MVNO Business Essentials - Nereo Consulting

1 MBE -200410 mvno Business -2004102 THE mvno BUSINESSLAUNCHING A MVNOCONCLUSIONSABOUT USINDEX MBE -2004103 THE mvno Business What is a mvno Agreement at price level Quality management (SLAs/KPIs) Mechanisms to garantee the relationship s evolution (new services, price update procedures,..) Value proposition (SAC, products and services) Efficient management of the customer s retention (churn, SRC, customer care)Essentially, mvno Business consists in managing two key relationships:Mobile Network Operator (MNO) and the end-userMVNOMNOEND-CUSTOMERSAM obileVirtualNetworkOperator( mvno )provide smobileserviceswithoutowningspectrumandu suallyreliesontheMobileNetworkOperator s(MNO) -2004104 DistributionCostBundlingSegmentationBran dMVNOH andset / which means that mvno Business is mostly a market segmentation game for mature mvno Business Market entry strategiesMBE -2004105 Totapintothemarket, mvno smusthaveexistingvaluableassetstoleverag eonmoreefficientlythantheirrespectiveHos t-MNOsdo.

2 ASSETSDESCRIPTIONE xamples of MVNOsSegmentationRetailing &DistributionCustomer PortfolioBrandEfficiency of OperationsApplications/ContentsCustomerM anagement Beingabletoaddressspecificsegmentsofthem arketand/orwithinaparticulargeographical area Beinginpossessionofanexistingdistributio nnetworkwithcapillarityandlargeflowofcus tomers Havinganexistingcustomerbaseonwhichperfo rmcross-sellingofproductsandloyaltyprogr ams Havingabrandwithrenownedbusinessprestige orhighlevelofrecognitionamongthecustomer s Being cost-effective witha lean&mean operatingstructure Havingvaluableaudio-visualcontentorinnov ativeapplicationstobedeliveredonmobility Beingabletoofferexcellenceinthecustomere xperienceTHE mvno Business PossibleSuitorsMBE -2004106 Services &IT PlatformOwnershipand OperationOf the MobileNetworkCustomerCareServiceMarketin g& SalesServices &IT PlatformCustomerCareServiceMarketing& SalesOwnership of Miblie on selected partners through outsourcingSpecific offers for each market segmentOnly one MarketMarket SegmentsExecuted in-houseOutsourced to an external partner ( mvno ).

3 Radicallyreducingcosts(increasingtheEBIT DA) Reachnewconsumersinmarketsegmentsnotyett appedinto(newdistributionchannels)Insatu ratedmarkets,competitionbecomesamarket-s haregame, allow MNOs to address specific market niches which they have not yet tapped into, while incurring lower Subscriber Acquisition Costs (SAC) adding efficiency to the value chainOperation of Mobile mvno Business How MVNOs create value for MNOsMBE ,whichisverycommoninothertelecomareas( )WHOLESALERETAILMVNO(Partner)MNOMOBILENE TWORKMNOMNOT hrough this strategy, MNOs can maintain its current retail Business and tackle complementary market niches by reaching mvno partnerships with the appropriate local players mvno (Partner)THE mvno Business Creating a new revenue stream for MNOs7 MBE -200410 Without MVNOWith MVNOS ubstantiallyLowerSACARPUS lightly Lower TheSubscriberacquisitioncost(SAC)inthewh olesalebusinessforanMNOiszero,duetoitfal lingontheMVNO.

4 TheAverageRevenueperUser(ARPU)inthewhole salebusinessisonlyslightlyinferiortotheA RPU oftheretailbusinessfortheMNO. Inthisway,theEBITDA margin% the Host-MNOs, the EBITDA margins for customers acquired by mvno is 3x the retail oneBesidesbeingasourceofgrowthfortheclie ntportfolio, marginLower margin %THE mvno Business Benefits of MVNOs for the MNOsWithout MVNOWith MVNOW ithout MVNOWith MVNOIMPACT OF mvno Business ON MNO s FINANCIALSMVNOs help MNOs to drastically improve their EBITDA margins by reducing SAC costs with only a slight reduction in ARPU8 MBE -2004109 THE mvno Business MVNOs in EuropeNumber of MVNOs and their market share in Europe (end of 2009)MVNOs have been quite successful in garnering market share in most European countriesSource: Nereo Analysis with company data<1%1% -5%5% -10%10% -15%>15%MVNOs Market shareSpain: 22(Simyo, Lebara)Portugal.

