mvnos and mobile resellers - commercial and regulatory issues
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MVNOs and mobile resellers
Commercial and regulatory issues
Dr Martyn Taylor
Partner
October 2016
Overview
1. Context – mobiles in the Asian region
2. The MVNO business model
3. The regulatory overlay on MVNOs
4. The commercial overlay on MVNOs
5. Questions and discussion
MVNOs and Mobile Resellers – Commercial and regulatory issues2
Dr Martyn TaylorPartner+61 45 777 4711 (mobile)martyn.taylor@nortonrose.com
3
1. Context – mobiles in the Asia-Pacific
0
200
400
600
800
1000
1200
1400
Ch
ina
India
Indon
esia
Pakis
tan
Bang
lad
esh
Japa
n
Phili
ppin
es
Vie
tnam
Tha
iland
South
Kore
a
Myan
ma
r
Ma
laysia
No
rth
Kore
a
Taiw
an
Austr
alia
Sri L
anka
Ca
mbo
dia
Ho
ng K
on
g
La
os
Sin
gapo
re
Ne
w Z
eala
nd
Population (millions)
Diverse mix of jurisdictions
0
200
400
Ch
ina
India
Pakis
tan
Bang
lad
esh
Myan
ma
r
Vie
tnam
Ca
mbo
dia
La
os
Sri L
anka
Population without mobiles
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Ch
ina
India
Japa
n
South
Kore
a
Indon
esia
Austr
alia
Taiw
an
Tha
iland
Pakis
tan
Ma
laysia
Phili
ppin
es
Ho
ng K
on
g
Sin
gapo
re
Vie
tnam
Bang
lad
esh
Sri L
anka
Ne
w Z
eala
nd
Myan
ma
r
No
rth
Kore
a
Ca
mbo
dia
La
os
Aggregate income (USD billions)
$0
$20,000
$40,000
$60,000
Sin
gapo
re
Ho
ng K
on
g
Austr
alia
Taiw
an
Japa
n
South
Kore
a
Ne
w Z
eala
nd
Ma
laysia
Tha
iland
Ch
ina
Indon
esia
Individual income (GDP per capita)
4
Higher reliance on mobile services
0%
20%
40%
60%
80%
100%
120%
140%
Mobile penetration(by population)
Fixed penetration(by household)
Jurisdictions that do not
yet have 100% fixed
network penetration by
household…
Very heavy reliance on
wireless telecoms
5
Higher levels of regulatory risk
New Zealand
Hong Kong
Australia
Singapore
Japan Malaysia Thailand
Indonesia
Vietnam
India
China
Philippines
Bangladesh
All of the following:
• Rules are clearly defined
• Well resourced regulators
• Low risk of policy reversals
• Decisions are predictable
Any of the following:
• Rules are not clearly defined
• Less resourced regulatory agencies
• High risk of policy reversals
• Decisions can be unpredictable
LOW REGULATORY RISK HIGH REGULATORY RISK
6
7
Axiata Hutchinson NTT Docomo Ooredoo SingTel Telenor Vodafone
Australia VHA (43.9%) Optus (100%) VHA (50%)
Bangladesh Robi (91.6%) Robi (8.4%) CityCell (44.5%)
Airtel Bangla (*32.3%)
Grameenph. (55.8%)
Bangalink (*17.1%)
Cambodia Smart (90%) Mfone (*12.3%)
India Idea (19.9%) Tata DoCoMo (26.5%) Bharti Airtel (32.3%) Uninor (45%) Vodafone (100%)
Indonesia XL Axiata (66.5%)
Axis (*42%)
3 Indonesia (65%) Indosat (65%) Telkomsel (35%)
Japan NTT DoCoMo (100%)
Hong Kong Hutchinson (65%)
3 Hong Kong (49.3%)
3 Hong Kong (24.1%)
Laos LTC (*6%) Beeline (*25.7%)
Macau 3 Macau (49.3%) 3 Macau (24.1%)
Malaysia Celcom (100%) Digi (49%)
Maldives Ooredoo (92.1%)
Mongolia Tel. Mongolia (*2.3%)
Myanmar Ooredoo (100%) Telenor (100%)
New Zealand Vodafone (100%)
Pakistan Wi-Tribe (86%) Telenor (100%)
Mobilink (*17.1%)
Philippines PLDT (14.5%) Liberty (26.8%) Globe (21.5%)
Singapore M1 (28.7%) StarHub (*14.1%) SingTel (100%)
South Korea KT (5.8%)
Sri Lanka Dialog (85%) Hutchison (100%) Airtel Lanka (*32.3%)
Taiwan FarEasTone (4.7%)
Thailand Samart (24%) AIS (23.3%) DTAC (65.5%)
Vietnam Vietnamobile (50%)
Presence of global telecoms conglomerates
* Indirect holding – effective economic interest
Current state of Singapore’s mobile market
MVNOs and Mobile Resellers – Commercial and regulatory issues8
MV
NO
s
SIN
GT
EL
47%
28%24%
STA
RH
UB
M1
Singapore mobile market
shares 2016
<1%
Several existing MVNOs, but they are niche
operators and have an aggregate market
share of less than 1%.
