MVNO Systems

Question:

How does MVNO system work? (The main focus is on Business Support Systems). What are the integral parts of the system? Please explain the architecture in brief. Also explain MVNO business and operations in brief.

Response:

When setting up the MVNO, the first question need to be answered at initial stage is “why to setup MVNO?” It generally takes 50-150 million euros to setup a small to medium size MVNO. MVNO start-up decisions are made based on the calculations of ARPU it will receive and no of subscribers in nearly 2 years (called break-even point). Most MVNOs target to capture the market as fast as possible and then make an exit (to be sold out). MVNOs mainly work on service and price differentiation where time to market is important due to fierce competition in the market. MVNOs should define at initial stage whether they are a Telco, Media company or Media partner. Some MVNOs also work as mobile advertisements aggregators.

Fundamentally MVNOs operate exactly the same as MNOs. Most oper- ators have split their internal structure in three parts:

1. Customer relations and services, branding, marketing

2. Service layer includes product management, pricing, service manage- ment

3. Network, infra management, radio, network management

MNOs possess BSS systems and also network related systems i.e. OSS and they have their own pricing structures for the products and services they offer. In traditional MNO, IT systems are very complicated called legacy jun- gle but MVNO do not have such complex systems and also integration bur- den to replace the systems. MVNOs want to have bare minimum interface. They buy network (the lower layer) from MNO or MVNE and implement

or outsource service and customer layer in from of managed services. Fig. 3.3 shows the layer wise telecom systems classification especially for MVNO environment settings.

In MVNO case, MVNOs can possess BSS and sometimes OSS systems too. MVNO do not have much OSS but mostly they have CRM and self- service and in some case the whole BSS. Billing and rating systems are lighter in MVNO case than traditional systems. MVNOs have small and limited in house CRM system. Ordering has to be integrated with MNO provisioning system as well as debt collection systems.

MVNO may use their own billing systems where they get CDRs from other operators or they can use network operator owned MNO owned billing systems. They can also outsource the billing or managed services as a whole. MVNO might even consider taking all systems from other providers and in this case, MVNO not only rent network but also outsource billing and CRM systems. However, MVNOs would like to retain branding, campaign management, resell marketing systems and operations to themselves.

It has been seen in some cases of MVNOs across Europe that when MVNO are small they want to outsource or rent everything but when they get bigger they start investing and implementing some systems. MVNO doesn’t really own radio network but they might own some network elements. MVNOs might have switching and other network systems along with billing systems. In case of prepaid, MVNOs use MNO network but own CRM system. They might have some elements under CRM dealing with real time charging and network systems.

Branding building, distribution and cost factors are very important for MVNOs. In case of MVNO, communication services can never be as better as MNO. MNO provide raw material and MVNOs rebrand and distribute it to potential customers. Some MVNOs sell mobile and customer related marketing data to generate revenue while providing discounts to the end- users.

MVNO can be run by 5-10 people working in area of sales, branding, mar- keting, product management, distribution, partner management. For exam- ple, an MVNO Tele Finland started with only 5 persons organizing it several years ago. The managing director, marketing director, business controller and two other consultants managed the MVNO. They used only outsourced resource not TeliaSonera IT processes. The idea was to build operator inde- pendent environment to offer other services as well. They wanted to service for other parties as well than TeliaSonera. They outsourced billing systems to star cell now Qvantel. Tele Finland didn’t have any systems managed by them but all systems were outsourced.

Figure 3.3: Layer wise cloud deployment possibilites in Telco

MNO and other partners. MVNO collaborate among partners to whom cer- tain tasks have been outsourced. Service integration is also very important for MVNO especially integration with MNOs and other partners in business. MVNO need to choose the focus group or target customers while mov- ing towards smaller segments of the market. They need to be much more focused but the question is whether to focus on retail or enterprise sales. Differentiation strategy creates base for MVNO strategy. Demographic, ser- vice, product, pricing differentiations can be adopted by MVNO. For exam- ple, an MVNO can target Russian speaking callers in Finland by providing inexpensive calls to Russia. Some MVNOs also target niche markets of tele- com services. For example, TeliaSonera targeted corporate customers during initial stage with high quality of services by charging premium prices to cus- tomers. MVNOs focus mainly on post-paid residential market, so subscriber hierarchy is simple. They need to focus on only one market at a time or at a place. MVNOs can provide bundle solutions along with voice and data services. In case of bundle solutions partner management is also important for MVNO. Price differentiation is easy for MVNO but service differentiation is limited due to dependency of OSS and network system on MNO. Most of the MVNOs are price sensitive and keep ARPU at low level as to do effective price differentiation. They have low cost and agile operations in place to

reduce OPEX. MVNOs work on price differentiation and tend to have happy customers along with higher KPI. They have their own pricing structures for the products. Subscribers win due to lower prcing mechanism but telecom industry suffers because of high system administration cost. Telco industry is a challenging business to be in due to fierce competition and so MVNOs always look for additional revenue streams.

