2013 07-22 mvno-lte_market watch_en

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J’son and Partners Consulting presents main results of the research «MVNO on LTE networks».

The main goal of the report – the analysis of the world and Russian virtual operators markets that provides

services based on the LTE networks and evaluation of this model development and expansion to the 4G

market in general. Markets that had been researched: USA, Japan, South Korea, Australia, Poland and

Russia.

Per-requisites for creation MVNO on LTE networks

The deployment of LTE networks for operators is connected with high costs for equipment, upgrading of

transport networks, obtaining the frequency range and the conversion (in a number of countries, including

Russia). Attracting partners (the virtual operators) allow companies, in particular, share infrastructure and

reduce costs, to launch the product and expand its presence geographically.

In most cases and in this in particular, one of the main function of the controller - is to maintain a high

level of competition and the creation of opportunities for new comers to access the market. In most

transition economies actual LTE market competition is not high enough for a number of reasons, for

example, due to the lack of range, the concentration of key assets in the possession of a few group of

operators, etc. Thus, the development of the MVNO model may be one of the drivers of increased

competition and market recovery.

In some countries, regulators list the requirements for the provision of 4G in licenses for LTE to third-party

companies, which is one of the most important drivers for the development of the MVNO based on LTE

networks.

MNVO could be used to attract targeted basic user groups of subscribers that are focusing on new

technologies, including LTE. Virtual operators tend to be more flexible and resourceful compared with MNO,

and can use advantage of the models: "Multi - MNO" and ABC (The Always Best Connected), in which the

connection is made to more than one MNO.

MVNO on LTE networks worldwide

In the leading LTE countries several MVNO operate, providing variety of tariffs (postpaid and prepaid) for

different users groups, also smartphones, WI-FI routers and other users’ appliances.

The operators with an average or small subscriber base are mostly interested in development of MVNO

based on their own networks.




The first MVNO on LTE networks were mobile operators, that didn’t get the range in the frequency range,

or by any other reasons that are blocking their access for LTE.

There are dozens of MVNO projects based on LTE networks launched in the world. The leading countries

by number of projects: Australia, Japan and USA:

Table 1. Major MVNO operators on 4G LTE networks in the world

Operator Country MNO Launch date

Virgin Mobile Australia Optus Sep.12

iiNet Australia Optus Oct.12

Exetel Australia Optus Oct.12

Boost Mobile Australia Telstra (3G) 2013 (plan)

Amaysim Australia Optus (3G) 2013 (plan) IIJ (Internet Initiative Japan) Japan DoCoMo Feb.12

Japan Com. Inc. Japan DoCoMo Dec.12

Ratuken Japan e-Mobile Oct.12 JCB Japan e-Mobile Feb.13 Ting USA Sprint Aug.12

Virgin Mobile USA USA Sprint Sep.12 Boost Mobile USA Sprint March.13 Credo Mobile USA Sprint Sep.12 FreedomPop USA Sprint 2013 (plan)

FIDO Canada Rogers Aug.12 Megafon Russia Yota (Scartel) May.12

Cyfrowy Polsat Poland Mobyland и CenterNet Aug.11 Plus Poland Aero2 Nov.11

Phones4U UK EE 2013 (plan)

Resource: Tolaga Research, J’son & Partners Consulting, April 2013

MNVO on LTE networks in Russia

Yota Networks (infrastructure division of LLC “Skartel”, trade mark Yota) launched the first commercial LTE

network in Novosibirsk in the beginning of 2012. In Feb.2012 “Megafon” and “Skartel” signed the

agreement for common use of infrastructure in order to develop LTE networks. Practically, mobile operator

is working as “virtual operator” on the network of Yota Networks that at the same time using the currently

available “ Megafon” infrastructure (platform for basic stations, fiber-optic networks etc.)

At the end of 2012 “Yota” and “Megafon” (that provide 4G services based on Yota Networks network)

served around 700k and 150k subscribers accordingly.

The key constraining factors for LTE development include:

Limited range of cell phones (smartphones, PC-Pad) с поддержкой LTE, высокие цены;

Feature of monopoly (very low rate of competition) and as a result high tariffs on LTE;

Inability to use smartphones that support LTE in the “Russian” frequency ranges.

Problems associated with the frequency spectrum for LTE (in terms of frequency deficiency -

the lack of a mechanism of technical neutrality, the need for conversion, the distribution of

frequencies in competitions, not auctions, etc.)

Technological neutrality, distribution via the auctions the ready-for-use ranges (instead of very pricey

conversion schemes, etc) – are the last barrier for many countries.




