- and second-generation MVNO market has declined over the last decade, largely due to over-segmentation of the market. Among the survivors have
been the companies that kept their focus on the budget prepaid segment for
consumers and do not require long-term contracts, such as TracFone Wireless, the
largest U.S. MVNO owned by América Móvil. TracFone provides discount prepaid
voice phone and data service nationwide to more than 20 million subscribers, with
GSM service from AT&T and T-Mobile USA or CDMA service from Verizon Wireless
and Sprint. In keeping with its marketing to ethnic and immigrant communities,
TracFone provides discounted international calling options to all of its customers.
TracFone became a unit of MNO giant América Móvil in 2000, and has grown
both organically and by acquisition over the past ten years. TracFone Wireless sells
its handsets in more than 65,000 retail stores and offers mobile services under a
variety of brands such as NET10, TracFone, SafeLink Wireless and Straight Talk.
América Móvil acquired a T-Mobile MVNO, Simple Mobile in June 2012 and plans
to integrate its operations alongside other TracFone brands.
Sprint has been a leader in each generation of the U.S. MVNO market, and has
recently absorbed a few of its previous MVNO partnerships, Virgin Mobile and
Boost Wireless, by transforming them into wholly-owned prepaid brands under the
Sprint umbrella. Virgin Mobile USA was founded in 2001 as a joint venture between
Virgin Group and Sprint, and began operations in 2002 as an MVNO providing
services via the Sprint CDMA network. In 2009 Sprint Nextel bought out joint
venture partner Virgin Group, becoming the sole owner of Virgin Mobile USA.
Boost Mobile was founded in the U.S. in 2001 as a joint venture with Nextel Communications using the iDEN network. Boost was acquired outright by Nextel in 2003,
and Boost Mobile became a subsidiary of the merged Sprint Nextel company in
2006, offering a new service on Sprint's CDMA network.
The Sprint Global Wholesale & Emerging Solutions unit has become much more
proactive and innovative in its effort to capture a large share of the fast-growing
fourth-generation MVNO market. Sprint is going above and beyond its competitors
to ensure each customer's success, and employs a hands-on and collaborative
approach to help each MVNO venture thrive. Sprint has recently introduced a
new packaged solution of turnkey wireless solutions and support enabling any
business to become a wireless provider with minimal investment and risk – and ride
the revenue stream it creates. The new package, Single Source Enablement,
rounds out a portfolio of enablement services from Sprint that lets any MVNO from
entrepreneurs to enterprises deliver their own branded wireless service with as
much or as little investment as they prefer. Heavy Reading believes Sprint's Single
Source Enablement is a unique suite of capabilities that can cover all the necessary systems, processes, customer care, online Web enablement, warehousing
and distribution of devices, customized to meet each MVNO's unique business
needs, so that an MVNO can focus almost solely on acquiring customers.
Four Generations of MVNOs
MVNO markets have gone through various stages of development in recent years,
and a new phase of expansion is beginning. Why is the MVNO market expanding
again after a major decline just a few years ago? What is the renaissance that is
attracting new entrants to the MVNO market? If you ask new virtual operators, the
large MNOs are finally supporting their efforts and letting MVNOs spread their
wings. The proliferation of 4G networks and growing importance of high-speed
wireless broadband data services is also resulting in a greater number of data-only
MVNOs, many of which will be serving the growing tablet market.
Third-generation MVNOs are much more focused on data services, targeting
specific market and industry segments, and many also offer postpaid packages.
Some are focused on selling data subscriptions to end users, such as Amazon or
Dell, which have embedded modems in their tablet and laptop devices. Others,
such as BeyondMobile in the U.S. and Abica in the U.K., bundle mobile voice and
data services into their network solutions for small and medium business customers.
Emerging fourth-generation MVNOs tend to be focused on mobile broadband
data embedded in unique, branded products and services. We expect the types
of companies entering this fourth-generation market to also be different than
previous generations, with many foreign operators looking to extend their brand
and data coverage into the U.S. This shift is depicted in Figure 3, which provides a
representative segmentation of the emerging fourth-generation MVNO market.
