MVNO Architecture Sessions (1) – Going from “Thin” to “Thick”

Mobile Virtual Network Operator (MVNO) architectures are often described as thick or thin as if there are only two acknowledged architectures accepted by the industry. In reality for any sizeable MVNO there is a range of decisions that need to be made depending upon the strategy being adopted and their approach to the market. One thing is common and that is an MVNO buys access to a Mobile Network Operator (MNO) Radio Access Network (RAN). By buying these air-time minutes and data packages in significant bulk, the MVNO obtains enough of a discount to make a margin selling a complete service package to their own customers. Here we look at the various options that can be adopted.

Beginning at the “thin” end of the options; this typically where a small MVNO will be positioned by any MNO willing to deal with them. Rather than try and meet a diverse set of requirements from a number of different MVNOs, the MNO will typically call upon their preferred aggregators, called Mobile Virtual Network Enablers (MVNEs,) to provide the platform which facilitates the MVNO entering the market. The advantage to the MVNO is that this is usually a much quicker route to market than dealing directly with the MNO and certainly requires relatively little network capex investment on their part. MNOs use MVNEs mainly for their large tail of smaller MVNOs simply because they do see the value in dealing directly with them and using MVNEs passes a lot of the support work on to a third party. These third parties are however, another mouth to be fed in the food chain and therefore more ambitious MVNOs insist in dealing directly with an MNO and avoid the MVNE altogether.

In this ‘thin’ example quite often the MVNO has no interface with any of the real time aspects of the voice, data or SMS services as they are shielded from these by the MVNE. The MVNO is then left to focus on their own branding, channels, sales, customer support, and direct billing. For many small MVNOs this is a perfectly adequate model. These tend to be MVNOs trying to compete on pricing or who are maybe addressing a niche segment of the market with their own brand and specific sales channels.

The major downside of the thin MVNO architecture is that the products and services that the MVNO can offer its own customers are completely constrained by those that the MVNE MNO combination choose to make available to them. This can represent a considerable constraint on the MVNO’s ability to differentiate in the market place on things other than price, since in general the MNO will tend to favour its own retail and large wholesale partner base before the smaller MVNO accessing through MVNEs. Having said that some MVNE systems do strive to offer the maximum flexibility to their customer MVNOs but it is limited compared to that which the MNO deploys for itself.

A degree of additional capability and flexibility in service offerings can be achieved by the MVNO through the deployment of their own charging systems. This is an effective step since the majority of market differentiation that the MVNO can achieve will be centred on their pricing and bundling. This can include introducing a mobile package into their own product portfolio. This can be something simple like including the mobile service on the existing utility bill for example through to integrating mobile into their preferred service offering, which could be mobile banking for a financial services provider or even adding mobile to an existing fixed line operator, broadcaster or ISP to form a quad play.

Whatever the business strategy of the MVNO may be, it is becoming apparent that the commercial arrangement between and MNO and an MVNO is paramount to the success of the MNO. As mentioned previously, most large MNOs will seek to push all of their (smaller) MVNOs to MVNEs and introduce the extra mouth in the food chain, and so a small, new entrant, thin MVNO is faced with a lethal cocktail of lower volumes and limited flexibility in terms of the proposition that can be put into the market, and relatively uncompetitive rates for the wholesale services being bought from the MNO via the MVNE.
Many MVNOs which continue to use the services of MVNEs struggle to remain in business and looking at the UK market for instance most small MVNOs have ceased trading leaving only MVNOs of significant scale in play, and nearly all of those are thick, or in the process of becoming thick.

And so we see the nature of the modern MVNO changing much more towards large companies with the capability to bring to an MNO what they want to see before entering into a commercial agreement that works for both parties. Increasingly MNOs are looking for MVNOs who have significant brand presence, good existing channels and distribution, and a proven ability to service a large (mainly consumer) customer base. Ideally they look at brands which won’t cannibalise their own base too much but they are also pragmatic in knowing that if they don’t strike a wholesale deal with a potentially strong MVNO, then one of their competitors will. Selling bulk wholesale airtime minutes and data packages to MVNOs is still good business for an MNO. It increases their overall revenues and it’s better to be serving MVNOs rather than see them stealing their customers. Therefore the bigger or more ambitious MVNOs with credible market entry plans, get the best deals from MNOs. But bigger MVNOs have greater ambition and look for bespoke commercial and technical deals with an MNO which often requires that they begin to provide more of the infrastructure for themselves and lessen their dependency on the MNO.

So the bigger MVNO has with the necessary influence and resources to do a deal directly with the host MNO. Often they want to hedge their bets when entering the mobile market and therefore chose the thin architecture to begin with as this allows the least effort on their part whilst still be able to ‘test the water’, as their customer base increases they can move from thin to thick in gradual steps. In this case many options are open in terms of the functionality that the MVNO may negotiate to deploy and these will invariably involve complex and difficult conversations with the MNO. The table below shows the typical functions that a large MVNO is likely to consider and the benefits and issues with the deployment of each of them, written from the MVNO perspective. As we move through the options we cross from thin to thick MVNO, requiring almost all the network components utilised by an MNO to be self-provided by the MVNO accept for the RAN. In this case the ‘virtual’ operator begins to look much more like a fully-fledged Telco in its own right and therefore needs all the skilled resources of an MNO with the exception of the radio competencies.

How MNO’s can achieve that we will discuss in our next post of the MVNO Architecture Sessions – stay tuned.