Example: PLDT offers prepaid SIM cards with
a broad range of value-added services
targeted at Filipinos.
Historically, Virgin Mobile attempted to enter the
Singapore market as an MVNO in 2001:
• Virgin Singapore was launched as a JV with Singtel.
The operations were closed down a year later after
failing to attract a significant number of customers.
• Failure of the joint venture was attributed to a
saturated mobile market and Virgin Mobile's
positioning as a "premium" brand.
M1 and Liberty Wireless announced an MVNO
agreement in July 2015, operating as Circles.Life
Singapore mobile market remains
highly saturated with a mobile
subscriber penetration at 150%.
2. The MVNO business model
9
Mobile Virtual Network Operators
MVNOs and Mobile Resellers – Commercial and regulatory issues10
• A mobile virtual network operator (MVNO) provides mobile services but does not have its own spectrum, nor does it necessarily have all necessary network infrastructure.
• Rather, the MVNO uses the spectrum and network infrastructure of an existing mobile network operator (MNO).
• The MVNO enters into a wholesale arrangement with the MNO to obtain bulk access to the infrastructure of the MNO at wholesale rates. For example, it may buy airtime.
• The MVNO supplies independently of the MNO in the retail market, as a competitor of the MNO, and can set its own retail pricing structures.
• European mobile market share for MVNOs is around 45%, promoted by favourable regulatory conditions. Around two-thirds of the world’s MVNOs are based in Europe.
• Most jurisdictions remain in the single digits for MVNO market penetration, but this is changing… watch this space!
79
579
128
53 8
Number of MVNOs in 2014
Asia
Europe
Americas
Oceania
Africa
Why are MVNOs supported by MNOs ?
MVNOs and Mobile Resellers – Commercial and regulatory issues11
• As mobile market saturation has been reached and mobile markets have matured, MNOs have seen MVNOs as a means to target new areas of growth – essentially using a differentiated brand.
• MNOs may therefore often view MVNOs as an opportunity, rather than a threat. MVNOs are, in essence, a form of mobile infrastructure sharing:
• While existing mobile operators have typically targeted the mass market, MVNOs can focus on target niche market segments that are underserved or have a low incumbent penetration. MVNOs can complement the branding strategy of MNOs.
• An MVNO can also be viewed by an MNO as a way to bring traffic back onto the MNO’s network to drive network utilisation and revenues. The MNO will recover wholesale revenue that it would otherwise lose to a mobile network competitor.
• Strategically, the best commercial outcome for the MNO is to supply to MVNOs that have a complementary brand strategy – i.e., brands that are less appealing to the MNO’s own retail customers, but are highly appealing to the retail customers of the MNO’s competitors.
• For example, an MNO with a premium brand in the market may prefer to supply to an MVNO that is focussed on price sensitive consumers.
Market segments targeted by MVNOs
MVNOs and Mobile Resellers – Commercial and regulatory issues12
• MVNOs are most successful where they can target market segments that have unmet needs, in circumstances where an MNO is sufficiently receptive to the MVNO to provide competitive wholesale services.
