Light / Full MVNO

I thought it would be helpful to understand the fundamental differences between the two business models among virtual  mobile network operators, namely the  light MVNO and the full MVNO models. The differences I highlight below may seem very black and white, but I’m trying primarily to point the key differences to a non-specialist audience.

Definition

What is a MVNO: a MVNO is a virtual operator, i.e. it manages and distributes a range of mobile phone services under its trademark(s) by using network services supplied by a Third Party Mobile operator, at least mobile transmission services- on mobile radio spectrum GSM, 3G, 4G etc.- as only licensed  mobile operators in a said country are allowed to deploy such transmission equipment. A MVNO has therefore a long-term contractual relationship with at least one physical mobile host operator, so it can deliver mobile telecom services. However, the degree of service outsourcing by an MVNO to its host operator varies with the economic model under which it operates.

The light MVNO model in practice

This model has been the only permitted one in France by host mobile operators (three incumbents) until mid-2011: basically the MVNO subcontracts all the technical operational service to the host operator, the MVNO focuses on customer relations, marketing and billing. The MVNO interfaces with the host operator’s systems so that the MVNOs customers details are entered in the host operator’s central computer (the heart of the mobile network, the brain, the HLR or Home Location Register) , and so that the MVNO can retrieve billing information in order to edit the invoices to its customers. This model has changed little since the mid-2000s, although some country specific developments have emerged as for example the opportunity for MVNOs to manage by themselves international traffic in France.

The full MVNO model in practice

The Full MVNO model is not new: it was the only one possible in some Nordic countries in the early 2000s, but it has been authorized by the French host operators only from mid-2011 . Technical responsibility for the MVNO is more important because it builds a core network with own HLR: in fact the full MVNO mainly uses its host operator’s radio base stations (which manage the GSM , 3G or 4G frequency spectrum) necessary to insure access to the terminals of its customers. However the full MVNO masters other aspects of a mobile network operation by managing its own HLR: the full MVNO manages by its own its customer base and associated services and produces its own SIM cards independently from the host operator.

Actors and interactions

Both models are based on a multi-annual service contract between the MVNO and the host operator. IT services providers, MVNE (Mobile Virtual Network Enabler) or MVNA (Mobile Virtual Network Aggregator) can provide technical services under the responsibility of MVNO – the MVNA developing a common infrastructure to multiple small MVNO that individually would not have the minimum size to justify operating such services.

The marketing implications

The marketing process radically differs depending on the chosen MVNO model . Usually a light MVNO addresses a niche market that the host operator does not address well. As the light MVNO does not master its services (no HLR), its product /service offering is usually built from basic building blocks of the own offering of the host operator (any changes are expensive and time consuming for the MVNO , although it now can deal freely with its international traffic). The light MVNO therefore usually have an offering as a subset of the one of the host operator: the light MVNO’s marketing skills are very much focused on pricing where they can be very innovative. SIMs distributed by the light MVNO are activated only on the operator’s network host: SIMs  must be recognized in the HLR of the host operator, as allowed to use the network.
A full MVNO does operate its own HLR, and so completely determines the services it wants to provide to its customers, regardless of the host operator. The Full MVNO produces its own SIM cards, which are independent from its host operator.

The technical implications

By construction, the full MVNO has a far more important technical implication in the services than the light MVNO. The full MVNO must build and operate its core network- the HLR and the main core switches (voice, data, SMS)- Of course transfer prices between the host operator and the MVNO must reflect the fact that the full MVNO performs part of the network services, thus part of the value added. The full MVNO must also manage all its interconnections with other operators – it also receives income from other operators for call termination-, while the light MVNO relies on its host operator.

The funding implications

You can easily conclude that these two models have very different funding profiles. : The establishment and operation of a core network require significant investment in exchange for the freedom it provides. However, the weight and the risk of such investments may be limited: either the MVNO expands its addressable market, for example by being present with the same core network in several countries, or an MVNE or MVNA technical partner assumes the risk of implementing a core network shared between several MVNOs.

The implications in terms of sustainability

The light MVNO model is by far the most common: it requires little investment and it is often based ona well-understood common interest where the MVNO addresses a specific customer niche that the host operator has difficulty tackling. The light MVNO model is the implementation of an ecosystem between the two entities. And one could wonder whether  the only possible outcome in this model is the acquisition of the light MVNO by the host operator, as recent history has often showed us. Unless the Light MVNO can transform into full MVNO if conditions allow it.
With higher investment costs, the full MVNO better controls its destiny by controlling the HLR: it can change its host operator and therefore retains a strong bargaining power with all mobile operators. It might even have multiple hosts operators in parallel and optimize accordingly its costs and services.

The prospect

These models have been developed over the last 15 years, and are now institutionalized especially in the context of national telecoms regulations in Europe, which tend to align. They are therefore important to understand the structural evolution of the mobile offerings and of the competitors in the future development of 4G.