Considerations Before Launching an MVNO MVNO Workshop

Considerations Before Launching an MVNO
MVNO Workshop
May you require further info, please contact:
Pedro Ruiz-Blanco(+34629369404,pedro.blanco@nereoconsulting.com)
Sao Paulo, 18 November 2010
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INTRODUCTION
The LATAM market
The Latam market is increasingly approaching maturity, thereby attracting MVNOs
Market value of MVNOs in Latam (2015; Mill $)
México: Regulation expected in 2010
(MAXCOM; Branded Reseller)
Costa Rica: FULL MVNOs permitted by regulation
(one FULL MVNO is currently under development)
Colombia: Regulation allows Service Providers
(UNE, Branded Reseller offering data services); Uff movil; Service Provider)
Ecuador: Regulation in place
(ALEGRO, national roaming agreement signed with Movistar)
Brasil: New regulation for MVNOS (in force in 1Q 2011)
(No agreements signed as yet by any player)
MVNO market value
(millions of USD)
Chile: Regulation allows FULL MVNOs
<100
100 - 300
(TELSUR; signed in 2008, yet to launch)
300 - 500
Argentina: Regulation allows FULL MVNO
500 - 1000
>1000
(COFETEL; in operation since 2009)
Source: NEREO analysis
The expected potential of the MVNO market in Latam will be > USD 2 billion by 2015
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AGENDA
ENTRY STRATEGY
MVNO AGREEMENT
ANNEX
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3
ENTRY STRATEGY
Strategic Positioning (I)
MVNOs entering the current market need to base their strategies on differentiation attributes
in base of their lower operating margins compared with the MNOs
Low pricing,
aggressive
offers or focus
on indirect
revenues
“Real” customer
needs
Sociodemographic
focus on concrete
segments (kids,
foreigners,
expatriats)
or/and
community
enablers
Potential
Differentiation
Strategies
Simplicity,
transparency,
reliability of service
& customer service
Data, advanced
services, full
convergence
Sustainable Positioning
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“Tough” gross
margin
business
model
ENTRY STRATEGY
Strategic Positioning (II)
There is a number of key dimensions on which differentiation strategies can be
implemented
Contents/
Aplications
Services
Bundling
Segmentation
E
NO
XH
VO
STI
U
A
OMV
Brand
Price
Distribution
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ENTRY STRATEGY
New ways to compete within the market
To tap into the market, MVNOs must have existing valuable assets to leverage on
more efficiently than their respective Host-MNOs do, in order to add value to the
overall mobile services supply chain…
CORE ASSETS
DESCRIPTION
Examples of MVNOs
Segmentation
• Being able to address specific segments of the
market and/or within a particular geographical area
Distribution
• Being in possession of an existing distribution
network with capillarity and large flow of customers
Customer Portfolio
• Having an existing customer base on which perform
cross-selling of products and loyalty programs
Brand
• Having a brand with renowned business prestige or
high level of recognition among the customers
Efficiency
of Operations
• Being “cost-effective” with a “lean & mean” operating
structure
Applications/
Contents
• Having valuable audio-visual content or innovative
applications to be delivered on mobility
Customer
Management
• Being able to offer excellence in the customer
experience
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MVNO OPERATIONAL MODELS
Functional model Characterisation
There are several options for MVNOs to build the required infrastructure over the MNO
radio access network...
FUNCTIONAL MODELS
Enabling
infrastructure and
network provision
Content & Service
Applications
Branded Reseller
Service Provider
Enhanced
SP
Full MVNO
Radio Spectrum
Network Switching
VAS
Service Platform
SIM Card
Operations
Billing
Pricing
Pricing Capability
Capability
Provisioning
Customer Care
Branding, Sales &
Marketing
Own Brand
Distribution
MVNO may or may
not own
MVNO owns
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MVNO does not own
ENTRY STRATEGY
Functional model Characterisation
Selecting an specific MVNO operational model depends mostly on the commercial
strategy & regulatory framework that the new player wishes to implement
Telecommunication
companies.
Multimedia
Companies
Utilities
Niche Operators
Retailers
MNOs
Alternative MVNO structures
Reseller
 No network infrastructure
 Can potentially have a VS
Branded Reseller
 No network infrastructure
 Can potentially have a VS
platform
 No capability to set prices
 No ownership of the client
platform
 Capability to set prices
 Possible ownership of the
client
 SIM: not self owned
 Prices: are based on


negotiations with an MNO under
a retail-minus regime for the
MNO prices
 Brand: own brand or cobranding with the MNO
(« powered by »).
 Business Model:
─ Revenues: based on
revenue sharing with the
MNO
─ Costs: marketing, sales,
distribution


