There’s a very famous Monty Python sketch about brontosauruses. John Cleese plays ‘Anne Elk (Miss)’ who is being interviewed on a chat show about her new theory, which relates to Brontosauruses. Miss Elk’s eventually expounds her theory which is that Brontosauruses are:
‘thin at one end, much much thicker in the middle, and then thin at the other end’
You can’t really knock the insight, if you’ve not seen the sketch its worth a quick look on you tube, there is a live version, but you might want to look from about 2 minutes in.
All very interesting, but you might be wondering what it has to do with MVNOs, fair question, do let me explain.
MVNOs come in many different shapes sizes and architectural styles. At one end of the spectrum are what are referred to as thin MVNOs, these are companies that sell their own mobile brand, but rely very heavily on their host MNO for the majority if not all of the telecoms services. In some cases, these companies really are just sales channels and a brand. Some of them are capitalising on their brand strength and others are serving specialist market segments.
At the other end of the spectrum there are ‘thick’ MVNOs, these are companies that use a host MNO for the radio access network, but do much more of the remainder of the service themselves. For instance, they may have their own on-line charging system to bill mobile usage, or even their own PGW, the gateway device through which a customer’s data traffic passes, they may provide their own SIMs and have their own IMSI and network codes.
There isn’t really a clear definition of the dividing line between thick and thin MVNO but you get the drift I hope. What we do know is that there a lot of them about these days. There are over 140 MVNOs in the UK alone.
MVNOs developed quite a while ago, probably 25 or 30 years ago. At the time the first MVNOs I came across at least were all thin, for a couple of reasons, firstly the MVNOs themselves didn’t really have a lot of knowledge about mobile and so were struggling to get the terminal fulfilment and branding applied to a mobile offering let alone engage in any more complex and expensive mobile technology, and secondly because at the time the host MNOs were paranoid about giving any control away of the telecoms services to an MVNO that wasn’t a member of the exclusive club of companies that had bought some very expensive spectrum. The way they saw it, they weren’t about to give away any of that value.
Time moved on and a side effect of the thin architecture rapidly became apparent to the MVNOs, which was that they were heavily locked into their host MNO. That might not have mattered during the initial contract and subsequent honeymoon period between them and their new host MNO partner, but after a few years, they tended to fall out of love with their host MNOs. There were two drivers for this discontent, one was that the reality of cost pressures sunk home on the MVNO, and the other was that the management of the host MNOs became disenchanted with their wholesale MVNO businesses, and tended to neglect it and milk it for cash.
The problem that the MVNOs then had was that they were so dependent of their hosts that to risk a move to another host could cause such a service disruption that staying in an unhappy marriage with their original host was the only viable option. For instance in the UK, many MVNOs were at the lower end of the market selling prepay services, without properly registering customers, leading to a position where a change of host MNO would require a SIM swap…… tricky to do if you don’t know who your customers are or where they live!
The natural effect of this was for many MVNOs to try to become less dependent on their host MNOs. There were two main drivers for this. One was so that they had much more leverage in commercial negotiations with their host MNO because they always had a viable threat of moving elsewhere. The second was to be able to differentiate services and have a greater control over tariff structures. For this independence to be real, and perceived as real by their host, they needed to wrest several pieces of functionality from the host, typically:
- Their own IMSI range and MNC code
- Their own HLR/HSS
- Their own charging services
- Their own GGSN/PGW gateways
- Their own voice and SMS infrastructure
An MVNO that provided all of the above themselves would definitely be in the ‘thick’ category and would have quite a realistic opportunity to move hosts if they needed to, to find a better commercial offer elsewhere. Pretty much that is where we are today, with a mix of MVNOs, but many of them electing to provide quite a lot of the technology of the mobile core, charging, and admin systems themselves.
As time goes on the big thing that is changing from a market point of view is, as everyone knows, the consumption of data. Data usage is increasing at something like a 40% CAGR, leading to some pretty high payloads being sent via the MVNO cores.
At the same time the MNOs seem to have a policy that the wholesale rate for a thick MVNO will be no lower than that for a thin MVNO, even though the thick MVNO is doing more of the ‘work’. I assume this is back to the old philosophy of wanting to keep the MVNOs as dependent and locked in as possible.
Now you’ll recall the reason why MVNOs like the idea of being thick is that they get independence and can control their own propositions. A thin MVNO has to go to their host for each and every change which can be a painful experience as they compete for IT and network change slots which are being shared in providing changes for the host MNOs own services, and they will be very much the poor relation in this respect. Ideally the thick MVNO will control all of the components needed to control their proposition themselves, and so they can make more of these changes without being dependent on the MNO engineering teams and processes.
As time has gone by, I have noticed that by far the majority of differentiation in services is commercial, there is very little differentiation in data functionality, other than what domains are zero rated, which does differ from MVNO to MVNO. Even speech services are very similar, as is SMS.
So, if we cycle back to the requirement to maintain MNO independence it can be argued that time has shown us that independence comes from being able to control your own charging tariffs, be it real time or post pay, and to be able switch between MNO hosts by having the HSS/HLR and SIM, or in a couple of years time by using e-SIM technology to seamlessly switch the IMSI in use. The net result is that the drivers for being at the thicker end of ‘thick MVNO’ are rapidly disappearing.
Looking forward, as 5G turns up with the expected very high volumes of data traffic the reasons why an MVNO would want to carry the payload traffic become even less obvious because:
- The majority of differentiation comes from (and with 5G will continue to come from), the charging and tariffing systems such as the OCS which are not involved in handling the high data payload
- The costs of handling data are related in some way to the volume of data, and since the MNOs show no sign of giving a discount when the MVNOs support the PGW, the data increases expected with 5G will simply increase thick MVNO costs
An attractive scenario for a thick MVNO of today might be to reconsider their architecture for 5G data payload, asking their host MNO to support it for them, in particular because given that the MNO will be working at higher scale it will have a more economic solution than the MVNO could achieve.
This leads to a migration towards a thinner network architecture for the MVNO than they may have considered optimum in the 2G, 3G, 4G era.
That takes me back to Miss Anne Elk, I think her theory of brontosaurus’s can be reapplied to MVNOs, something like:
‘MVNOs were very thin at one time, much much thicker now, and will be thin again in the future’
At Azenby we have worked with many MVNOs, to help them from business strategy, architectural analysis, through to vendor procurement and host MNO choice and negotiation. We believe passionately that periodic reviews of ‘cast in stone’ decisions such as architectural structure of networks should be undertaken. We have seen many companies sleepwalk into an inappropriate technical architecture because they have not tracked technology and industry changes closely enough, which is understandable once the operational pressures of the day take over their attention. If you would like to discuss how Azenby can help your MVNO business please get in touch.