The first “virtual prototype” operator in Russia was “Corbina Telecom”. The company provided cellular

services on the DAMPS standard based on the “Vimpelcom” network, in 2007 subscribers have been

transferred to GMS standard.

Euroset – the first company that called itself a virtual operator. In 2005 “Euroset” and “Narodny

Telephone” have made the pilot zones of MVNO in several Russian regions.

In 2012 the subscriber base of MVNO increased for 20% and was around 1.4 mln subscribers. More than 9

mln. of numbers were provided to the virtual operators and around 40 mln. has been reserved.

MVNO model is not very popular and properly developed in Russia. The basic operators do not have a

positive legislative drive for providing resources to the virtual operators. Those who are currently working

on the bases of MVNO model need the improvements in the legislation such as – to ease the term of

connection to the currently working cellular operators.

The agreement terms that “Scartel” is providing to the operators are not acceptable to the majority of

them. According to J’son & Partners Consulting this is the main barrier for LTE market development.

Operators are forced to build LTE networks themselves and this process usually takes a lot of time.

Market development tendencies and prospectives

Worldwide

MNVO on LTE networks model will continuously develop and the number of virtual operators on 4G

networks will increase.

There are several key trends that could be seen on MVNO based on LTE market:

In the leading LTE countries several MVNO operate, providing variety of tariffs (postpaid and

prepaid) for different users groups, also smartphones, WI-FI routers and other users’

appliances.

In the MVNO development based on the own LTE networks are usually interested the average

operators (Sprint in USA, Optus in Australia etc.)

As the first MVNO on LTE networks often serve mobile operators themselves, who could not get

on the frequency range on the auction, or, for various reasons (lack of technical neutrality,

range is occupied by military, etc.) cannot currently use the range for LTE (eg "MegaFon" in

Russia, Algar Telecom in Brazil, etc.).

The business model of the virtual discount-operator is changing in a more complicated model

that includes flexible online tariffs (for example Zact, USA) and 4G networks with different

standards: WiMAX and LTE (Asahinet, Japan).

MVNE model that gives the opportunity to develop MVNO project is becoming very popular.

The contract between one MVNO and several MNO simultaneously could be named the most

prospective business model.

The main market development tendencies of MVNO on LTE networks are:

There are still no major results from the “pushing” of commercial LTE networks market in Russia

by Russian regulator.

Key market players – owners of frequencies on LTE that particularly not interested in the MVNO

market development, nevertheless in the positive surrounding are ready to be “virtual operator”

in such regions, where there is no LTE.




Average and small operators and non-telecom companies are ready to become the virtual

operators, including MVNO on LTE, but the major operators do not provide the access to their

networks (by different reasons, such as, lack of capacity, overfilled networks, lack of interesting

and perspective business plans). The major operators practically building the protective tariffs

for potential MVNO.

Russian MVNO on LTE networks market development perspectives will be mainly defined by

the sectoral regulator. The main goal for major mobile operators is to develop its own LTE

network and in most cases is not interested to lease their networks for other companies that

could be competitors for them.




The detailed information is presented in the full Report version «MVNO on LTE networks»

(120 pages)