SIM: self owned
Prices: own and independent
from the MNO
Brand: own brand or cobranding with the MNO
( powered by »). Client
ownership possible
Business Model:
─ Revenues: from traffic of
it’s own customers
─ Costs: wholesale access
tariffs, marketing, sales,
distribution. OPEX and
CAPEX associated to IT
platforms
Service Provider





No network infrastructure
Own VAS platform
Own billing platform
Own Customer Care
Ownership of the client




SIM: self owned
Prices: own and independent
from the MNO
Brand: own brand. Complete
ownership of the client
Business Model:
─ Revenues: from traffic of
it’s own customers
─ Costs: wholesale access
tariffs, marketing, sales,
distribution. OPEX and
CAPEX associated to IT
platforms
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Full MVNO
Network Operator
+
 With network infrastructure
(no radio)
Own VAS platform
Own billing platform
Own Customer Care
Ownership of the client








SIM: self owned
Prices: own and independent
from the MNO
Brand: own brand. Complete
ownership of the client
Business Model:
─ Revenues: from traffic of
it’s own customers
─ Costs: wholesale access
tariffs, marketing, sales,
distribution. OPEX and
CAPEX associated to IT
platforms and network
elements
 Radio Access Network
 Complete network
infrastructure
Level of ownership of
the mobile network
infrastructure
-
ENTRY STRATEGY
MVNO Model
MVNOs can be classified broadly into the following 3 models, each with their own financial
implications
Host
Operator
Incoming
Revenues
Outgoing
Revenues
Host
Operator %
MVNO
Margin
% of revenues +
commission per gross add
Branded Reseller
• MVNO has no control over retail pricing
• MVNO negotiates a fixed margin with Host
Operator
• May get paid a commission per client
acquired
• Incoming Revenues go directly to the Host
Operator
Incoming
Revenues
Outgoing
Revenues
Host Operator Charges
(incoming calls)
Host
Operator
MVNO
Margin
Incoming
Revenues
MVNO
Margin
Outgoing
Revenues
Host
Operator
Charges
Host Operator Charges
(outbound calls)
Service Provider
• MVNO can fix the retail price
• Wholesale price varies depending of the B
number (destination):
• On/Off Net
• National / International
• The Incoming Revenues go directly to the
Host Operator
Full MVNO
• MVNO has full control over the fixed price
• The MVNO pays the Host Operator a fixed
price per minute for outgoing calls as well
as for incoming calls
• The Incoming Revenues go directly to the
MVNO
The share of the ARPU and the margin clearly will vary depending on the MVNO model
used
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AGENDA
ENTRY STRATEGY
MVNO AGREEMENT
ANNEX
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MVNO AGREEMENT
Negotiation with the MNOs
Before Negotiation
1. Value proposition for the
MNOs
During Negotiation
1. Compare MNO quotes
2. Create multi-skilled
negotiating team
3. Establish information
requirements and tools
4. Identify alternative
partners (inc. outsourcing)
5. Establish and maintain
MVNO leadership team
6. Identification of potential
regulatory threats
2. Decide elements to be
performed by MNO/MVNO
Contract Negotiation
1. Ensure margins protected
(by introducing price update
mechanisms)
2. Monitor for optimal MNO
3. Derive Functional map and
integrate systems
3. Understand own customer
usage profile vs network
4. Mechanisms for the
introduction of new
technologies, products and
services.
4. Model impact of each
negotiating point
5. Guarantee QoS by means of
certain key performance
indicators (KPIs)
MNO contract negotiation is a crucial issue to assure a sustainable business for the MVNO
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NEGOTIATION
Wholesale prices negotiation
During the negotiating process, appropriated tools have to be developed and occasionally
shared with the MNO in order to facilitate the achievement of an access agreement
Pre-payment )- Split of operations direct cost
Set up 0,05 EUR, Traffic 0,05 EUR/min.
15,7%
84,3%
100%
Pre-payment )- MVNO average margin
Set up 0,05 EUR, Traffic 0,05 EUR/min.
Price/min (EUR)
13,9%
16,6%
9,5%
26,1%
M
A
60%
EX
E
PL 0,06
0,07 0,06 0,05 0,04 0,03 0,02 0,01 0,00
52% 55% 58% 61% 64% 67% 70% 73%
0,05 54% 57% 60% 63% 66% 69% 72% 75%
0,04 56% 59% 62% 65% 68% 70% 73% 76%
Billing
revenues
ARPU Termination Access
ICX
revenues
outbound outbound
traffic
traffic
cost
cost
(HNO)
Access
inbound
traffic
cost
(HNO)
Margin
(MVNO)
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Set-up (EUR)
0,03 58% 61% 64% 66% 69% 72% 75% 78%
12
0,02 59% 62% 65% 68% 71% 74% 77% 80%
0,01 61% 64% 67% 70% 73% 76% 79% 82%
0,00 63% 66% 69% 72% 75% 77% 80% 83%
MVNO AGREEMENT
Pricing Review Mechanisms
It is essential to agree on a price-update mechanism based on the individual services in
order to assure the successful continuity of the business in the future
Inputs
1
Calculation
Average customer’s profile
• Traffic matrix of the average customer’s
profile
–
–
–
–
2
Voice Service
By time and type of day
By destination/origin
By operator
Call length
EX
Pricing plans of MNOs
• Prepaid and postpaid
• Set up and traffic tariff by destination and
peak/off-peak
• Type of tarification (seconds minutes
monthly,etc.)
• Minimum consumption
• Others
3
Outputs
Interconnection fees
• Interconnection fees set by the regulatory
authority
• Peak/off-peak
4
P
M
A
LE
Wholesale prices update (voice
service)
 Outgoing traffic
– Traffic
– Set-up
 Incoming traffic
– Traffic
– Set-up
Pricing plans evolution
• % RPE
(% Retail Price Evolution)
5
6
Interconnection fees evolution
• % IPE
(% Interconnection Price Evolution)
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7
New reference values
•
•
•
•
Average customer’ profile
Interconnection fees
Pricing plans
Monitoring index
MVNO AGREEMENT
Data pricing
Data services, as they are yet to mature, pose difficulties during the negotiation of
wholesale prices
Pricing based on services offered
Smart phone
browsing/mail
Multimedia
messaging
EUR/Mb
EUR/Mb
0,3
0,3
0,1
0,1
0,1
Web browsing/mail
EUR/Mb
EUR/MB
0,3
0,3
MB/sesión
Pricing based on Data Sessions
MB/sesión
Videostreaming/
Intense download
E
M
A
X
E
L
P
0,1
EUR/Mb
0,1
0,05
0,05
0,02
0,5
MB/sesión
0,05
0,02
3
MB/sesión
0,1
0,5
3
MB/sesión
It is imperative to understand the services to be offered before negotiating data
services
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MVNO AGREEMENT
Key Performance Indicators
Principal KPI Structure
Number of KPIs
KPI Tracking Tool
Service
Provider
Full
MVNO
Voice services (2G/3G)
12