Figure 3: Fourth-Generation MVNO Market Segmentation
Source: Heavy Reading
For example, NTT Docomo launched a Docomo USA MVNO service in April 2012
targeted at Japanese travelers to the U.S. Japan's second-largest operator, KDDI,
is also offering mobile services in the U.S. as an MVNO over Sprint's network through
its subsidiary KDDI America. KDDI operates under its new KDDI Mobile brand and
will initially target more than 1 million Japanese-Americans and a further 350,000 or
so Japanese ex-pats with postpaid plans, followed by prepaid services targeted
at tourists. KDDI America is offering Sanyo and LG handsets and also plans to offer
handsets that can handle Japanese input. Later this year, KDDI Mobile will offer
content such as ringtones, social networking services and discounted call options
to Japan. China Telecom also plans to start selling wireless service using CDMA
2000 in the U.S. under its own brand as an MVNO targeting Chinese-Americans,
businesspeople, students and tourists who travel often between the two countries.
B2C MVNO Market Entry & Success Strategies
Figure 4 provides a wide range of companies that are new entrants into each
segment of the emerging fourth-generation MVNO market. Heavy Reading
believes that leading mobile network operators such as Sprint can attract a wide
range of fourth-generation MVNOs in the B2C market to expand the market for
their own mobile broadband offerings. Several large retailers have recently
become B2C MVNOs to price and bundle wireless voice and data plans with their
other offerings. We also expect many innovative startup broadband data providers to participate in the B2C MVNO market.
Figure 4: Fourth-Generation MVNO Market Segments
B2C Wireless Providers
TracFone, Credo Mobile, Leap/Cricket, Cintex, Step Up Mobile, Movida
Broadband Bundlers
Cbeyond, XO Communications, Birch, Stonehenge Telecom, TruConnect
Mobile, Budget, MetTel, Mediacom, Telekenex, Abica UK, Yourtel
B2C Retailers
Kroger i-Wireless, Tesco, Telscape/Walmart, Platinum Wireless, Boomerang,
Quamtel/Data Jack
B2B Service Providers &
M2M Integrators
Aeris, Jasper, KORE, Crossbridge, Open Terra, M2M DataSmart, MiTel Mobile,
CAN, Lightyear, LatCom, OneSource, Onelink, Elevate Marketing
Consumer Electronics
Macheen, Amazon, Dell, Cubic
Global Operators
KDDI, NTT Docomo, China Telecom, CIAO
Broadband Data
Karma, Ting, FreedomPop, Voyager Mobile, Kajeet, Republic Wireless, NetZero
Source: Heavy Reading
For example, TruConnect Mobile recently announced an exclusive partnership
with Walmart to offer "Internet on the Go," a new prepaid MVNO mobile broadband service plan based on Sprint's 3G network for casual users with no monthly
fee. "Internet on the Go" is powered by a Novatel Wireless MiFi 2200 Intelligent
Mobile Hotspot exclusively sold in Walmart Stores. TruConnect Mobile is backed by
Telscape, a 12-year-old Los Angeles competitive local exchange carrier (CLEC)
that provides phone service to more than 60,000 customers.
Stonehenge Telecom is another example of a provider of voice communications
products and services that signed an MVNO agreement with Sprint to provide
access to the Sprint nationwide 3G network. Stonehenge Mobile has several
feature-filled, bundled packages to address the unique needs of both consumers
and enterprise businesses, depending on their usage and budget. This latest
service complements the newly-released Stonehenge Slate notepad in which the
10-inch model comes with both Wi-Fi and 3G connectivity. Stonehenge Mobile
also offers a variety of Android-powered smartphones.
Innovation is beginning to transform the fourth-generation B2C MVNO market, and
entrants are testing several new business models. GSM Nation has recently
launched a new B2C MVNO to sell contract-free voice and data plans through a
mega online retail website portal that already sells more than 200 different models
of unlocked smartphones and tablets that are sourced directly from manufactur-
ers or global distributors. Republic Wireless is a Sprint MVNO that relies mainly on
Wi-Fi connectivity for its beta Hybrid Calling service for consumers. Credo Mobile is
the former Working Assets Wireless, which is now another consumer MVNO using
the Sprint network. Another B2C segment includes advertising-funded MVNOs
such as Blyk or MOSH Mobile that build revenues from advertising to give a set
amount of free voice, text and content to subscribers.
