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Europeans Stretch 'Virtual' Boundaries

Operators seek stickiness with further 2G wholesale arrangements, but what 'virtual' deals might be struck in a 3G world?

June 24, 2002

4 Min Read
Europeans Stretch 'Virtual' Boundaries

Telia Mobile and Vodafone Group PLC (NYSE: VOD) today announced new reseller deals with utilities service providers that should, over time, boost network traffic and help reduce churn.

While Sweden's Telia made ACN Communications Sweden AB the fifteenth service provider to which it supplies various degrees of mobile telecom service for resale (see ACN Signs With Telia), U.K. utilities provider Centrica PLC extended its existing relationship with Vodafone to offer a low monthly line rental post-paid service through its One.Tel brand (see One.Tel Rents Lines Cheap). One.Tel, which already provides fixed telephony and Internet services to 850,000 U.K. consumers, is part of Centrica Communications, which sells telecom services to its gas and electricity customers. ACN aggregates and resells packages of utility services, such as gas, electricity, and telephony, through multiple agents.

Such reselling deals are often described for convenience as MVNO (mobile virtual network operator) arrangements, even though the reseller, which often manages only the customer service and billing arrangements, would not always be classified as falling under proper MVNO regulatory definitions.

Give or take the odd tweak, a "true" MVNO has its own infrastructure, back-office systems, and number ranges, and requires only access to a license-holder's spectrum to provide a service. In Europe, only Sense Communications appears to be meeting such conditions, while most so-called MVNO deals are little more than glorified wholesale deals [ed. note: Let the arguments rage on the message boards!]. Such definitions will become increasingly important as 3G license holders roll out their networks and services -- more of which later.

In the second-generation world, however, third-party service provider relationships are becoming more important in saturated markets as operators seek to minimize their efforts, and costs, in a bid to win and retain traffic-generating customers. "These deals help the service providers in a number of ways," says John Fletcher, a senior consultant at Analysys Consulting. "They should help to reduce churn if, in Vodafone's case, a Centrica or One.Tel customer is receiving the service as part of a bundle. Also, this is a low-cost channel to market for Vodafone. The cost of acquiring such a customer is low."

Though such deals proliferate in Western Europe, they are not strictly MVNO arrangements, no matter how much the likes of Virgin Mobile (which has just started a similar service with Sprint PCS in the U.S.) would like to describe them as such. And although it is how a company performs in the market, and not what it calls itself, that is important, says Fletcher, the definition of an MVNO will be crucial in certain territories once third-generation networks are up and running.

This is because some countries, such as Sweden, have built in conditions to their 3G licenses that require the operators to allow such "virtual" operators onto their networks. In Hong Kong, 3G license holders have to reserve some of their spectrum specifically for MVNOs. Such countries have clearly defined what constitutes an MVNO, effectively dashing the hopes of those resellers angling for a cheap and easy route into 3G.

In most other countries the decision lies with the license-holder, with guidance from the regulator, and Fletcher believes such arrangements will be resisted initially as too risky. He says 2G operators know the behavior patterns of their customers and of their rivals' customers, making any decisions about allowing third parties onto the network relatively straightforward. Basically, the risk that existing revenues might be cannibalized can be assessed. 3G is another matter.

"One 3G license holder in the U.K. [where there are no obligations to host virtual operators] has changed its position on MVNOs," says Fletcher, "having now decided that it is not possible to cost or price such a deal. 3G is too much of an unknown. Whilst it could be seen as a short-term fix, a quick way to generate some revenues -- from the deal itself and then from the extra customers brought onto the network -- it could backfire as the market grows."

Certainly Hutchison 3G UK Ltd., which aims to launch before the end of 2002, is not planning on letting other service providers use its spectrum any time soon. "We are in the business of providing 3G services, not hosting MVNOs, and we are very focused on one thing right now, and that is launching this year," says Ed Brewster, head of corporate communications at the mobile operator. "Although I am not definitively ruling out such an agreement in the future, we are certainly not planning any MVNO deals. Our strength is in our spectrum."

— Ray Le Maistre, European Editor, Unstrung

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