Content

Introduction

Resume

1. The development of cellular network technologies in the world

1.1. Level of cellular network development worldwide

1.1.1. General indicators of development of cellular network technologies in the world

1.1.2. Key indicators of development of cellular network by regions

1.1.3. Key indicators of development of cellular network by standards

1.2. The development of LTE networks globally.

1.3. Key indicators of construction projects of LTE networks operators

1.3.1. USA

1.3.2. Japan

1.3.3. South Korea

1.3.4. Australia

1.3.5. Poland

2. Development of MVNO model in the world

2.1. History of development of MVNO model in the world

2.1.1. Service evolution on the networks of different generations

2.1.2. Market development: dynamic of market players and subscribers’ base

2.1.2.1. USA

2.1.2.2. Japan

2.1.2.3. South Korea

2.1.2.4. Australia

2.1.2.5. Poland

2.2. Types of market players MVNO

2.3. Legislative regulation MVNO

2.3.1. Role of regulator in the market development MVNO

2.3.2. Examples of regulation in different countries

2.3.3. Classification of the basic approaches of regulation

3. Background for MVNO development on LTE networks

3.1. The high cost of network deployment and a large payback for LTE networks

3.2. Underutilization of LTE networks on the first stage

3.3. Deficiency of frequencies for a wide range of players, low competition

3.4. Other pre-requisites

4. MVNO on LTE networks in the world

4.1. MVNO on LTE networks: key players and operators by regions

4.1.1. USA

4.1.1.1. Ting

4.1.1.2. Virgin Mobile USA

4.1.1.3. Boost Mobile

4.1.1.4. FreedomPop

4.1.1.4. Zact

4.1.2. Japan




4.1.2.1. Asahinet

4.1.2.2. Rakuten

4.1.2.3. IIJimio

4.1.2.4. JCI

4.1.3. South Korea

4.1.3.1. CJ HelloVision

4.1.3.2. Annex Telecom

4.1.3.3. SK Telink

4.1.4. Australia

4.1.4.1. Virgin Mobile

4.1.4.2. iiNet

4.1.4.3. Exetel

4.1.5. Poland

4.1.5.1. Polkomtel Plus

4.1.5.2. Cyfrowy Polsat

4.2. Business model of MVNO on LTE networks

4.2.1. MVNO Market evolution

4.2.1.1. MVNO growth and diversification

4.2.1.2. MVNO market share and 3G data volume

4.2.1.3. Income levels from transfer of data and voice

4.2.1. One virtual operator on the networks of several operators (Multi-MNO)

4.2.2. Always Best Connected (ABC)

4.2.3. The use of ABC model for users’ data packages

4.2.4. Policy management

4.2.5. Possibilities of MVNO to follow the routing policies

4.2.6. Managing the fees of MVNO

4.3. Barriers and drivers

4.3.1. Wholesale business drivers on LTE networks for MNO

4.3.2. Drivers for switching to use LTE networks for virtual operators.

4.3.3. Initiatives to move towards VoLTE

4.3.4. Barriers for MVNO market development in management sphere.

4.4. Trends and market prospects.

5. MVNO on LTE networks in Russia

5.1. Development of LTE networks in Russia

5.1.1. Key indicator of market development of cellular network by standards

5.1.2. Construction projects of LTE networks

5.2. MVNO in Russia

5.2.1. MVNO market development in Russia

5.2.2. Legislation of MVNO in Russia

5.3. Key players and projects on MVNO market on LTE networks in Russia

5.3.1. Terms of interaction between «Skartel» и «Megafon»

5.3.2. Agreements of cooperation between «Skartel» and other mobile operators

5.3.3. MTS

5.3.4. Rostelecom

5.3.5. Vimpelcom

5.3.6. Osnova Telecom




5.4. Trends and market prospects

6. Summary and conclusion

7. Attachments

7.1. MVNO Operators’ profiles on LTE networks

7.1.1. Life Mobile (UK)

7.1.2. ASAHI Net (Japan)

7.1.3. Ting (USA)

7.1.4. IIJmio

7.1.5. CJ Hello Mobile (South Korea)

7.1.6. Extel (Australia)

7.1.7. FreedomPop (USA)

7.1.8. Rakuten Super WiF (Japan)

7.1.9. Polkomtel Plus

7.1.10. Fido (Canada)

7.2. MVNO japan tariffs, providing services on LTE networks by NTT DoCoMo operator




List of pictures Pic. 1. Dynamic of cellular networks connection by worldwide regions, 2012 Pic. 2. The cellular networks penetration rate in regions of the world, 2012 Pic. 3. Dynamics of connection to cellular networks by technologies in the world, 2009-2018 Pic. 4. The amount of commercial networks and subscribers of LTE networks worldwide, 2012-2017 Pic. 5. The amount of MVNO by worldwide regions, 2012 Pic. 6. The amount of MVNO in USA by operators, 2013 Pic. 7. MVNO subscribers’ share in the total mobile subscriber base in USA, 2004-2010 Pic. 8. The amount of MVNO in Japan by operators, 2013 Pic. 9. Brand shop Disney Mobile in Tokio Pic. 10. Changes in the subscribers’ base of mobile operators and MVNO in South Korea from Jan. 2012 to Feb. 2013, thousands Pic. 11. The changes in the amount of subscribers of MNO and MVNO, Jan. 2012 – Feb. 2013, thousands Pic. 12. Subscribers’ base dynamic of MVNO in South Korea, Pic. 13 Comparison of Korean cellular operators of ARPU and MVNO Pic. 14. MVNO Subscribers’ share in the overall amount of subscribers of cellular networks in Australia Pic. 15. The amount of MVNO in Poland by operators , 2013 Pic. 16. Online calculation of the virtual operator, Zact (США) Pic. 17. MVNO subscribers’ dynamic in the EU countries , 2004-2009 Pic. 18. Share connection dynamic via 3G and VoIP shares, 2004-2009 Pic. 19. Revenue changes from data transfer Pic. 20. Revenue changes from voice and data Pic. 21. Mobile connection share, average income from the data and voice transfer. Pic. 22. Types of MVNO depending on the level of infrastructure’s ownership Pic. 23. Business model Multi MVNO Pic. 24. Example of policy management of access to MVNO network Pic. 25. Diversification of the currently working basic stations of the cellular networks divided by the basic technologies and Federal Russian Districts, pcs. Pic. 26. Ration in % of the used technologies of mobile radio communications Pic. 27. Market shares of operators in Russia by the number of subscribers, 2012 г. Pic. 28. Map: commercial LTE networks in Russia Pic. 29. Market shares of MVNO in Russia by the number of subscribers, 1H2011 г. Pic. 30. Typical launching scheme of MVNO in Russia

