Declining Voice ARPU to Lead to Enhanced Data Services and Increased Growth Potential of 'Next-generation' MVNOs

Frost: The saturation of the western European mobile markets has spawned a new generation of mobile virtual network operators (MVNOs) that are likely to transform the telecommunications arena. With the continuing pressure on voice ARPU, the surge in opportunities for data services is expected to bolster operators' revenues in the mobile industry. Hence, 'next-generation' MVNOs are likely to offer targeted content against the generic data services currently offered by operators, thereby altering the telecom landscape within the next eighteen months.

The juxtaposition of saturated markets and new 'next-generation' MVNOs will create a volcanic upsurge of competitive pressure, which will have wide-spread implications for the telecom industry over the next eighteen months. By the end of this time, acquisitions, consolidations and withdrawals will reshape the mobile industry across western Europe.

'The activities of national regulatory bodies, mobile network operators and mobile virtual network enablers (MVNEs) as well as technological enhancements (on platforms and handsets) have significantly reduced barriers that have earlier hindered the foray of content providers and non-telecom brands into the MVNO arena. Consequently, the penetration of MVNOs into western Europe is witnessing a rise due to a significant number of national regulators opening up network access in their favour.

Collaborating with MVNOs will enable mobile network operators (MNOs) to retain their call revenues, while improving customer profitability (even when a customer shifts to a preferred MVNO partner). Further, MNOs will also be able to increase their market share by forging partnerships with MVNOs that target the defined audience of an MNO competitor. At the same time, fixed-line operators affected by declining fixed revenues will be eager to build convergence portfolios by launching or acquiring MVNOs and this will further support the growth of MVNOs.

While MVNOs have competed on price transparency in the past, 'next-generation' MVNOs will offer content-based services to target niche audiences through 2.5G and 3G platforms. Access to 3G networks will be crucial for 'next-generation' MVNO models to succeed as the user experience of downloading audio and streaming services over general packet radio service (GPRS) is currently not satisfactory.

The lack of subscribers and decline in customer loyalty are challenges currently hampering the growth potential of 'next-generation' MVNOs. Hence, they will need to target instantly definable lifestyle and cultural audiences, while also being aware of the natural crossovers between these groups.

Increasing competition from MNOs as well as fixed operators, market saturation and the persistent uncertainty related to the speed of data services adoption are also affecting new MVNOs. As a result, the provision of more defined service offerings will enable 'next-generation' MVNOs to impart additional value to the telecommunications industry through improved user experience and bespoke content.

In recent times, the industry-leading success of TDC (Denmark), which has led to partnerships and expansions into new territories across western Europe, has resulted in enhanced focus on the 'no-frills' discount model. 'No-frills' MVNOs have been able to take advantage of lower subscriber acquisition costs (SACs) when compared to MNOs by offering subscriber identity module (SIM)-only propositions through on-line channels. In addition, the resultant savings arising from the absence of handset subsidies and sales commissions assist in offering competitive discount offerings.

To achieve competitive success, 'next-generation' MVNOs that target youth segments or offer only pre-pay services will need to offer additional content and replicate the offerings of competitors. This will become essential as the non-SMS data uptake remains relatively insignificant and pre-pay services have a lower ARPU in comparison to post-paid services. Thus, MVNOs will gain by offering both pre-pay as well as post-pay services and encouraging customers to opt for multiple SIMs.

As mobility increases, MVNOs will also need to develop a strategy that combines bundled Internet/mobile content. Acquiring customers at a lower acquisition costs in comparison to that offered by host operators will become imperative. 'Next-generation' MVNOs should utilise their distribution channels effectively and ensure price clarity to provide enhanced user experience. Acquisitions, consolidations and withdrawals: The implications of 'Next Generation' MVNOs over the next 18 months in Western Europe

Publ 20060301