So, You Want to Become a Euro Telco?
During the fevered days of the Internet bubble and telecom deregulation, it seemed like a good idea: Rather than maintaining a tight oligopoly of mobile-phone service providers, authorities in many European countries threw open the networks to just about anybody who wanted to hang out a shingle and offer service, even without building and operating their own networks.
The idea of such asset-light telecom upstarts -- given the jargony name mobile virtual network operators, or MVNOs -- grabbed everybody's fancy. Non-telecom organizations, such as brokerages, retail stores, or even football clubs would set up their own branded phone service as a way of tightening relationships with customers. Existing mobile operators could rent out spare network capacity, boosting their utilization rates, smoothing cash flow, and lowering costs for everyone -- all without inviting major competition. And consumers would benefit from a greater choice of providers and presumably lower prices. It was theoretically perfect -- typical of the dot-com era's business experiments.
The largest and most successful MVNO, Virgin Mobile, came flying out of the gate in late 1999. Launched by serial entrepreneur Sir Richard Branson, the British startup played off the strength of Branson's other Virgin properties, including record stores, an airline, and a cola. It used network capacity from the country's No. 3 operator, Deutsche Telekom-owned One2One, and offered cut-rate wireless service and phones to an eager public. As of a few weeks ago, Virgin Mobile claims to have signed up 1.6 million customers, making it Britain's fifth-largest mobile provider. The privately held company doesn't disclose revenues or profits.
NOT SO EASY. But after Virgin Mobile's success, reality took hold. "MVNOs haven't taken off to the extent we thought they would," says wireless analyst Sara Harris of British researcher Strategy Analytics, who figures MVNOs have reached only about 5% market penetration across Europe as a whole.
Why so little? Dominant operators weren't convinced that wholesaling network capacity was really such a good idea after all, since it invited the growth of potential future competitors. Plus, consumers didn't rush to drop their existing carriers in favor of unknown newcomers. Most important, many of the non-telecoms expected to offer mobile phone service didn't take the plunge. One reason: Some that did found it a lot harder than expected. After all, running a phone company is quite different from managing a bank or brewery, even if you don't have to operate a network.
While the first two of these problems have no simple solution, a Swedish startup called Spinbox is trying to tackle the third. Backed with 3 million euros ($2.7 million) from Stockholm-based Brainheart Capital, Spinbox positions itself as the first "mobile virtual network enabler." That means it provides packaged services that allow companies more easily to become MVNOs.
"THE BORING STUFF." For an upfront fee or a cut of revenues, Spinbox will take care of all the details -- negotiating access agreements with mobile operators, operating networks and systems, training salespeople, and even managing billing and customer service. "We handle the boring stuff," says co-founder and Vice-President Bo Wanghammar. Clients can use some or all of Spinbox' buffet of products and services, from a single call-management software package to 100% outsourcing, with the payment scheme varying by contract.
That formula is starting to take hold. The 20-person company has already signed MVNO deals with Web portal Spray/Lycos, Nordic telecom startup Song Networks, and Internet company RSL Communications. And it has a major network-access agreement with Sweden's Telia Mobile. Wanghammar says Spinbox dramatically lowers barriers to entry and improves the economics of being an MVNO. Whereas do-it-yourself operators typically spend 12 to 18 months launching services, Spinbox rolled out a mobile offering for one unnamed customer in just three weeks.
And instead of having to snare 40,000 to 100,000 subscribers just to break even, he says, MVNOs that work through Spinbox can be viable with as few as 3,000 to 5,000 customers. That allows much smaller organizations to jump into the game. Because Spinbox -- the name is short for "Service Provider in a Box" -- offloads the tricky contractual and technical stuff, MVNOs can concentrate on crucial product definition and marketing.
COMMUNAL CHATTERS. Clearly, Wanghammar and crew are onto something. The promise of MVNOs was always that they could serve niche markets better than giant mobile operators who juggle tens of millions of customers. In principle, Spinbox' services should make it possible, say, for an automobile club, supermarket chain, or even an alumni association to offer phone services to customers or members.
Also, since price alone leaves little opportunity to build lasting customer relationships, Spinbox allows organizations to create highly differentiated services aimed at defined groups of customers. What successful MVNOs should really sell, Wanghammar says, isn't bargain wireless service but a sense of community.
In voice service, of course, not much room exists for variation. Your mother-in-law's dulcet tones will likely sound the same whether delivered by British Telecom's mm02 or by British football franchise Manchester United.
TURN LEFT HERE. Where the MVNO concept starts to make sense is with data services. A mobile package provided by your football team could include text-message notification whenever a goal is scored or unlimited access to a sponsored wireless access protocol (WAP) site -- in effect, a Web site for mobile phones -- listing statistics for all the players. Your auto club could provide miniature driving maps sent to your mobile-phone screen and one-touch access to round-the-clock travel counselors.
