Motorola’s iTunes handset is due to launch, at last, next month, against a background of rising speculation that Apple will become an MVNO (Mobile Virtual Network Operator), leasing spectrum in the US to offer carrier services under the powerful iTunes brand.
The successful MVNOs tend to be those with a well recognized brand that appeals to a well defined customer base, such as Virgin Mobile. Apple iTunes would certainly fall into this category and a music-oriented mobile service incorporating mobile versions of the popular download service would undoubtedly attract high volumes of uptake.
We might question whether a device maker would make a successful service provider, but an Apple MVNO would certainly present various threats to the incumbent mobile carriers. It would throw the operators’ own download services and other music-oriented activities into the shade, at a time when music is seen as one of the key growth drivers for cellco revenue in the next few years.
And it goes a step further than most MVNOs because of the level of control that Apple would have over the device. The Motorola iPhone would presumably be at the heart of the offering, although Apple could also work with other handset makers to create a variety of radio-enabled iPods. In any case, because of its expertise in device design and the track record of the iPod itself, Apple will have major input into any handset that finds its way on to an iTunes service, and this will only be helped by software developments such as its joint creation, with Nokia, of an open source mobile browser. This is the type of control over branding, user interface and device design that the major cellcos crave, in order to reduce their dependence on the handset majors and increase their own differentiation, but none of them has the experience in this field that Apple does.
The other major MVNO rumor of the week was more predictable. Retail giant Wal-Mart has been expected for some time to enter the mobile market and is predicted to be on the verge of an announcement. Like the successful UK MVNO of supermarket chain Tesco, the store would have the advantage of a readymade distribution network and would be likely to appeal to relatively low income groups with prepaid services and incentives such as family packages or an integration of mobile bills with the loyalty card schemes.
As MVNOs become more common, consolidation will occur, often through the network owners buying up their virtual rivals. This can be a powerful tactic for a major cellco – letting an MVNO use its brand strength to attract a customer base, perhaps in a market that the network owner had failed to penetrate; commanding leasing fees for the network in the meantime; and then acquiring it once the user base has been built. In Finland, Elisa is looking to buy MVNO Saunalahti, while TeliaSonera of Sweden and Finland is to acquire two Norwegian virtual operators, Sense and Chess. Scandinavia, which was a pioneer of the MVNO model, is also a good indicator of trends that will start to affect other territories where the concept is less established.
For instance, the history of MVNO acquisitions in Scandinavia indicates the rising value of these companies. When TDC of Denmark bought Telmore in January 2004 it paid €88 per subscriber, while Elisa will pay €680 per sub and TeliaSonera €563, in markets with similar mobile potential. There is no longer such a gulf in the purchase price for an MVNO compared with a network owner – TeliaSonera paid €1,000 per user recently to buy Orange Denmark, not even twice what it will pay for Chess and Sense, even though with Orange it gains spectrum licenses and network. While MVNOs are flourishing in northern Europe, some other countries have progressed slowly, often because of obstruction from the established cellcos. Spain’s regulator CMT is even considering forcing mobile carriers to open their networks to MVNOs in order to provide more competition to the big three, Telefónica Móviles, Vodafone and Amena.
Spain currently has one of the least competitive telephony markets among the major European countries. Last month, Swedish telco Tele2 filed a complaint with the CMT, claiming that Spain's mobile operators are blocking its plans to resell mobile calls. Tele2 wanted to be Spain’s first MVNO, having already launched such services in six European countries.
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