Further to identifying the most suitable operational model, aspirants must thoroughly analyze and find pragmatic answers to countless business issues and challenges, both before and after launch whilst the business and customer bases are growing.
Even though the regulatory environment is increasingly favourable from the strategic point of view, MVNOs are quite vulnerable because they are late entrants in an oversaturated market and small niche players in comparison to incumbents. The list of failed MVNOs is long, demonstrating how challenging and difficult it can be to create a viable MVNO business model.
To be successful, MVNOs must identify profitable niches. On the other hand, if the chosen segments prove to be profitable enough, the host operator may launch its own competitive offer and thus cannibalize the MVNO’s market segment. This reinforces the statement that the most successful MVNO formulas are based on a strong existing brand and a compelling business strategy and not simply a low price offering strategy.
Even with a strong brand and a targeted business model, success for the MVNO is not automatic. As mentioned whilst discussing about MVNO business models, Disney shut down the US MVNO after less than a year of operations, however its second attempt from Japan proved to be very successful. This suggests that customers seek to see real value, not just brand recognition.
By correctly leveraging existing brand, customer base and distribution infrastructure and choosing the right partners the level of success can be impressive as in the case of Virgin Mobile UK, which already outperformed its HNO.
Despite the attractiveness of the mobile industry, the risks and challenges to which MVNOs are exposed even before launching their services intimidate most of the attempters. Such challenges may discourage the ones not experienced in the field. They have to manage and take advantage of a broad area of relationships and alliances, to evaluate and choose the most suitable partners for their business model and to conclude competitive and safe commercial arrangements. Also, they have to deal with challenges such as various restrictions, unfavourable leasing terms, high costs for network usage, uncontrollable service quality, difficulties in channel development, lack of skills and expertise in mobile communications industry.
From a process perspective, the MVNO starts with a network leasing agreement with one or more HNOs and then continues with challenging back-office systems and integration selection process. The MVNO must then design offers and service bundles, develop user interfaces, select handsets and then pass to developing or enhancing their brand and distribution channel. These are only the main steps MVNOs follow on their path from concept to real life and each of these steps has potential obstacles or limiting partnership dependencies.
For the operational part, MVNOs need to partner with individual back office systems/process providers, MVNEs, mobile data platform providers, content providers and handset manufacturers to profitably deliver a differentiated value proposition to their target segments.
In terms of entry barriers, the lack of wireless skills and expertise is key to success. New entrants lack the experience needed to guide them through the different steps of the wireless service delivery chain. MVNOs must focus on combining internal resources, skills and business strengths with those of best-of-breed partners to overcome all known and unknown challenges and risks.
Challenges whilst growing
Economies of scale characteristic to wireless business models represent another great challenge for all MVNOs. Put simply, this means that the business becomes competitive in terms of costs after it expands by decreasing the total cost per unit.
Even after the MVNO becomes a success, however, further challenges appear due to high peak funding as the investments needed after turning cash flow positive remain high.
After MVNO launch, employees have to execute, coordinate, keep track of and monitor the progress and risks of hundreds of interdependent milestones across each level of the wireless service delivery chain. MVNOs that fail to do this in the launch phase could end up suffering from long delays or developing a value proposition that is not differentiated enough to attract customers in their target segments.