• GSMA recognises several types of MVNO business models, based on the particular market segments that they have historically targeted:
• Discount MVNOs, targeted at price sensitive consumers;
• Lifestyle MVNOs, targeted at niche demographics, such as teenagers (eg Virgin);
• Migrant MVNOs, targeted at particular ethnic groups, supported by cheap calls to
the relevant home country (eg LycaMobile, Tracfone);
• Roaming MVNOs, targeted at consumers roaming from other countries;
• Business MVNOs, targeted at particular types of businesses;
• Media/entertainment MVNOs, leveraging from unique content (eg Disney Mobile);
• M2M MVNOs, targeted at machine to machine services (eg Stream).
• Creative business models are also emerging, including mobile supply by supermarket chains (eg Tesco Mobile). The growth in Internet of Things (IoT) and Machine to Machine (M2M) is also set to fuel the rise of MVNOs.
McKinsey – MVNO market shares in range 10–40%
MVNOs and Mobile Resellers – Commercial and regulatory issues13
Application to Asian markets…
MVNOs and Mobile Resellers – Commercial and regulatory issues14
• There are over 1,000 MVNOs in operation in the world today. Less than 10% of these are currently based in Asia and most markets have MVNO market shares in the single digits. Plenty of scope for growth…
• MNOs in the Asian region have to date been more supportive of MVNOs operating at the bottom end of the market (eg redONE in Malaysia, supported by Celcom as the host MNO).
• However, low average revenue per user (ARPU) is a major consideration in Asia’s emerging markets. MVNOs operating at the bottom end of the market will struggle to generate profitable businesses.
• Plenty of scope for MVNO market entry based on leveraging existing business relationships and brands (eg service bundling, loyalty schemes).
• However, not all jurisdictions yet have a regulatory environment that promotes market entry by MVNOs.
3. The regulatory overlay on MVNOs
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MVNOs require supportive regulatory environment
MVNOs and Mobile Resellers – Commercial and regulatory issues16
• Rebillers, resellers and MVNOs tend not to be subject to significant regulation. Mandated resale of mobile services is also less common, given existence of significant mobile competition in many jurisdictions
• However, the regulatory environment and existence of a mobile wholesale market are vital to market entry and long-term survival of MVNOs.
• MVNOs require a regulatory environment that is supportive of their initial licensing, typically via services-based licences (eg SBO licence in Singapore). In some jurisdictions, entry is still restricted (eg UAE) or subject to foreign ownership restrictions (eg Indonesia).
• MVNOs may also benefit from regimes that enable regulators to mediate commercial relationships in order to ensure that MVNOs have sufficient margin between wholesale and retail services in order to profitably compete on price (eg protections against vertical price squeezes)
• Complications for MVNOs can involve such matters as mobile number portability (MNP), access to regulated mobile termination rates (MTR), interconnection, and discrimination between on-net and off-net pricing.
Regulatory stance towards MVNOs
MVNOs and Mobile Resellers – Commercial and regulatory issues17
• The global trend is towards facilitating market entry by MVNOs.
• A number of countries that have historically have favoured market entry by MVNOs as a means to introduce greater mobile competition without issuing further MNO licences (eg China, Saudi Arabia).
• The stricter regimes require provision of access to an MVNO on request, potentially with regulatory oversight if negotiations fail. Singapore has now moved towards that approach (discussion later).
Regulatory stance Example jurisdictions
Require MNOs to share with MVNOs Hong Kong, Norway… and now Singapore
Facilitate launch of MVNOs Belgium, France, Denmark, UK, Ireland
Regime indifferent to MVNOs Australia, Canada, Japan, Portugal
Discourage or prohibit MVNOs Non-liberalised jurisdictions
Case study: Singapore – Historic view of iDA (2001)
MVNOs and Mobile Resellers – Commercial and regulatory issues18
Historically, the IDA preferred regulatory forbearance:
• iDA must balance the need for regulatory intervention to encourage healthy competition vis-à-vis the need to encourage investment in 3G networks and services
• Regulatory intervention, while seeming necessary and desirable to facilitate MVNOs’ entry into the Singapore market, could unduly distort the commercial decision-making of market players.
• While regulatory intervention helps to facilitate the entry of MVNOs, it does not create sustainable and cordial partnerships.
• MVNOs wishing to offer 3G services must commercially negotiate with MNOs for network access, with IDA intervening only in cases of “unduly restrictive or anti-competitive practices” under the Telecom Competition Code.