List of tables Table 1. Leading operators of LTE in the world by the number of subscribers Table 2. LTE operators in USA Table 3. LTE operators in Japan Table 4. LTE operators in South Korea Table 5. LTE operators in Australia Table 6. LTE operators in Poland Table 7. First MVNO on 2G, 3G и 4G networks Table 8. MNO and MVNO in South Korea Table 9. Subscribers’ base and share dynamics of MVNO in South Korea Table 10. Share dynamic of MNO и MVNO in South Korea, 2011-2013 Table 11. MVNO, MVNA и MVNE: Service creation chain Table 12. Classification of MVNO by infrastructure features

Table 13. Classification of countries on approaches to the regulation of MVNO Table 14 Basic MVNO on 4G networks in the world Table 15. Types of MVNO Table 16. Pros and cons of models: Full MVNO, Multi-MNO и ABC Table 17. Number of current RES base stations (BS) major mobile operators Table 18. Commercial LTE networks in Russia Table 19. Major MVNO/pre-MVNO projects in Russia Table 20. MVNO market in several EU countries and in Russia Table 21. Postpaid tariffs with monthly fee less than ¥1 000 per month Table 22. Tariffs with monthly fee ¥1 001 - ¥2 000 per month Table 23. Tariffs with monthly fee ¥2 001 - ¥2 500 per month Table 24. Postpaid tariffs with monthly fee more ¥2 501 - ¥3 000 per month Table 25. Prepaid tariffs with monthly fee more ¥3 001 - ¥3 500 per month Table 26. Postpaid tariffs with monthly fee more ¥3 501 - ¥4 000 per month Table 27. Postpaid tariffs with monthly fee more ¥4 000 per month




List of companies mentioned in the Report

Vimpelcom Center Net KT Powertel Shentel Dalsvyaz CJ Hellow Vision Kyocera Com. Systems SK Telecom

Evroset Co LG Uplus SK Telink ZAO «Smars» Credo Mobile Lexus Softbank Mobile ZAO «Tele2» Crieket mBank Mobile Song Combina Telecom Cyfrowy Polsat MCI Communications Sonofon Megafon Dell Metro PCS Spartan Capital Holdings Mts DDI Pocket MiSpot Spire Wireless Narodniy Telephone Disney mobile Mobyland Sprint Nextel OOO «Skartel» MSIP Mosaic Telecom Sprocket Wireless Osnova Telecom eAccess МОНС Talkline Strata Networks Rostelecom eMobile MuCoSo B.V. Swisscom ACMA Ericsson Next Wave Telecom TB Cyfrowy Polsat Aero 2 Everything Everywhere NBN Co TDC Alaska Communication Exetel NTT DoCoMo Tele 2 Algar Telecom Fido Oriental Land Telstra Amaysim FreedomPop Once Telecom Tesa

Annex Telecom Google Optus Thumb Cellular Apple GSA P4 T-Mobile Asahinet Hewlett-Packard Page Plus Cellular Toyota Motor AT&T Hitachi Information System Panhandle TPG Internet Ausgrid iiNet Peoples Telephone Coop. Tucows BBIQ Mobile IIJ Pioneer Cellular UQCommunications Bend Broadband IIJimio Phones 4u US Cellular BigAir JCB Play Verizon Wiralless Bluegrass Cellular JCI Polkomtel S.A. Vertu mBank Mobile KCT Polska Telefonia Cyfrowa Virgin Mobile Boost Mobile KDDI Ratuken Vadafone BT Cellnet KIDSI Roy Morgan Willcom Cellcom Korea Investment&Securites Sense Communicaion WirelessIntelligence Centertel Korea Telecom Sferia Zact

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situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication

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