Full MVNO and Light MVNO

Light MVNO and Full MVNO business models

I thought it is helpful to understand the fundamental differences between the two business models among virtual  mobile network operators, namely the  Light MVNO and the Full MVNO models. The differences I highlight below may seem a very black and white, but I’m looking primarily to spot the key differences to a non-specialist audience.

Definition What is a MVNO: a MVNO is a virtual operator, i.e.  it manages and distributes a range of mobile phone services under its trademark(s) by using network services supplied by a Third Party Mobile operator, at least mobile transmission services as only licensed  mobile operators  the country are allowed to deploy such transmission equipment. A MVNO has therefore a long-term contractual relationship with at least one physical mobile host operator, so I can  deliver mobile telecom services. However, the degree of  service outsourcing by an MVNO to its host operator varies with the economic model under which it operates.

Light MVNO model in practice This model was the only permitted  in France by host mobile operators (three incumbents) until mid-2011: basically the MVNO subcontracts all the technical operational service to the host operator, the MVNO focuses on customer relations, marketing and billing. The MVNO interfaces with the host operator’s systems so that the MVNOs customers details are entered in the host operator’s central computer (the heart of  the mobile network, the brain, the HLR or Home Location Register) , and sio that the MVNO can retrieve billing so that it can edit the invoices to its customers. This model has changed little since the mid-2000s, although, some country specific developments have emerged as the opportunity for MVNOs to manage by themselves to international traffic in France.

The full MVNO model in practice The Full MVNO model is not new: it was the only one possible in some Nordic countries in the early 2000s, but it has been authorized by the French host operators only from mid-2011 . Technical responsibility for the MVNO is more important because it builds a core network with own  HLR: in fact the full MVNO mainly uses its host operator’s radio base stations (which manage the GSM , 3G or 4G frequency spectrum) necessary to insure access to the terminals of its customers. However the full MVNO masters other aspects of a mobile network operation by operating its own HLR: the full MVNO manages by its own its customer base and associated services and produces its own SIM cards independently fromthe host operator.

Actors and interactions. Both models are based on a multi-annual service contract between the MVNO and the host operator. IT services providers, MVNE (Mobile Virtual Network Enabler) or MVNA (Mobile Virtual Network Aggregator) can provide technical services under the responsibility of MVNO – the MVNA developing a common infrastructure to multiple small MVNO that individually would not have the minimum size to justify operating such services.

The marketing implications The marketing process radically differs depending on the chosen MVNO model . Usually a light MVNO addresses  a niche market that the host operator does not address well. As the light MVNO does not master its services (no HLR), its product /service offering is usually built from basic building blocks of the own offering  of the host operator (any changes are expensive and time consuming for the MVNO , although it now can deal freely with its international traffic). The light MVNO therefore usually have an offer ing as a subset  of the one of the host operator: the light MVNO’s marketing skills are very much focus on pricing where vthey can be very innovative. SIMs distributed by the light MVNO are activated only on the operator’s network host: SIMs  must be recognized in the HLR of the host operator, as allowed to use the network. A full MVNO does operate its own HLR, and so completely determine the services it wants to provide to its customers, regardless of the host operator. The  Full MVNO produces its own SIM cards, which are independent from its host operator.

Technical implications By construction, the full MVNO has a far more important technical implication in the services than the light MVNO. The full MVNO must build and operate its core network- the HLR and the main core switches (voice, data, SMS)- Of course transfer prices between the host operator and the MVNO must reflect the fact that the full MVNO performs part of the network services, thus part of the value added. The full MVNO must also manage all its interconnections with other operators – it also receives income from other operators for call termination-, while the light MVNO relies on its host operator.

Funding implications You can easily conclude that these two models have very different funding profiles. : The establishment and operation of a core network require significant investment in exchange for the freedom it provides. However, the weight and the risk of such investments may be limited: either the MVNO expands its addressable market, such as being present with the same core network in several countries, or an MVNE and MVNA technical partner assumes the risk of implementing a core network shared between several MVNOs.

The implications in terms of sustainability The light MVNO model is by far the most common: it requires little investment and it is often based ona well-understood common interest where the MVNO addresses a specific customer niche that the host operator has difficulty to tackle. The light MVNO model is the implementation of an ecosystem between the two entities. And one could wonder whether  the only possible outcome in this model is the acquisition of the light MVNO by host operator, as recent history has often provided examples to us. Unless the Light MVNO can transform into full MVNO if conditions allow this. With higher investment costs, the full MVNO better controls its destiny by controlling the HLR: it can change host operator and therefore retains a strong bargaining power with all mobile operators. It might even have multiple hosts operators in parallel and optimize so its costs and services. The prospect These models have been developed over the last 15 years, and are now institutionalized especially in the context of national telecoms regulations in Europe, which tend to align. They are therefore important  to understand the structural evolution of the mobile offerings and of the competitors in the future development of 4G.

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