In recent years, it has been observed that MVNOs outsource as much as possible because their operations are not about system but they are all about the business. MVNOs don’t care about system architecture and its implementation. They just care about quality, branding, cost-benefits, SLA agreements and customer satisfaction as well as retention. MVNOs use Busi- ness process outsourcing. Business process outsourcing in telecom domain provides BSS as a service but it’s not Software-as-a-Service as there are cus- tomizations done for every telecom operator systems according to customer needs.

MVNOs need lean business operations, business process outsourcing and very effective as well as efficient systems and operations. MVNOs follow rapid service delivery, development and marketing and so they need very agile framework to support it. For MVNO to work there is no need to have own processes, large organization and just by outsourcing it is possible to run MVNO. Outsourcing is possible even outside the country but data security and legal issues are critical.

MVNO do not invest on network so capital spending is low and they rent network on pay-per-use or fixed monthly fees. CAPEX is low for MVNO. They invest to get customer base and volume in the market and define thresh- old to acquire customer base. MVNOs want to have good discount as to get volumes. They are getting the network capacity from already existing play- ers so it’s regulated and competition is fierce for MVNO. MVNO pay some fixed fees and also fees per subscriber. Subscriber churn is high in European market around 20% and that makes churn very expensive for operators. For MVNO, more you are dependent on MNO more challenges you have on dif- ferentiation side. Since MVNOs introduce competition in market, MNOs don’t want to give network capacity to MVNOs very easily.

Telecom network infra providers (MNO) rent the radio spectrum to other MVNOs with high rates as they will face competition from those MVNOs in future. Telecom network infra providers have lower rates for their own operators, service providers.

Table 3.1 presents a situation in past with finnish telecom operator in- dustry. There are several MVNO examples given below which were discussed during the interviews:

MNO MSO or ’True’ MVNO ’Weak’ MVNO

Sonera Networks TeliaSonera

Globetel Finnetcom NetFonet Tele Finland CDF Mobile Elisa Elisa Cubio Kolumbus TDC Song Finnet Verkot DNA Finland

Fujitsu Services GoMobile Wireless Maingate

Table 3.1: MVNO in Finland, adapted from [30]

• Saunalahti: Grew from reseller to service provider to MVNO. Elisa functions as an organization can be taken as MVNO in a view of orga- nizational structure.

• Light Square: Planning to have all IP coverage all over US. They are whole sellers to MVNO. They will never grow on service provider side.

• Bharti Airtel: It has IBM to operate IT systems. Operationally they are structured as MVNO.

• Mobistar: It is an MVNE and a light weight organization. MVNOs can buy infra from Mobistar and concentrate on branding and marketing. Outsourcing is the trend in MVNO if they are starting up.

• Blyk: Blyk in UK were giving voice and SMS free and selling mar- keting data to other companies. You become Blyk member and tell us what you are interested in and we give you free SMS or free calls. Selling marketing information, mobile ads etc. The business model is the subscriber becomes a partner and let MVNO sell their preferences to marketing companies and subscribers get free calls/SMS.

Question:

How are high performance, carrier-grade SLA, cross-location architecture (if applicable) and cost-benefits important in current MVNO operation con- text?

As stated earlier, for MVNO it’s important to drive customer satisfaction and price differentiation with lean and agile business processes. MVNO may hire consulting firms to drive agreements with other companies to handle parameters such as SLA, performance of the systems etc. MVNOs want effi- cient and quality systems with cheap prices. Cost and customer satisfaction are directly important for MVNO and other factors are indirectly important. However, to map MVNO systems to the cloud it was important for us to know point of views about these parameters and common points from the interviews are described for main four parameters below:

Performance:

One point of view was that performance and carrier-grade SLAs are not that important for MVNOs as they do not possess network related systems and provisioning. The MVNO system point of view can differ as system performance does matter in some cases.

High performance is important regarding rating system. If MVNO use prepaid then they have to have high performance rating and AR systems due to real time charging. In prepaid case, high-performance is very important as per regulation aspects while making calls and sending messages as there is regulation to complete the call loop in 150 milliseconds. Also important in post paid context due to the issue of customer satisfaction. The perfor- mance of the systems depends on how good the billing system is and how much money is spent on it. Network level performance requirements are the same for MNO and MVNO as you cannot differentiate quality of the net- work and on the network level it’s impossible to have different performance requirements.