Customers would presumably pay more for such services, a welcome notion in the battered telecom sector. Even more important, they wouldn't be so ready to jump to a rival provider as soon as a better price came along. In telecom-speak, this is called reducing customer churn -- the largest single expense for most mobile carriers.
Analysts agree that delivering relevant, targeted services to identified affinity groups is the best way to cut churn. You can be sure that a Manchester United fan wouldn't switch to archrival Arsenal's mobile-phone service if his life depended on it.
UNRESOLVED QUESTIONS. The problem with the Spinbox story is that it addresses only the problem of how hard it is for outsiders to break into the mobile business. More fundamental questions plaguing the MVNO market still are unresolved -- namely, whether existing operators will open up their networks enough and whether customers are really interested in using alternative providers.
Wanghammar says dominant carriers tend to be the most worried about cannibalization, whereas smaller, hungrier telecoms are more amenable to leasing their network capacity. After all, to be competitive, second- and third-tier operators still need to blanket each country with coverage, even though they have fewer customers to spread the cost across. For that reason, he's convinced that plenty of incumbent operators will be willing to wholesale capacity to MVNOs.
Regulations also need to be rationalized across Europe: Northern countries, especially Germany and Britain, tend to be more hospitable to MVNOs, whereas they're less welcome in Southern Europe -- and even prohibited in Italy.
THE NAME GAME. What about customer demand? Here, Wanghammar and market analysts fall back into vintage dot-com "if you build it, they will come" thinking. Virgin Mobile has succeeded in Britain mostly because it already has a strong brand name. Analysts worry it'll fare less well with a planned but as yet unlaunched play for the U.S. market, where it's far less known. Other newcomers could face the same struggle everywhere.
The inescapable question is whether consumers really want to abandon well-established phone companies such as Vodafone or Orange to sign up for mobile service from their bowling league or gas station chain. No question, affinity marketing has succeeded for credit cards and some other products, but when it comes to essential phone service, many people may be uncomfortable leaving trusted telecoms for unknowns and novices.
If the offer isn't much better, customers are likely to stay put. And if it's too good to refuse, they might worry that the service provider won't make enough money to stay in business. Finally, there's the nagging question of prioritizing affinities: If you're an Arsenal fan and a Shell customer and a Tesco shopper, whose service do you choose if none offers you all the features of the others?
Like many other innovations of the last five years, MVNOs were clearly overhyped, and now they're suffering from backlash. Thanks to services such as Spinbox, someday they could become an established niche in the mobile business. But until the true demand for alternative mobile services is established, MVNOs could turn out to be, like many dot-coms, nothing more than a solution in search of a market
The idea of such asset-light telecom upstarts -- given the jargony name mobile virtual network operators, or MVNOs -- grabbed everybody's fancy. Non-telecom organizations, such as brokerages, retail stores, or even football clubs would set up their own branded phone service as a way of tightening relationships with customers. Existing mobile operators could rent out spare network capacity, boosting their utilization rates, smoothing cash flow, and lowering costs for everyone -- all without inviting major competition. And consumers would benefit from a greater choice of providers and presumably lower prices. It was theoretically perfect -- typical of the dot-com era's business experiments.
The largest and most successful MVNO, Virgin Mobile, came flying out of the gate in late 1999. Launched by serial entrepreneur Sir Richard Branson, the British startup played off the strength of Branson's other Virgin properties, including record stores, an airline, and a cola. It used network capacity from the country's No. 3 operator, Deutsche Telekom-owned One2One, and offered cut-rate wireless service and phones to an eager public. As of a few weeks ago, Virgin Mobile claims to have signed up 1.6 million customers, making it Britain's fifth-largest mobile provider. The privately held company doesn't disclose revenues or profits.
NOT SO EASY. But after Virgin Mobile's success, reality took hold. "MVNOs haven't taken off to the extent we thought they would," says wireless analyst Sara Harris of British researcher Strategy Analytics, who figures MVNOs have reached only about 5% market penetration across Europe as a whole.
Why so little? Dominant operators weren't convinced that wholesaling network capacity was really such a good idea after all, since it invited the growth of potential future competitors. Plus, consumers didn't rush to drop their existing carriers in favor of unknown newcomers. Most important, many of the non-telecoms expected to offer mobile phone service didn't take the plunge. One reason: Some that did found it a lot harder than expected. After all, running a phone company is quite different from managing a bank or brewery, even if you don't have to operate a network.
While the first two of these problems have no simple solution, a Swedish startup called Spinbox is trying to tackle the third. Backed with 3 million euros ($2.7 million) from Stockholm-based Brainheart Capital, Spinbox positions itself as the first "mobile virtual network enabler." That means it provides packaged services that allow companies more easily to become MVNOs.
