The mobile virtual network operator (MVNO) business has taken some lumps, but as mobile competition shifts focus the MVNO business model is reshaping itself.
"Stay tuned," says John Gauntt, eMarketer senior analyst and the author of the just-published Mobile Virtual Network Operators: Midlife Crisis or Growing Pains? report, "a major overhaul of the MVNO business is fast approaching and it will involve more revenue sharing between operators and brands rather than the ‘cost plus’ model that predominates today."
In fact, eMarketer estimates that the MVNO market in the US and the UK will generate $20.7 billion in revenues by 2010.
"Now, though, high-profile stumbles out of the gate by some heavily branded — and funded — MVNOs have coincided with financial analyses suggesting that most MVNOs are just breaking even or losing money, even as the table stakes for launching an MVNO climb well into the hundreds of millions," says Mr. Gauntt. "As an example, in the US, Mobile ESPN is in the midst of what can only be described as a restart."
The paradox is that this industry bad news comes at a time when changes in the competitive dynamics of the wireless industry as a whole will make MVNOs more important rather than less.
"Overall wireless competition in the US and the UK is shifting from a battle for mobile market share to a battle for mobile wallet share," sys Mr. Gauntt. "Given that mobile voice is already a commodity, the ability to differentiate based on non-voice, brand-oriented factors becomes all the more important."
The US is seen as one of the most important global MVNO markets because it is not yet saturated, as is the case in most Western European markets. The idea of using MVNOs to penetrate some of the remaining consumer demographics such as ethnic markets (eg, Asian, Hispanic, etc) and more tightly defined usage markets (eg, kids, seniors) still makes sense.
The following chart shows how many MVNOs were operating in the US in mid-2005; since then, all of the planned MVNOs have launched.
eMarketer projects that the US MVNO market at the end of 2006 will see 18.2 million subscribers, which works out to about 8% penetration of a total US mobile market of 288.6 million.
"From a revenue standpoint, those subscribers will generate $9.7 billion, or $44 per month of blended (voice and data) average revenue per user," says Mr. Gauntt.
By 2010, eMarketer forecasts that US MVNOs will achieve 12% market penetration (around 35 to 36 million subscribers) and generate over $17 billion in total revenues.
"Stay tuned," reiterates Mr. Gauntt. "The MVNO picture is changing fast."