Other fourth-generation B2C MVNOs focus on embedding mobile data services
into their unique, branded consumer electronics products, applications and
broadband bundles. Headquartered in Austin, Texas, Macheen Inc. is a global
corporation that enables connected device makers, retailers and solution
providers to deliver products that are "hot-out-of-the-box" – shipped preconnected to the Internet via mobile networks. Macheen's cloud-based platform
supports new business models for device makers, retailers, cloud service providers
and network operators alike. Macheen delivers breakthrough value by significantly increasing adoption rates and market penetration of connected devices and
cloud services.
Macheen has wholesale relationships with a number of mobile operators across
the globe, including the 3 GSM-based network in the U.K. and the Sprint
CDMA/EVDO network in the U.S. Macheen also plans to support Sprint's LTE
network, and is using these networking relationships to offer built-in connectivity for
Lenovo laptops and tablets in the U.S. and nine European countries. Macheen's
comprehensive turnkey platform enables connected laptops, tablets and other
consumer electronics device makers to not only reach across continents, but also
tap into different mobile network technologies. Macheen's global operator deals
also mean users can travel abroad on the same SIM without losing access, and
Web-based policy management tools let corporate IT departments customize
permissions, access and billing down to individual employees.
As part of its Network Vision plans, Sprint entered into a "spectrum-hosting" relationship with Lightsquared, whose wholesale salesforce aggressively signed up some
40 data-centric MVNO partners. Many of these were newcomers to the mobile
broadband market with varying business plans and a strong interest in a wholesale
4G data business model dominated by low per-gigabyte rates and flexible
packages that enable services such as prepaid mobile broadband. More than 30
of these mobile broadband MVNOs have demonstrated that a business for
alternative broadband offerings that expand the mobile broadband market can
serve as test beds for non-traditional offerings. Sprint is well positioned to serve as a
platform for this diversity of healthy fourth-generation MVNOs waiting for a costeffective, straightforward model to add mobile broadband data to their offerings.
Republic Wireless, Voyager Mobile, Tucows Ting, Kajeet, Movida and a dozen
other fourth-generation MVNOs have all entered the market using Sprint's 4G
network. For example, Voyager Mobile launched its prepaid B2C MVNO service in
2012 offering two simple but comprehensive low-cost, flat-rate, contract-free,
unlimited talk, text and data plans – one with data and one without – using Sprint's
3G CDMA and 4G WiMax networks. Voyager Mobile recently announced plans to
significantly expand its device portfolio in the fourth quarter with the release of
tablets, portable hotspots, smartphone tethering and USB modems. Karma is a
data-only operator MVNO that touts a unique social model for sharing bandwidth
with the masses that enables 4G data to be shared based on a user level rather
than a device level.
Global Internet and Web-hosting services company Tucows recently launched
Ting, a new MVNO using Sprint's CDMA network and now its LTE network with
contract-free plans that let customers share their voice, text and data minutes
across all the devices they own. Ting officially became the first MVNO to offer an
LTE service as it began shipping the Samsung Galaxy S III smartphone. FreedomPop is a startup backed by Skype co-founder Niklas Zennstrom that plans to
offer free broadband data initially over Clearwire's WiMax network. FreedomPop
has signed a wholesale agreement with Sprint that will give the mobile broadband
provider access to Sprint's EVDO 3G, WiMax and LTE networks. FreedomPop
recently announced plans to offer tri-mode WiMax-LTE-CDMA mobile hotspot and
a "Freedom Sleeve" for the Apple iPhone 4 and 4S, along with free mobile broadband access to its customers with a data cap of 1GB per month.
While all this activity between the large MNO wholesalers and MVNOs is great for
business, the rush of competition requires both parties to closely examine their
market entry strategies and business models prior to entering into these agreements. In the traditional MVNO market, there have been three key factors that
would determine the success of these business plans:
Distribution channels: The optimal mix of distribution channels is needed to
effectively and efficiently reach and serve the target audiences that
make primary buying decisions, and a successful business plan depends
on a bottom-up forecast tied to the number of new subscribers each
channel can realistically be expected to produce.
Loyalty and churn management: Given the high cost of customer acquisition, MVNOs need to adopt comprehensive customer retention and loyalty programs that leverage customer insight to provide highly differentiated offers and incentives to minimize churn rates, increase ARPU and promote adoption by friends and family.
