The next-generation of MVNOs are seeking to turn the MVNO model on its head, transforming what has traditionally been a cost story into a full-fledged revenue story. Such operations will generally be cost-heavy, with CPGA (cost per gross acquisition) and CCPU (cash cost per user) levels expected to be equal to or higher than that of network operators. These MVNOs look to generate ARPUs that are higher than that of MNOs by using customized, unique content, and slash churn by providing superior services tailored to the customer segment. Indeed, of all the operating metrics we took into account in our model, the impact of an upwards change in ARPU levels on the net present value of the lifetime of a wireless subscriber was the greatest. A review of net contribution per subscriber also suggests that next generation MVNOs may have a sensible plan, assuming that they can execute on their assumptions.
Traditionally, MVNOs have been operationally light, voice-centric and consumer-oriented, and highly dependent on the host operator's network. Throughout this year, we will see the emergence of next generation MVNOs – a more sophisticated breed of MVNOs that will be less 'virtual' than most, managing or partnering to control key elements of IP-based network infrastructure, with advanced back-end billing systems, customized handsets, and application servers.
Next generation MVNOs believe they can generate better margins than their low-end, mass market peers. The thinking is straightforward; if the MVNO can generate ARPUs that are higher than that of MNOs (by using customized, unique content), keep its CPGA and CCPU at relatively similar levels, and slash churn, its margin potential becomes substantially more attractive than that of a simple reseller of airtime. In this particular case, MVNO profitability is primarily a revenue story. If the MVNO is able to reduce some costs by leveraging existing assets such as proprietary content, distribution channels, and brand recognition, that’s even better.
A review of net contribution per subscriber suggests that next generation MVNOs may have a sensible argument, assuming that they can stand behind their claims. Net contribution per subscriber per month tends to be low (or neutral to negative) for the average, pre-paid-focused MVNO. By contrast, next-generation MVNOs are bound to generate better margins if they can, indeed, generate higher ARPUs. The proposed Disney venture has provided further insight into this revenue-driven model, which is analyzed in detail inMVNOs and MVNEs: Analyzing the Viability of Virtual Mobile Players .
Moving forward, the performance of the earlier examples of next generation MVNOs will have an impact on the moves of other companies with similar aspirations. While there will arguably be a significant difference in profitability levels, we believe that both models will coexist, with next generation MVNOs outnumbered by “lighter” MVNOs. Yet, we expect that as some of the so-called “lighter” MVNOs grow, they will introduce more data-oriented services in order to further monetize their subscriber base, creating more opportunities for MVNEs, particularly specialized enablers.