Latency factor makes a difference in MVNO as to transfer CDRs between the systems operators systems and their own or outsourced systems. Also ac- tivations to provisioning from self service or CRM systems may delay because of the latency. One point of view differed as the interviewee mentioned that latency hasn’t been an issue. CDR transfer doesn’t require real time trans- fer. Latency is not an issue while transferring CDRs. MVNO has enough capacity to provide communication.

Carrier-grade SLA:

Carrier grade SLA depends on position of MVNO. Replicated systems can have SLA of 99.0% and cluster can have SLA of 99.9%. However, Carrier grade SLA has nothing or very little to do with BSS systems. Billing system SLA can be much lower. Back office systems and billing services have SLA of around 85% while online systems such as Ordering, CRM and Self-service portal have higher SLA of 98%.

MVNO just buys SLA in case of OSS as well as BSS (if BSS has been outsourced). They don’t care about hardware or systems in place. SLA is

indirectly important as MVNOs are responsible for customer service delivery. SLA could be problem for customer-facing self-service portals but Telcos are not very famous for customer services. SLA agreement is also done between MNO and MVNO which is of carrier-grade level as it involves network ele- ments. Also if MVNO implement HLR then carrier-grade SLA comes into the picture. SLA requirements are one of the reasons why MVNO have to pay high fees or rent for network infra.

SLA is important because most of the telecom systems are affected with the down-time. The after-effect can be huge in telecom sector even with the BSS system downtime involving CRM and customer facing systems. How- ever, this SLA can be managed at least on BSS side with cloud. Amazon EC2 provide good SLA agreements and managing processes with public providers may improve the situation. BSS is not a problem but OSS could have prob- lems with SLA and performance. B2B corporate customers are critical part and if these corporate customers are from big companies then they may ask SLA and similar things.

Cross-location architecture:

Cross-location architecture is important and beneficial for MVNO sys- tems and lot of MVNOs in Europe has this kind of implementation in place. Cross-location architecture is more feasible in MVNO context as most of the MVNOs use web-based systems and may run certain services in headquar- ters only. Also to achieve economy on scale rapidly cross-location architecture helps.

Cross-location architecture is necessary if MVNOs operate in multiple countries. This fact can also be applied in MNO context. Traditional Telco IT used to be built with web based systems and hardware is not utilized as per their full capacity. However, cross-location architecture helps improving hardware capacity utilization and operational perspective of the systems as a whole.

One point of view during the interviews was that no government laws stop transferring CDRs within EU and if customers give you consent then it’s pos- sible to send to Asia-Pacific or other regions too. You need to give customers details regarding location of server instances, data backup mechanisms and security formation details. Qvantel has dedicated servers creating private cloud and virtualization sharing cloud resources among MVNOs. Qvantel supports cross-location architecture of Yoigo.

Another point of view during the interview was regarding data regulation as a challenge in cross-location architecture. Also it’s important for telecom operators to report to the authorities whenever needed as operators have to track requests from regulation authorities. Such situations may arise but it’s possible to have cross-location architecture with high network bandwidth,

strong data encryption and consent from the operator. B2B customers do not generally allow their customer information outside the country. MVNOs in most of the cases have B2B private customers. Cross-location architecture has to be in EU depending on the country regulations. Some MVNO may not allow data going outside of country. Languages could be an issue, Bills and online system in different languages

Cost-benefits:

Cost-benefits are heart of any business. Cost benefits the most important thing or Cost factors are much more important for MVNO than other fac- tors. Telecom business is a volume based business where price competitions are fierce and low prices decide the volume. More cheaply you produce more freedom you have upon pricing strategies. Outsourcing the systems is the best option for MVNOs which are starting up their operations. SLA moni- toring and ARPU calculations are also important besides the core business. 80% of MVNO cost incur to buy network capacity while marketing, admin and resellers cost varies as per the subscriber base and MVNO strategy.

Qvantel BSS costs just 1% of MVNO spending. They provide BSS ser- vices on pay-as-you-grow basis just like utility computing. The business model is based on the size of MVNO subscriber base. If MVNOs have fewer subscribers then they pay less and when MVNOs grow with more number of subscribers then they pay more. So outsourced BSS cost for MVNO is a variable cost element and Qvantel share MVNO success as well as risks with them. Qvantel asks a small percentage of ARPU for handling BSS operations at initial stage and gets larger amount if customer base gets larger.

Along with these parameters, following parameters are important as well for MVNOs.

• Regulation aspects

• Customer experience

• Service type