The vast majority of MVNOs launched across the world have focused on low-cost, no-frills services, be it international calling, basic low-cost prepaid or discounted service bundling. Indeed, some of the most successful MVNOs in the world, such as Tesco Mobile and Poste Mobile, have adopted this model. As price competition increases, however, it is fruitful to look beyond this, and to consider new business models for mobile wholesale.
This article examines three innovative models that target lower-value users and those with a lower propensity to pay (see figure on the right).
Perhaps the furthest away from the no-frills MVNO, the hardware- or content-funded MVNO model not only removes the focus on the price per unit, but removes the customer's awareness of unit usage - or even of using a mobile service at all - because the cost of the mobile service is absorbed into the hardware or content purchase price.
One example is the Amazon Kindle: by paying 60 pounds (55%) extra for the device, customers can download content over Vodafone's 3G network "for free". The cost of the mobile service is covered by the original price uplift and the cost of the content - even though content costs the same whether it is downloaded over Wi-Fi or the mobile network. Thus the customer is unaware of paying for the mobile service per se. This disassociation of the mobile service from the core user experience effectively removes direct competition on the mobile service pricing, transferring it onto the core product.
Significantly, Amazon is not offering 3G connectivity with its new color-screen and HD products, presumably because of the cost of transmitting HD media via mobile networks. This business model will be most successful where relatively little data is consumed, and the wholesale cost of its carriage is small compared to the price of the hardware or content: it is likely to be adopted first for machine-to-machine services, such as smart meters, white goods and in-vehicle telematics.
The model is not appropriate for more data-heavy applications and content. As the model represents a completely new revenue stream, it is in the interests of operators to embrace it and seek appropriate hardware or content partners. However, owing to the divorcing of revenues from costs, there is an inherent risk of unexpectedly high usage - this risk can either be borne by the hardware provider or the mobile operator, and the price per unit negotiated will reflect this.