5 5(UZO, Tele2)France: 11(Carrefour, Tele2, Virgin)Luxembourg:2(KISS, Transatel)Belgium: 35(Simyo, Transatel)Netherlands: 39(Simyo, Tele2)Norway: 16(Mobyson, Sense Talkmore) : 25(Virgin, Tesco)Finland: 9(Saunalahti, Oyj)Sweden: 18(ACN, Sense)Germany: 29(Ay yildiz, Simyo)Austria: 5(Yesss!, Tele2)Denmark: 16(CBB Mobil, Telmore)Italy: 14(COOPVoce)Switzerland: 5(COOP Mobile, Tele2)MBE -200410 Tele2/Sunrise -Switzerland Tele2acquiredbySunrise Value:33millionEUR PriceperCustomer:63 EUR Year:2008 Sense/TeliaSonera -NorwayVirgin UK/NTL -UK VirginUKacquiredbyNTL Value:1,060millionEUR PriceperCustomer:318 EUR Year:2006 Bibob/Telenor DenmarkHutchison/CPW -GermanyAllmobility/Vodafone -Germany AllmobilityacquiredbyVodafoneAG Value:25millionEUR PriceperCustomer:62 EUR Year:2007 Sense/TeliaSonera -SwedenSaunalahti/Elisa -Finland CBBacquiredbySonofon Value:45millionEUR PriceperCustomer:103 EUR Year:2004 TELE2/VIRGIN -France Tele2acquiredbyVirgin Value:56millionEUR PriceperCustomer:140 EUR Year.

6 2009 THE mvno Business mvno Transactions Exit strategies HutchisonacquiredbyCPW(CarphoneWarehouse ) Value:52millionEUR PriceperCustomer:96 EUR Year:2003 BibobacquiredbyTelenorDenmark PriceperCustomer:181 EUR Year:2009 SenseacquiredbyTeliaSonera Value:189millionEUR PriceperCustomer:104 EUR Year:2004 Chess/SenseacquiredbyTeliaSonera Value:185millionEUR PriceperCustomer:457 EUR Year:2004$10 MBE -20041011 THE mvno Business Operational ModelsLAUNCHING A MVNOCONCLUSIONSABOUT USINDEX MBE -20041012 Branded ResellerRadio SpectrumService ProviderNetwork SwitchingVASSIM CardService PlatformEnhanced SPFull MVNOB illingPricing CapabilityProvisioningOwn BrandCustomer CareDistributionBranding, Sales & MarketingOperationsContent & Service ApplicationsEnabling infrastructure and network provisionFUNCTIONAL MODELSMVNO ownsMVNO does not ownMVNO may or may not CapabilityProvisioningOwn BrandCustomer CareDistributionTHE mvno Business Operational Models (I)

7 MBE +Branded ResellerEnhanced SPFull MVNON etwork OperatorAlternative mvno structuresLevel of ownership of the mobile network infrastructureMVNOsTelecommunication CompaniesUtilitiesRetailersNiche Operators SIM: not self owned Prices: are based on negotiations with an MNO under a retail-minusregime for the MNO prices Brand: own brand or co-brandingwith the MNO ( powered by ). Business Model: Revenues: based on revenue sharing with the MNO Costs: marketing, sales, distributionService Provider SIM: self owned Prices: own and independent from the MNO Brand: own brand or co-brandingwith the MNO (powered by ). Client ownership possible Business Model: Revenues: from traffic of it s own customers Costs: wholesale access tariffs, marketing, sales, distribution. OPEX and CAPEX associated to IT platforms Nonetworkinfrastructure CanpotentiallyhaveaVSplatform Nocapabilitytosetprices Noownershipoftheclient Radio Access Network Complete network infrastructure Nonetworkinfrastructure OwnVASplatform Ownbillingplatform OwnCustomerCare Ownershipoftheclient Withnetworkinfrastructure(noradio) OwnVASplatform Ownbillingplatform OwnCustomerCare Ownershipoftheclient SIM: self owned Prices: own and independent from the MNO Brand: own brand.

