Avoiding MVNO Failure: Top 10 Key Success Factors

By CSMG
Telephony Magazine, January 23, 2006

With a swarm of MVNOs entering the market, attention will shift from securing business cases and carrier contracts to ensuring actual success on the wireless battlefield. Of the fifteen or so MVNOs entering in 2006, at least 40% will fail and 10% will under-perform against expectations. These failures will likely be attributable to rudimentary mistakes that we have seen all too often.

The 2006 MVNO market will see the entry of prominent media brands and well-funded startups focused on the high end, media rich segment. Smaller companies will also enter, securing customers through service and marketing differentiation. Successful new MVNOs, whatever their focus, will both accelerate the global phenomenon of the 'hyper-segmented market' and drive much-needed product and marketing innovation.

To help these new players, we have outlined the Top Ten Key Success Factors essential to MVNO success. We have supported over 25 MVNOs, and seen the challenges where they count-from the inside, and have seen ten key elements common to successful MVNOs.

1. Pick the Right Leader
Certain MVNOs will fail in 2006 due to poor selection of their top man. Wireless is a specialist industry requiring deep insight into wireless economics, technology and competitors. Successful MVNOs leverage a telecom expert enabled by core business executives and not the other way around.

2. Know the Target Segment
Most new MVNOs claim to understand their target segment. We have found that they often recognize the broad likes and dislikes of their target audience, but fail to translate these needs into telecom fundamentals. Understanding how 'segment needs' affects telecom usage, execution of new wireless services, or partner selection is critical. Technological, economic and core wireless usage drivers are often poorly understood if at all.

3. The Asset-Light Strategy
One of the foundations of MVNO theory is that a third party with some key point of differentiation seeks to leverage someone else's capex and fixed investments. Too many MVNOs are forgetting that to ensure sustainability they must avoid fixed-cost outlays. We see significant expenditures on excessive headcount, systems duplication, and ego-driven expenditures (buildings, planes etc.) - which are off-strategy and put significant pressure on margins post-launch.

4. Secure a Win-Win MVNO Contract
Recent due diligence of existing contracts for investors and other third parties has shown significant variability in terms and conditions, often from the same carrier. There is a series of proven techniques when securing a healthy contract - most important is to ensure a win-win fit with the host carrier. Each carrier is strong in some segments/geographies and weak in others - know these and position the MVNO as an additive proposition for success.

5. Understand Wireless Economics-How are You Different from the Average?
MVNOs entering the 2006 market with 'me too' products that have no economic advantage will fail. It is vital to ensure that the MVNO will do something different - that it will have lower CPGA and churn or higher ARPU. Moving the needle on one or more of these is critical. Successful MVNOs alter existing wireless economics.

6. Define Your Point of Differentiation to Drive Sustainability
We are seeing the emergence of duplicate MVNOs with little or no customer-valued differentiation between them. An example is the Hispanic segment, in which MVNOs are all branding with a Latin name, all offering discounted pricing to Mexico, and all securing Hispanic content. Successful MVNOs drive a sustainable point of differentiation - whether based on technological, content or closed-ecosystem strengths.

7. Select World Class Partners
In the rush to get to market, MVNOs are not doing their due diligence on vendors, particularly on MVNEs. Upon completion of written and on-site MVNE due diligence, we are often shocked at the lack of true integration between the MVNE and its solution vendors, and at the significant variability in pricing. All too often, MVNOs are delaying launch because of poor MVNE selection.

8. Keep Things Simple-the Handset Can Intoxicate
While intoxicating to MVNO management, the cost of developing a new handset can only stress MVNO economics for marginal benefit. It will become a horrible investment, laden with cost and launch delays. Handset differentiation should take place at the UI level not at the radio level.

9. Avoid 'Standard' Wireless Distribution Channels
The best MVNOs leverage distinct channels, invariably cheaper and more targeted, to serve their customers. We have seen even Virgin struggle within Sprint stores. New MVNOs will suffer alongside the incumbent carriers within the Best Buys of this world. MVNOs with a new distribution channel are, more often than not, successful.

10. Prepare for Convergence and the Triple Play Market
The success of a wireless-only strategy is not necessarily guaranteed. We believe the cable MSOs will be formidable competitors for the existing wireless carriers and that bundling - with wireless at its core - will have a significant impact. New MVNOs must consider how their strategies can evolve over time to include converged products that link to the in-home PC and TV.

Many wonderful new MVNO players are coming to market in 2006/7 and we are excited to assist their progress. The 40% of MVNOs that will fail will ignore these lessons learned from five years of supporting new MVNOs. Our most successful MVNO clients live by most, if not all, of these key success factors. Whatever your view, we wish you well on your journey to the new frontier.