SMS
3


Data
7


Payments y Recharges
5

6
2


Value Added Services
3

IVR
4

Logistics
3

Billing
5
Incident Management
6




Incident Support availibility
2


Provisioning
Prepaid Platform availability

The MVNO relies on the MNO for most business processes making it highly critical to define KPIs
and SLAs, to ensure smooth operation
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MVNO AGREEMENT
Project Structure
NEREO has developed a well-proven methodology to launch a new MVNO, which consists in
two (2) different Phases plus highly qualified regulatory support all along the process
1
A
•
•
•
•
•
STRATEGIC
POSITIONING &
REGULATORY ISSUES
•
Strategic Positioning:
Define most adequate MVNO
model given the competitive
landscape and the relative
position of the candidate
Analysis of the structure of the
market (main competitors,
segments, markets trends)
Analysis of the regulatory
environment
Definition of the mobile strategy
•
for the candidate:
–
–
–
–
•
•
Analysis of the Business Opportunity
Pricing strategy
High level operational model
•
Key Segments to be targeted
High level value proposition to
the market
+
Negotiation
B
–
–
Revenue Model
Traffic cost
Cost structure
 SAC
 OPEX
CAPEX structure:
 IT Systems
 Network
 Distribution Channel
Financials
Sensitivity scenarios with the
main variables
Project financial analysis (NPV,
IRR, Peak Funding, Risk
analysis)
•
•
•
•
Model (cost plus, retail minus)
Service based tools (SMS,
Voice, Data)
•
•
•
Definition of the negotiation
structure process with the
chosen MNO:
–
–
–
Deal structure (MOU,
Contract, Annexes)
Timetable
KPIs & SLAs
E
–
–
•
–
–
16
Partnership strategy
Screening of Support
Providers
Headcount
Channel alliances
Governance model:
–
Approval from
investors
MEX-101118
“START UP”
Definition of the main action •
items and the project plan
•
for the launching
Configuration of the Project
Office and key tasks for the
launching
Selection of the main
resources necessaries for
•
the launching:
–
–
Regulatory Issues:
Registration and fulfillment of all
required notification proceedings
to become MVNO
Start-Up
ROADMAP FOR
LAUNCHING
Definition of the multi disciplinary negotiation team
Value proposition for the MNOs
Value proposition for the
regulator (if necessary)
Negotiation tools:
–
–
•
+
D
NEGOTIATION
WITH THE MNO
BUSINESS PLAN
–
–
–
2
C
Development of the Business
Plan:
Preparation for
Launching
Main duties and
responsibilities
Coordination mechanisms
Risk Analysis
•
•
Detailed market segmentation
Definition of the entry strategy:
–
–
–
–
–
Product & Services roadmap
Pricing strategy
Value proposition for every
market segment
Channel strategy
Alliances
Project supervision and
coordination
Pre-Launch Campaign
Launching of the commercial
activities
AGENDA
ENTRY STRATEGY
MVNO AGREEMENT
ANNEX
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MVNO OPPORTUNITY - BRAZIL
MVNO Models Comparison
ANATEL has proposed the following two models which will serve to categorize the
types and characteristics of permitted MVNOs
CATEGORIES
Customer
Ownerships
CREDENCIADO DE RED VIRTUAL
RESELLER
AUTORIZADO DE RED VIRTUAL
SERVICE PROVIDER
BRANDED RESELLER
FULL MVNO
 NO
 NO
 YES
 YES
ARPU
 % revenue
sharing over basic
services’ ARPU
 Outbound ARPU
 Outbound +
Inbound (rev.
Sharing) ARPU
 Outbound +
Inbound ARPU
Traffic Costs
 N/A
 Wholesale cost
(diff. Cost per
destination)