8 Complete ownership of the client Business Model: Revenues: from traffic of it s own customers Costs: wholesale access tariffs, marketing, sales, distribution. OPEX and CAPEX associated to IT platforms SIM: self owned Prices: own and independent from the MNO Brand: own brand. Complete ownership of the client Business Model: Revenues: from traffic of it s own customers Costs: wholesale access tariffs, marketing, sales, distribution. OPEX and CAPEX associated to IT platforms and network elements Nonetworkinfrastructure CanpotentiallyhaveaVSplatform Capabilitytosetprices PossibleownershipoftheclientTHE mvno Business Operational Models (II)13 MBE -200410 mvno OPERATIONAL MODELSE conomics associated to each mvno modelBRANDED RESELLERSERVICE PROVIDERI ncoming RevenuesOutgoingRevenuesHost-MNOHost-MNO %% of revenues + commission per gross addMVNO MarginIncoming RevenuesOutgoingRevenuesHost MNOC hargesMVNO MarginFULL-MVNOI ncoming RevenuesOutgoingRevenuesHost-MNOC harges(outbound calls)Host MNOC harges(incoming calls)

9 mvno Margin MVNOhas no control over retail pricing nor over the client, who belongs to the H-MNO mvno agrees with the Host-MNOa certain gross margin over the existing retail offer The MVNOmay also receive a commission per client acquired Interconnection revenues from incoming traffic go directly to the Host-MNO MVNOcan establish its own retail rates and owns the client, but not the IMSIs Wholesale rates may vary with the type of call/sms(destination): On/Off Net National / International Interconnection revenues from incoming traffic go directly to the Host-MNO mvno hasfullcontrolovertheretailpricingandals oovertheclientwithitsownIMSIs The mvno pays the Host-MNOa certain rate per min. for outgoing calls (A-leg) as well as for incoming calls (B-leg) to its end-users Interconnection revenues from incoming traffic go directly to the MVNOMVNO scanbeclassifiedbroadlyintothefollowing3 models,eachwiththeirspecificeconomicimpl icationsforthebusinessHost-MNOFull- mvno operational model provides higher margins and total independence from the Host-MNO, and it requires also the lowest effort to be implemented by the MNO14 MBE -200410 DependingontheMVNO operationalmodelandthesegmentofthetarget marketselected, Peak-funding 4-6 Mill.

10 USDEBITDA Margin(% of revenues) 10-15%CAPEX 2 Mill. USDB randed Reseller 7-10 Mill. USD 15-20% 3-5 Mill. USD(1)Service Provider 10-15 Mill. USD 20-25% 12-15 Mill. USD(1)Full MVNOS ubscr. Ownership The Client belongs to the MNO The Client belongs to the mvno The Client belongs to the MVNOS ource: Nereo analysisTHE mvno Business Operational Models Main Business Ratios15 MBE -20041016 THE mvno BUSINESSLAUNCHING A MVNOCONCLUSIONSABOUT USINDEX MBE -20041017 LAUNCHING A MVNOP hasesMVNO Agreement with Host MNOP hase IPhase IIITheLaunchofaMVNO canbebrokendowninto3seperatePhases:Phase II START UP PROJECT PLAN -LAUNCHDEFINITION OF STRATEGIC POSITIONINGNEGOTIATIONS WITH MNOsABUSINESS PLANNINGBCCIM arket Entry AnalysisNegotiations Launch PreparationStart-Up+IIDIIIM anagement Decision(Go No Go)MBE -20041018 Offers for churnersPositioningProducts& ServicesPricesDistribution ChannelsClient ManagementBranding & CommunicationThestrategicpositioninghast obeexaminedinthelightofthefollowingvaria bles.