"THE BORING STUFF." For an upfront fee or a cut of revenues, Spinbox will take care of all the details -- negotiating access agreements with mobile operators, operating networks and systems, training salespeople, and even managing billing and customer service. "We handle the boring stuff," says co-founder and Vice-President Bo Wanghammar. Clients can use some or all of Spinbox' buffet of products and services, from a single call-management software package to 100% outsourcing, with the payment scheme varying by contract.
That formula is starting to take hold. The 20-person company has already signed MVNO deals with Web portal Spray/Lycos, Nordic telecom startup Song Networks, and Internet company RSL Communications. And it has a major network-access agreement with Sweden's Telia Mobile. Wanghammar says Spinbox dramatically lowers barriers to entry and improves the economics of being an MVNO. Whereas do-it-yourself operators typically spend 12 to 18 months launching services, Spinbox rolled out a mobile offering for one unnamed customer in just three weeks.
And instead of having to snare 40,000 to 100,000 subscribers just to break even, he says, MVNOs that work through Spinbox can be viable with as few as 3,000 to 5,000 customers. That allows much smaller organizations to jump into the game. Because Spinbox -- the name is short for "Service Provider in a Box" -- offloads the tricky contractual and technical stuff, MVNOs can concentrate on crucial product definition and marketing.
COMMUNAL CHATTERS. Clearly, Wanghammar and crew are onto something. The promise of MVNOs was always that they could serve niche markets better than giant mobile operators who juggle tens of millions of customers. In principle, Spinbox' services should make it possible, say, for an automobile club, supermarket chain, or even an alumni association to offer phone services to customers or members.
Also, since price alone leaves little opportunity to build lasting customer relationships, Spinbox allows organizations to create highly differentiated services aimed at defined groups of customers. What successful MVNOs should really sell, Wanghammar says, isn't bargain wireless service but a sense of community.
In voice service, of course, not much room exists for variation. Your mother-in-law's dulcet tones will likely sound the same whether delivered by British Telecom's mm02 or by British football franchise Manchester United.
TURN LEFT HERE. Where the MVNO concept starts to make sense is with data services. A mobile package provided by your football team could include text-message notification whenever a goal is scored or unlimited access to a sponsored wireless access protocol (WAP) site -- in effect, a Web site for mobile phones -- listing statistics for all the players. Your auto club could provide miniature driving maps sent to your mobile-phone screen and one-touch access to round-the-clock travel counselors.
Customers would presumably pay more for such services, a welcome notion in the battered telecom sector. Even more important, they wouldn't be so ready to jump to a rival provider as soon as a better price came along. In telecom-speak, this is called reducing customer churn -- the largest single expense for most mobile carriers.
Analysts agree that delivering relevant, targeted services to identified affinity groups is the best way to cut churn. You can be sure that a Manchester United fan wouldn't switch to archrival Arsenal's mobile-phone service if his life depended on it.
UNRESOLVED QUESTIONS. The problem with the Spinbox story is that it addresses only the problem of how hard it is for outsiders to break into the mobile business. More fundamental questions plaguing the MVNO market still are unresolved -- namely, whether existing operators will open up their networks enough and whether customers are really interested in using alternative providers.
Wanghammar says dominant carriers tend to be the most worried about cannibalization, whereas smaller, hungrier telecoms are more amenable to leasing their network capacity. After all, to be competitive, second- and third-tier operators still need to blanket each country with coverage, even though they have fewer customers to spread the cost across. For that reason, he's convinced that plenty of incumbent operators will be willing to wholesale capacity to MVNOs.
Regulations also need to be rationalized across Europe: Northern countries, especially Germany and Britain, tend to be more hospitable to MVNOs, whereas they're less welcome in Southern Europe -- and even prohibited in Italy.
THE NAME GAME. What about customer demand? Here, Wanghammar and market analysts fall back into vintage dot-com "if you build it, they will come" thinking. Virgin Mobile has succeeded in Britain mostly because it already has a strong brand name. Analysts worry it'll fare less well with a planned but as yet unlaunched play for the U.S. market, where it's far less known. Other newcomers could face the same struggle everywhere.
The inescapable question is whether consumers really want to abandon well-established phone companies such as Vodafone or Orange to sign up for mobile service from their bowling league or gas station chain. No question, affinity marketing has succeeded for credit cards and some other products, but when it comes to essential phone service, many people may be uncomfortable leaving trusted telecoms for unknowns and novices.
If the offer isn't much better, customers are likely to stay put. And if it's too good to refuse, they might worry that the service provider won't make enough money to stay in business. Finally, there's the nagging question of prioritizing affinities: If you're an Arsenal fan and a Shell customer and a Tesco shopper, whose service do you choose if none offers you all the features of the others?
Like many other innovations of the last five years, MVNOs were clearly overhyped, and now they're suffering from backlash. Thanks to services such as Spinbox, someday they could become an established niche in the mobile business. But until the true demand for alternative mobile services is established, MVNOs could turn out to be, like many dot-coms, nothing more than a solution in search of a market