Technology road maps: Initial MVNO product, marketing and business
plans must be flexible and responsive to the rapid evolution of mobile
networks, service platforms, device technologies, operating systems and
applications, with a focus on technology roadmaps for their underlying
wholesale network operators.
Although these three factors are still important, they are by no means sufficient to
ensure the success of a new fourth-generation MVNO. Teaming up with the right
world-class host carrier and securing a healthy win-win contract is critical to the
success of a new B2C MVNO. The MNO partner must be fully committed to the
success and financial viability of its MVNOs, with a highly reliable and low-cost
mobile network platform that will allow them to sustain low and competitive
wholesale rates. MVNOs should be assured access to the latest technologies and
not be relegated to previous generation mobile networks or service platforms.
The best of these "shared risk" agreements should also include sufficient enablement services that allow the MVNO to minimize fixed-cost investments and deliver
their own branded mobile broadband service with as little investment as possible.
The enablement services available should include billing, customer care, valueadded services, online Web enablement, as well as the warehousing and fulfillment of highly differentiated devices. Each of these agreements should include
customized support packages so that an MVNO can focus on acquiring, servicing
and retaining its customers while meeting its unique business needs.
Conclusion: Sprint Helps B2C MVNOs Compete
The resurgence of the B2C MVNO market is being driven in part by a new approach by mobile network operators. By leveraging their 4G networks to offer
lower flexible, wholesale price points to virtual network providers that then bring
those savings to market, MNOs are optimizing their network's carrying capacity
while also boosting their bottom line. Rather than relying on third-party mobile
virtual network enablers, some MVNOs are proactively offering different levels of
customer service, billing, device fulfillment and marketing support to help MVNOs
minimize their expenses.
Sprint was the first mobile operator to offer 4G in the U.S. market, and through its
wholesale agreement with Clearwire more than 10 million subscribers are enjoying
WiMax-based 4G services in some 80 markets covering 130 million people. Sprint is
now using its own spectrum to deploy a nationwide LTE network with coverage
and capacity that will exceed its current 4G WiMax service, and broader national
coverage to 300 million people in the U.S., comparable to its EVDO data network.
Sprint's new 4G LTE network was recently launched in Dallas, Houston, San Antonio,
Kansas City and 11 suburban communities surrounding those cities. With plans to
turn up its LTE network in clusters and expand coverage on a market-by-market
basis, Sprint recently announced that the 4G LTE network build is underway in
more than 100 additional cities within its existing nationwide 3G footprint, including
Boston, Chicago, Indianapolis, Los Angeles, New Orleans, Charlotte, Miami,
Nashville, Memphis, New York, Philadelphia and Washington, D.C. As a result,
Sprint expects to offer LTE coverage of some 123 million people by the end of
2012, and Sprint's LTE mobile broadband speed and coverage of 250 million
people will be comparable to AT&T and Verizon Wireless by the end of 2013.
The Sprint Global Wholesale & Emerging Solutions unit has become much more
proactive and innovative in its effort to capture a large share of the fast-growing
fourth-generation MVNO market. Sprint is going above and beyond its competitors
to ensure each customer's success, and employs a hands-on and collaborative
approach to help each MVNO venture thrive. Sprint has recently introduced a
new packaged solution of turnkey wireless solutions and support, enabling any
business to become a wireless provider with minimal investment and risk – and ride
the revenue stream it creates.
The new package, Single Source Enablement, rounds out a portfolio of enablement services from Sprint that lets any MVNO, from entrepreneurs to enterprises,
deliver their own branded wireless service with as much or as little investment as
they like. Single Source Enablement can cover all systems, processes, customer
care, online Web enablement and the warehousing and distribution of devices, so
that an MVNO can focus almost solely on acquiring customers. The model can be
customized to meet each MVNO's unique business needs. Specialized customer
loyalty programs and other value-added products can also be supported under
this model. With the addition of Single Source Enablement, Sprint has developed
three different Wireless Enablement Solutions to meet the varying needs of its
wholesale MVNO customers. Sprint's product offering and implementation support
allows each MVNO the freedom to focus on growing their business in a meaningful
way. With Sprint Wireless Enablement Solutions, businesses access Sprint's products,
receive help enabling the service and get ongoing support to become a winning
fourth-generation wireless MVNO.