Volume 16, Number 2 Article by Hemant K Sabat June, 2004
Mobile Virtual Network Operators Drive Scale and Scope Economies :
Despite raising expectations, the mobile wireless industry is currently plagued with volatile market conditions. Mobile wireless players are striving to streamline their services, applications, and revenue and business models to revive the industry. In an attempt to fill the lacuna caused by the evolution of the industry outpacing research on the emerging business models, Hemant Sabat analysed over 50 operators, content providers, application providers and aspiring new players to present a theory of the MVNO business model.
The main thesis of the article is that the MVNO model is an outcome of economies of scale efficiencies arising from the core competence of a company in specific business operations of the mobile wireless value chain, and of scope economies. How the industry evolves to balance the risks associated with its implementation to earn these benefits will decide the success of this model.
The two main MVNO models in practice are: 1) the MVNO sets up a support layer that replicates a traditional portion of the carrier's infrastructure; and 2) the network operator provides the essential infrastructure. The benefits to various stakeholders include providing an opportunity to players who missed the spectrum ownership race, providing customers with personalised content as well as freedom from the confusion that the multitudes of technological solutions create, and many lucrative propositions for wireless carriers. The MVNO model also carries material risks and poses implementation challenges for its stakeholders as well. The greatest risk for a carrier lies in the divided loyalty of the customer. Carriers may also face capacity constraints. This article helps equip researchers, managers, investors and regulators with a balanced understanding of the MVNO model, which could be leveraged to drive operational efficiencies in the value chain, and growth of the industry.
Reprint No 04201
