mvno business essentials

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MVNO Business Essentials

This document has been created by NEREOBUSINESS CONSULTANTS. It is not complete unless supported by the underlying detailed analyses and oral presentation.


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THE MVNO BUSINESS

LAUNCHING A MVNO

CONCLUSIONS

ABOUT US

INDEX


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THE MVNO BUSINESSWhat is a MVNO

Agreement at price level

Quality management (SLAs/KPIs)

Mechanisms to garantee the

relationships evolution (newservices, price updateprocedures,)

Value proposition (SAC, productsand services)

Efficient management of the

customers retention (churn, SRC,customer care)

Essentially, MVNO business consists in managing two key relationships:Mobile Network Operator (MNO) and the end-user

MVNO

MNO END-CUSTOMERS

A Mobile Virtual Network Operator (MVNO) provides mobile services without owningspectrum and usually relies on the Mobile Network Operators (MNO) network

infrastructure.


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Distribution

Cost

BundlingSegmentation

Brand

MVNO

Handset /Aplications

... which means that MVNO business is mostly a market segmentation game for maturemarketplaces.

THE MVNO BUSINESSMarket entry strategies


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Services &IT Platform

Ownershipand OperationOf the MobileNetwork

CustomerCare

Service

Marketing& Sales

Services &IT Platform

CustomerCare

Service

Marketing& Sales

Ownership ofMiblie Network

Distribut.

Distribut.Push

Leveraging on selected partners through outsourcingSpecific offers for each

market segment

Only one Market

Market Segments

Executed in-house Outsourced to an external partner (MVNO)

Befor

Currently

...by creating offersaligned to the needs of each of the existingsegments

...by dividing the value

chain and allowing theentrance of new playersthrough:

Radically reducing costs(increasing the EBITDA)

Reach new consumers inmarket segments not yettapped into (newdistribution channels)

In saturated markets, competition becomes a market-share game, so this new challengeleads MNOs to seek for MVNO partnerships to sustain the overall market growth

MVNO allow MNOs to address specific market niches which they have not yet tapped into, whileincurring lower Subscriber Acquisition Costs (SAC)adding efficiency to the value chain

Operation ofMobile Network

Pull

Distribut.

Distribut. Push

Pull

Pull

THE MVNO BUSINESSHow MVNOs create value for MNOs


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WithoutMVNO

WithMVNO

SubstantiallyLower

SAC ARPU

Slightly Lower

The Subscriber acquisitioncost (SAC) in the wholesalebusiness for an MNO is zero,due to it falling on the MVNO.

The Average Revenue perUser (ARPU) in the wholesalebusiness is only slightly inferiorto the ARPU of the retailbusiness for the MNO.

In this way, the EBITDAmargin% of the wholesale

business is much higher thanthat of the retail one for MNOs.For the Host-MNOs, the EBITDA margins for customers acquiredby MVNO is 3x the retail one

Besides being a source of growth for the client portfolio, MVNOs create significantadvantages for the MNOs in terms of improving its business profitability

EBITDA margin

Lower margin %

THE MVNO BUSINESSBenefits of MVNOs for the MNOs

WithoutMVNO

WithMVNO

WithoutMVNO

WithMVNO

IMPACT OF MVNO BUSINESS ON MNOs FINANCIALS

MVNOs help MNOs to drastically improve their EBITDA margins by reducing SAC costs withonly a slight reduction in ARPU

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THE MVNO BUSINESSMVNOs in Europe

Number of MVNOs and their market share in Europe (end of 2009)

MVNOs have been quite successful in garnering market share in most European countries

Source: Nereo Analysis with company data

15%

MVNOsMarket share

Spain: 22

(Simyo, Lebara)

Portugal: 5(UZO, Tele2)

France: 11(Carrefour, Tele2, Virgin)

Luxembourg:2(KISS, Transatel)

Belgium: 35(Simyo, Transatel)

Netherlands: 39(Simyo, Tele2)

Norway: 16

(Mobyson, Sense Talkmore)

U.K.: 25(Virgin, Tesco)

Finland: 9

(Saunalahti, Oyj)

Sweden: 18(ACN, Sense)

Germany: 29(Ay yildiz, Simyo)

Austria: 5(Yesss!, Tele2)

Denmark: 16(CBB Mobil, Telmore)

Italy: 14(COOPVoce)

Switzerland: 5(COOP Mobile, Tele2)


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Tele2/Sunrise - Switzerland

Tele2 acquired by SunriseValue: 33 million EUR Price per Customer: 63 EURYear: 2008

Sense/TeliaSonera - Norway

Virgin UK/NTL - UK

Virgin UK acquired by NTL

Value: 1,060 million EUR Price per Customer: 318 EURYear: 2006

Bibob/Telenor Denmark

Hutchison/CPW - Germany

Allmobility/Vodafone - Germany

Allmobility acquired by Vodafone AGValue: 25 million EUR Price per Customer: 62 EURYear: 2007

Sense/TeliaSonera - Sweden

Saunalahti/Elisa - Finland

CBB acquired by SonofonValue: 45 million EUR Price per Customer: 103 EURYear: 2004

TELE2/VIRGIN - France

Tele2 acquired by VirginValue: 56 million EUR Price per Customer: 140 EURYear: 2009

THE MVNO BUSINESSMVNO Transactions Exit strategies

MVNO transactions across Western Europe in the last few years serve to highlight thatexit strategies have been successfully achieved by investors.

