At the moment there are two questions hitting my inbox: the first from operators asks whether MVNOs are still important and valuable in the market. The other comes from MVNOs looking to broker a deal – how do they do it?
Without doubt, the questions have to be answered with context. Factors such as market maturity, the regulatory regime and local market competition influence the strategy.
But no matter whether you are in Europe or Mexico, MVNOs only work if there is a snug fit between the operator and the MVNOs target market. The customer portfolio must be complementary for a successful long term relationship.
So, what do operators want from a deal? I’ve broken it down into five considerations:
Poaching In my experience, every MVNO is met with a concern about how it would cannibalise operator revenue. Ultimately every wholesale team starts with the question ‘will the MVNO steal a disproportionate share of our customers?’.
Good question and always worth asking. Just like any distribution strategy, incremental customers has to be the name of the game. So, to answer the question, MVNOs must prove that they have better access to customer segments than the operator.
That has to be the starting point for any MVNO pitching an idea. Doesn’t matter if it’s to target a business or consumer audience, if it will attract different demographics and / or introduce new distribution channels that aren’t readily available to the operator then you’ll have the board’s attention.
Market value Operators will also be concerned about the market being devalued. You can only avoid this through differentiation. Aggressive pricing action is a short-term tool from which nobody really wins, possibly not even the consumer if it is unsustainable, so operators will want to see some real difference in an MVNO’s proposition – something that gives the customer a reason to buy from the MVNO brand. This ‘uniqueness’ is generally aligned to the local market conditions.
Scale Another consideration is the potential for the venture to scale. If it can’t then it won’t succeed in the long-term. In many cases, unless the operator has a number of MVNEs or MVNAs setting up, an MVNO will use valuable resources that all have an opportunity cost associated to them.
MVNOs therefore have to be able to demonstrate sensible growth plans and that they will achieve scale for the operator. I stress the word sensible here. It’s easy to pluck a number from the air and show you are ambitious. But you must be realistic too. Any MVNO with ridiculously ambitious plans will burn their credibility with potential operator partners. Word will get around. Instead it’s best to apply best practice accounting and strategic marketing plans to put forward a concept that can be achieved.
Strong foundations Related to the question of scale is whether an MVNO has ready access to a base of customers. This could either be through an existing sales channel – think retail MVNOs like Tesco Mobile that leverages existing footfall into a store or online channel – or ones with access to an existing base of customers that would consider buying mobile services too. This could be retail loyalty card holders as Superdrug has done, or TV subscribers, utilities customers or existing fixed/ broadband customers buying another product as part of a ‘multi-play’ offer.
Operators will favour these types of partners beyond a new start up, which come with significant risk in terms of financial backing, unproven brand credentials, and no simple access to customers. Start-ups are only ever appealing if they have a really exciting and differentiated product. ‘Me too’ ideas are unlikely to get an operator excited.
The Prisoners Dilemma This is often overlooked, but it’s really important to recognise its importance in decision-making. If the potential MVNO is big, credible and likely to get a deal elsewhere then an operator may consider cannibalising its own base simply to secure the wholesale revenue than lose it altogether to a competitor network.
So, what should MVNOs do?
Segmentation It should be plain to any MVNO that you need to answer all of these strategic questions above. Above all you must be very clear as to who your target market is, and have real data illustrating not just the appeal of the proposition with the target customers, but also how it adds incremental revenue to the operator.
You’ll create a much stronger pitch here if you use segmentation and show you understand the behaviours of your target segment and how your brand fits in to their lives.
Data is imperative. It’s the only way you can give your brand credence and show you can comfortably predict what will happen. ‘We think’ is not good enough, your business case won’t stand up to the scrutiny of the operator review process. You must give them the proof points that will push the business case through.
Be selective If there is an operator with an obvious complementary fit then target them first. Think about it from their point of view too. For instance, if they are the smallest operator make it clear how you can help grow their revenues. In some markets, regulators insist upon MVNOs and even where this is the case it’s still very worthwhile to prove you are complementary to an operator’s model as it encourages good will and can even help secure more favourable commercials.
Tell a story I can’t stress enough how important this is. Tell your target operator a story and do it in a way that isn’t death by PowerPoint. By all means have slides, but use them to paint the picture that wows them, supported by a well thought through business case.
Swap shoes First impressions are important and with the right assets and strategy you can win an operator over reasonably quickly. But one tip I always pass on is to remember that your audience live in the corporate world and you’ll need to adjust your delivery accordingly. Sadly, though a simple white board pitch may work in a start-up, it won’t help your chances of getting the idea up to the board of an operator. They want to see exhaustive workings and well thought out and reasoned arguments. Have all the detail readily available to support your story.
Work smart By which I mean, get professional help where you need it. Operators are far more likely to engage with an organisation that understands its internal strengths but is also smart enough to get professionals in to help it bridge the weaknesses. If your strength comes from your brand and retail estate it will shine through. But if you don’t understand telco operations then it will also show. Hire professionals that speak ‘telco’ to ensure you understand the operator’s world and you find succinct ways to explain yours.
Graystone Strategy can help on this front. Its team of mobile strategists, product marketers, commercial negotiators and customer experience specialists will help you navigate the path, anticipate the challenges and put a winning strategy together.
Feel free to contact me for a quick chat and see how we can help you set the right direction and make a success of your idea.
You can find out more about how we have helped operators and MVNO’s here.