Virtually Nothing

Could Tomorrow's Mobile Operator Be Just a Brand?

There are four mobile operators in the UK and, according to CCS Insight estimates, more than 100 mobile virtual network operators (MVNOs). The former own most of their infrastructure and operate it, and the latter lease or outsource most of theirs.

To a customer, an MVNO is meant to appear as their service provider. Subscribers are supported and billed by the MVNO, although the communications traffic is carried to and from customers by one of the four network operators. The vast majority of customers won't know this.

An intriguing scenario is whether, in the future, a mobile operator could transform itself and exist not just as an MVNO, but as little more than a brand and a small corporate function, probably in a leased office. That is, as an operator with virtually nothing in terms of the assets it owns and operates.

First of all, let's strip away the parts of an operator from infrastructure upward. They consist of passive infrastructure (essentially tower masts), active infrastructure (the intelligent part of the network) and often some fibre-optic cabling used to connect sites for backhaul.

There are two main reasons why an operator would sell and lease back their infrastructure: to unlock value and to generate operational efficiencies. This is now a common approach with passive infrastructure in most mobile markets, spawning specialist tower companies such as American Tower, Eaton Towers and Arqiva. They cease to own their towers, but instead lease space on them from the new owners.

I'm aware of numerous operators that have actively explored the possibility of structuring a similar arrangement with their fibre-optic cables. A major challenge seems to be a lack of specialist companies in this area. However, once one operator successfully sells and leases back these assets, many others are likely to follow.

Active infrastructure is a little trickier, as this represents the intelligent part of the network used for carrying and interconnecting data, voice and video traffic. One option is for a mobile operator to enter into an outsourcing arrangement with the provider of the active infrastructure. Suppliers, such as Ericsson, Huawei and Nokia, would manage and operate the infrastructure. This approach could result in operational improvements, but there wouldn't be a financial gain to the operator as with the passive infrastructure and cable scenarios.

At this point, the operator would still own and operate its sales and marketing, distribution, billing and customer care systems. Today, the preferred method is to sell and distribute through a combination of retail outlets and online channels. Of course, the operator could decide to sell entirely through independent, third-party outlets on the Internet and the high street such as Dixons Carphone and Amazon. This route may not necessarily achieve the best sales results, but would cut out large operating costs. Marketing could also be outsourced to an agency. So, effectively, sales, marketing and distribution activities would all be handled by third-party entities.

The UK has a thriving and active customer call centre function, providing outsourced services to various industries. This "first line" of customer care could easily be contracted out to an external company, and the same could be done with the billing system, which would then be managed by its provider. However, given that the billing system is the main customer interface for an operator, the industry has been somewhat reticent to give up control of this service.

The two objectives of unlocking value and securing operational efficiencies would be met by creating this type of MVNO. Ongoing concerns would be related to sales growth and quality of customer care, which it could address with incentive contracts and service level agreements, although it would need to monitor these areas.

So we're now left with an operator that owns only its brand and a small corporate function. Today this scenario seems extreme, but I know of highly entrepreneurial operators around the world whose strategy is essentially trying to achieve this. Whether or not an operator goes beyond the MVNO level of virtuality is an intriguing thought.

The mobile operator with virtually nothing may be with us sooner than we think.

This entry was posted on September 14th, 2017 and is filed under Services. You can follow any responses to this entry through the RSS 2.0 feed or you can leave a response.

Posted By Tony Worthington On September 14th, 2017

- 2017-09-14 at 15:00
Why wouldn't there be financial benefits from shared active infrastructure? Are there no benefits of scale from the network and won't suppliers lower prices if there are a smaller set of larger infra deals?
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