Hutchison acquired by CPW(Carphone Warehouse)Value: 52 million EUR Price per Customer: 96 EURYear: 2003

Bibob acquired by Telenor DenmarkValue: 12.5 million EUR Price per Customer: 181 EURYear: 2009

Sense acquired by TeliaSonera

Value: 189 million EUR Price per Customer: 104 EURYear: 2004

Chess/Sense acquired by TeliaSoneraValue: 185 million EUR Price per Customer: 457 EURYear: 2004$

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THE MVNO BUSINESS

Operational Models

LAUNCHING A MVNO

CONCLUSIONS

ABOUT US

INDEX


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Selecting a specific MVNO operational model depends mostly on the commercial strategythat the new player wishes to implement in order to tap into the market

-

+Branded Reseller Enhanced SP Full MVNO Network Operator

Alternative MVNO structures

Level of ownership ofthe mobile networkinfrastructure

MVNOsTelecommunicationcompanies. MultimediaCompanies Utilities Retailers Niche Operators

SIM: not self owned Prices: are based on

negotiations with an MNO undera retail-minusregime for theMNO prices

Brand: own brand or co-brandingwith the MNO

( powered by ).Business Model:

Revenues: based onrevenue sharing with theMNO

Costs: marketing, sales,distribution

Service Provider

SIM: self owned Prices: own and independent

from the MNO Brand: own brand or co-

brandingwith the MNO( powered by ). Clientownership possible

Business Model:

Revenues: from traffic ofits own customers

Costs: wholesale accesstariffs, marketing, sales,distribution. OPEX andCAPEX associated to ITplatforms

No network infrastructure

Can potentially have a VSplatform No capability to set prices No ownership of the client

Radio Access Network Complete networkinfrastructure

No network infrastructure Own VAS platform

Own billing platform Own Customer Care Ownership of the client

With network infrastructure(no radio)

Own VAS platform Own billing platform Own Customer Care Ownership of the client


from the MNO Brand: own brand. Complete

ownership of the client Business Model:

Revenues: from traffic of

its own customers

Costs: wholesale access

tariffs, marketing, sales,

distribution. OPEX and

CAPEX associated to IT

platforms


from the MNO Brand: own brand. Complete

ownership of the client Business Model:

Revenues: from traffic ofits own customers

Costs: wholesale access

tariffs, marketing, sales,

distribution. OPEX and

CAPEX associated to IT

platforms and network

elements

No network infrastructure Can potentially have a VS

platform Capability to set prices Possible ownership of theclient

THE MVNO BUSINESSOperational Models (II)

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MVNO OPERATIONAL MODELSEconomics associated to each MVNO model

BRANDED RESELLER SERVICE PROVIDER

IncomingRevenues

OutgoingRevenues

Host-MNO

Host-MNO%

% of revenues +commission per gross add

MVNOMargin

IncomingRevenues

OutgoingRevenues

Host MNOCharges

MVNOMargin

FULL-MVNO

IncomingRevenues

OutgoingRevenues

Host-MNO Charges(outbound calls)

HostMNO Charges(incoming calls)

MVNOMargin

MVNO has no control over retail pricing nor

over the client, who belongs to the H-MNO

MVNO agrees with the Host-MNO a certaingross margin over the existing retail offer

The MVNO may also receive a commission

per client acquired Interconnection revenues from incomingtraffic go directly to the Host-MNO

MVNO can establish its own retail rates and

owns the client, but not the IMSIs

Wholesale rates may vary with the type ofcall/sms (destination):

On/Off Net

National / International Interconnection revenues from incomingtraffic go directly to the Host-MNO

MVNO has full control over the retail pricing

and also over the client with its own IMSIs

The MVNO pays the Host-MNO a certainrate per min. for outgoing calls (A-leg) aswell as for incoming calls (B-leg) to its end-

users Interconnection revenues from incomingtraffic go directly to the MVNO

MVNOs can be classified broadly into the following 3 models, each with their specificeconomic implications for the business

Host-MNO

Full-MVNO operational model provides higher margins and total independence from the Host-MNO,and it requires also the lowest effort to be implemented by the MNO

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Depending on the MVNO operational model and the segment of the target marketselected, payback of the investment can be expected usually between 4 and 6 years

Project Peak-funding 4-6 Mill. USD

EBITDA Margin(% of revenues)

10-15%

CAPEX 2 Mill. USD

Branded Reseller

7-10 Mill. USD

15-20%

3-5 Mill. USD(1)

Service Provider

10-15 Mill. USD

20-25%

12-15 Mill. USD(1)