 Wholesale cost
(diff. Cost per
destination)
Own
Numbering
Resources
 N/A
 N/A
Pricing
Capabilities
 N/A
Interconnection
Advertising
& Marketing
expenses
 Wholesale cost
(airtime) +
Interconnection
cost
 Short
codes/premium
numbers for
Customer Care
 Own IMSI range,
NRN, SPC
 N/A
 Does not rely on
MNO infra. for
price
differentiation
 Own rating &
billing capabilities
 N/A
 N/A
 N /A
 YES
 MNO bears all the
operational and
markeriting cost
 The MNO partially
contribute to the
SAC expenditure
 MVNO bears all
the operational
and markerintg
cost
 MVNO bears all
the operational
and marketng
cost
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CREDENTIALS
Telecom Practice
NEREO has an extensive experience in the mobile telecoms space worldwide….
Entry strategy within the
Spanish market for one of
the leading pan-European
mobile operators
Developing the entry strategy
within several European market
for one of the leading panEuropean mobile operators
Assistance in the
acquistion of a TV
Broadcast Infrastructure
Provider in Spain
 Consultancy for
multinational IT firm for
SMS Premium services
within the Spanish market
Providing support to one
of the Spanish MNOs in
connection with regulatory
issues
•Assistance
to
a
multinational IT firm in
topics related to Mobile
Number Portability
Developing the entry
strategy
into
the
Spanish market for a
German MVNO
MVNO strategy in Spain
for a well known
American Media and
Movie Company
Carrying out Due
Diligence processes on
European MVNO’s for a
Middle-Eastern client with
aims of acquiring said
operators
MVNO strategy and
launch activities in Costa
Rica
MVNO strategy and
negotiations for an ethnic
MVNO
Defining the MVNO
strategy and Negotiations
with Host MNO for an
Islamic MVNO in Malaysia
Assisting a MNO in
defining its MVNO
strategy in the country
 Assistance in the
valuation of a local GSM
operator
Valuation of a
fixed and mobile
telecom player
Assessing the feasibility of
MVNO business for a Saudi
based company
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Negotiating a MVNO
agreement in Oman for a
Bahraini Telecom Firm
Assistance in the
development of a Private
Placement Memorandum
for a Kuwaiti Firm
CREDENTIALS
Our MVNO Expertise (I)
NEREO has assisted clients in identifying business opportunities, negotiating with Host
Network operators and launching MVNOs of all operational models in 10+ countries….
MVNO Experience
Geographical Distribution of MVNO projects
Central &South
America
2 Projects
PROJECTS EXECUTED
MVNO
Functional
Model
Branded Reseller
3
Service Provider
5
Full-MVNO
EUROPE
17 Projects
Middle-East &
Asia
3 Projects
14
We have executed 20+ projects in the last 4 years leveraging on our MVNO Specialisation
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CREDENTIALS
Our MVNO Expertise (II)
NEREO has gained a unique experience in developing projects of all business models in
different countries of the world…
COUNTRY
MNO
ON GOING
MODEL
COUNTRY
MNO
MODEL
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
FULL
MVNO
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CREDENTIALS
Our MVNO Expertise (III)
COUNTRY
MNO
n/d
MODEL
COUNTRY
MVNO
MODEL
BRANDED
RESELLER
FULL
MVNO
BRANDED
RESELLER
FULL
MVNO
BRANDED
RESELLER
FULL
MVNO
SERVICE
PROVIDER
FULL
MVNO
SERVICE
PROVIDER
FULL
MVNO
SERVICE
PROVIDER
n/d
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SERVICE
PROVIDER