MVNO Business Planning

Coleago is dealing with an increasing number of non-telecoms businesses which would like to leverage their brand, distribution, customer base or other assets to enter the mobile market as a Mobile Virtual Network Operator (MVNO). This includes niche players and as well as players with a broad target market. Our services for prospective MVNOs start with the initial feasibility, through to detailed business planning, host network negotiation and implementation.   

In contrast to network operators who have had to commit billions of investment to build their networks the capital requirements for MVNOs is very modest, especially when they can operate on a Mobile Virtual Network Enabler’s (MVNE) platform. The MVNO also has low operational gearing (the variable costs associated mainly with the cost of wholesale traffic are higher relative to the fixed costs of operating the business) which means that it can become EBITDA positive with relatively modest market share compared to an MNO which probably requires a minimum of 10% to 15% of the market to remain viable. Despite not requiring significant market share the MVNOs, with their highly targeted and focused brands, are actually able to establish a cohesive customer base relatively quickly. The combination of low capital requirements and the scope for reasonable EBITDA and EBIT margins (depreciation and amortisation charges being negligible) offers MVNOs the scope to achieve significant levels of return on capital employed. It is no wonder that we are seeing an increasing number of MVNOs entering the market place despite the maturity of the industry.

The combination of an increasingly favourable regulatory environment and market maturity has led to a significant growth in MVNOs. Despite the improving environment and the more favourable wholesale terms being offered by networks the list of failed MVNOs also continues to grow, demonstrating that creating a viable MVNO remains challenging.

Of the recently launched MVNOs it is too early to say whether they will ultimately create value for their shareholders. However, reviewing the accounts of Virgin Mobile reveals that where an MVNO can leverage its brand, customer base and distribution assets effectively the resulting returns on capital employed are impressive – in the case of Virgin outperforming their host networks by a factor of 10!

The main challenge for an MVNO business case is no different to any other business and that is to have a good “story”, some form of competitive advantage, a source of differentiation or a USP (unique selling point). This is most effectively achieved when the business can leverage existing assets such as existing customers, brand, distribution, content or infrastructure.

A good MVNO business plan, whilst essential, is not sufficient to ensure success. The greatest challenge is securing a network deal which allows the MVNO to create value for shareholders. The chances of negotiating a good deal are significantly enhanced if the underlying MVNO business case proposition is strong and is presented in a clear, consistent and compelling business plan which is supported by a flexible and detailed Excel based business model.

The chances of successfully securing a network deal are increased if the target host network is selected with care and the MVNO’s network architecture is carefully matched to the business needs.

Even with a strong MVNO business case and a favourable wholesale deal the MVNO business plan is still nothing more than just a plan. To create value for investors the plan must be implemented and this requires the careful selection of equipment vendors and world-class programme management to ensure successful execution. Once launched the only remaining challenge is to keep pace with the constant change of the telecoms sector!

Coleago’s consulting team have unrivalled experience of developing and reviewing MVNO business cases and can provide valuable insights from both the MVNO and operator perspectives. To learn more about how to develop winning MVNO business plans download our paper on the Critical Success Factors for MVNOs or contact us to discuss how we can support you in creating a successful MVNO business.

Main contacts:

Graham Friend
Managing Director
Tel: +41 79 855 1354
graham.friend@coleago.com

Scott McKenzie
Director
Tel: +44 7825 294 576
scott.mckenzie@coleago.com

Downloads

MVNO Critical Success Factors Coleago.pdf