Full MVNO

Subscr. Ownership The Client belongsto the MNO

The Client belongsto the MVNO

The Client belongsto the MVNO

Source: NEREO analysis

THE MVNO BUSINESSOperational Models Main Business Ratios

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THE MVNO BUSINESS

LAUNCHING A MVNO

CONCLUSIONS

ABOUT US

INDEX

LAUNCHING A MVNO


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LAUNCHING A MVNOPhases

MVNO Agreement

with Host MNO

Phase I Phase III

The Launch of a MVNO can be broken down into 3 seperate Phases:

Phase II

START UPPROJECT PLAN -LAUNCH

DEFINITION OFSTRATEGICPOSITIONING

NEGOTIATIONSWITH MNOs

A

BUSINESSPLANNING

B CC

IMarket Entry Analysis

Negotiations LaunchPreparation

Start-Up+II

D

III

Management Decision

(Go No Go)

LAUNCHING A MVNO


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Offers for churners

Positioning

Products& Services

PricesDistribution

Channels

ClientManagement

Branding &

Communication

The strategic positioning has to be examined in the light of the following variables:

Offersfornewusers

LAUNCHING A MVNOStrategic Positioning

Offers for churners

Offersfornewusers

INDEX


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THE MVNO BUSINESS

LAUNCHING A MVNO

CONCLUSIONS

ABOUT US

INDEX


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MVNOs are an instrument to stimulate the growth of mobile market once it is

approaching or has reached saturation in terms of penetration

The MVNOs create value in a mature market by segmentation, with offers focussedon the target market and leveraging their assests to introduce efficiency in thevalue chain as a whole

MVNO experiences in many countries have demonstrated the importance of anadequate regulatory frameworkin helping the MVNOs flourish.

The regulatory framework should explicitly define the rights and obligations applicable

to the agents in the business relationship; the MVNO, the Host MNO & theConsumer

CONCLUSIONES

INDEX


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THE MVNO BUSINESS

LAUNCHING A MVNO

CONCLUSIONS

ABOUT US

INDEX

CREDENTIALS


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NEREO has an extensive experience in the mobile telecoms space worldwide.

CREDENTIALSTelecom Practice

Assistance in thevaluation of a local GSMoperator

Technical assistance for

defining MobileTermination Rates

Assessing the feasibility ofMVNO business for a Saudibased company

Valuation of afixed and mobiletelecom player

Negotiating a MVNOagreement in Oman for aBahraini Telecom Firm

Assistance in thedevelopment of a PrivatePlacement Memorandumfor a Kuwaiti Firm

Entry strategy within theSpanish market for one ofthe leading pan-Europeanmobile operators

Providing support to oneof the Spanish MNOs inconnection with regulatoryissues

Carrying out DueDiligence processes on

European MVNOs for aMiddle-Eastern client withaims of acquiring saidoperators

MVNO strategy in Spainfor a well known

American Media andMovie Company

Assistance in theacquistion of a TVBroadcast InfrastructureProvider in Spain

Developing the entry strategywithin several European marketfor one of the leading pan-European mobile operators

Developing the entrystrategy into theSpanish market for aGerman MVNO

Consultancy formultinational IT firm forSMS Premium serviceswithin the Spanish market

Assistance to amultinat ional IT firm intopics related to Mobi leNumber Portability

MVNO strategy andnegotiations for an ethnicMVNO

Defining the MVNOstrategy and Negotiationswith Host MNO for anIslamic MVNO in Malaysia

MVNO strategy andlaunch activities in CostaRica

CREDENTIALS


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MVNO Experience Geographical Distribution of MVNO projects

CREDENTIALSOur MVNO Expertise (I)

MVNOFunctional Model

Branded Reseller

Service Provider

Full-MVNO

PROJECTS EXECUTED

3

4

14

EUROPE

17 Projects

Middle-East &Asia

3 Projects

We have executed over 20 projects in the last 4 years leveraging on our MVNO Specialisation

NEREO has assisted clients in identifying business opportunities, negotiating with HostNetwork operators and launching MVNOs of all models in over 10 countries.

Central America

1 Project

CREDENTIALS


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NEREO has gained a unique experience in developing projects of all business models indifferent countries of the world

COUNTRY MNO MODEL

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

ON GOING

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

FULLMVNO

COUNTRY MNO MODEL

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CREDENTIALSOur MVNO Expertise (II)

CREDENTIALS


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BRANDEDRESELLER

SERVICEPROVIDER

SERVICEPROVIDER

SERVICEPROVIDER

BRANDEDRESELLER

BRANDED

RESELLER

n/d

n/d

COUNTRY MNO MODEL COUNTRY MVNO MODEL

FULL

MVNO

FULLMVNO

FULL

MVNO

FULLMVNO

25

ENHANCEDSERVICE

PROVIDER

CREDENTIALSOur MVNO Expertise (III)

n/d

FULLMVNO


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www.nereoconsulting.com

NEREO BUSINESS CONSULTANTS

C/ Jorge Juan, 15. 28001 Madrid

+34 914 35 35 61