View of iDA expressed in 2014 discussion paper
MVNOs and Mobile Resellers – Commercial and regulatory issues19
• First of two rounds of public consultation by iDA.
• IDA explored possible approaches for facilitating the entry of MVNOs given that IDA’s 4G spectrum auction in 2013 did not attract new mobile market entry.
• IDA viewed MVNOs as introducing innovative pricing and services to consumers and stimulating competition.
• IDA included a general duty to negotiate in good faith with MVNOs as a condition of the 2013 4G auction.
• IDA sought to explore additional measures to encourage hosting of MVNOs by MNOs, particularly non-affiliated MVNOs.
• For example, re-allocation of 900MHz could include measure to promote hosting of MVNOs.
• Pricing of access to an MNO’s network was viewed by IDA as a key factor driving the business case of MVNOs.
View of iDA expressed in February 2016 decision
MVNOs and Mobile Resellers – Commercial and regulatory issues20
• IDA will leverage the 2016 Spectrum Auction to facilitate the entry of a new MNO, hence moving Singapore to a four-MNO market structure.
• IDA is requiring successful bidders (new and incumbent MNOs) to negotiate in good faith to provide wholesale 4G and/or IMT-Advanced network access to MVNOs on request from any MVNO.
• IDA has also published negotiation principles to facilitate the entry of MVNOs with a particular focus on ‘thick’ MVNOs (see next slide for discussion).
• In case of disputes, IDA may mediate between the MNO and the MVNO using the negotiation principles as the point of reference.
• IDA is generally not in favour of exclusivity – i.e., wholesale arrangements that prevent MVNOs from obtaining wholesale services from more than one MNO.
21
iDA principles
for group
discussion…
• Mandated supply.
• Not unreasonable.
• Minimal discrimination.
• Comparable quality.
• Good faith negotiations.
• No price squeezing.
• Reasonable suspension.
• Reasonable termination.
• No exclusivity.
4. The commercial overlay on MVNOs
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Medium MVNOs / Heavy MVNOs
• MVNO arrangements tend to be customised
and non-standard hence, hence are more
document-intensive and heavily negotiated.
They may have more of a flavour of an
interconnection agreement.
• A key focus will be on identifying each call
case (including video, SMS, MMS, data),
then documenting the routing treatment and
pricing of that call case.
• Another key focus will be on documenting
the intended scope and nature of mobile
infrastructure sharing and interconnection.
• MVNO arrangements may raise complex
interconnect issues, including identifying
intended arrangements for MVNO
interconnect with third party operators.
Commercial issues depend on the type of MVNO
Rebilling / resale / Light MVNOs
• Rebill and resale arrangements are
generally straightforward and can often
involve standardised resale agreements.
• Legally and conceptually, the MVNO is
contractually interposed between the MNO
and the customer.
• However, as a practical matter, the MNO is
supplying mobile services to the MVNO
customer as if the customer were a mobile
customer of the MNO.
• As a general principle, the wholesale
customer will acquire the retail service in a
wholesale format, less a wholesale discount.
• The wholesale discount is often based on
call airtime (eg minutes per month).
MVNOs and Mobile Resellers – Commercial and regulatory issues
Categorisation of MVNOs
RAN and
spectrumSwitching
& core
Subscriber-
specific services
External
interconnection
Interconnection
revenue
Service
differentiation
Own unique SIM
cards and
functionality
VAS &
Apps
Value added
services
Unique
applications
Rebrands SIM
cards of network
operator
Billing &
CRM
Customer
relationship
management
Customised
invoicing
Branding
& tariffs
Sales
channels
Mobile network operator (MNO)
Heavy MVNO / Thick MVNO / Full MVNO
Medium MVNO / Enhanced service provider
Light MVNO / Service provider
Rebiller
Branded reseller
Key differences between the categories
MVNOs and Mobile Resellers – Commercial and regulatory issues25
‘Skinny’ or ‘Light’ MVNO
Does not own any spectrum or RAN
infrastructure.
Does not own any core network elements.
Does not issue its own SIMs, but rebrands those of the MNO.
Responsible for its own billing and customer
care.
‘Hybrid’, ‘Thin’ or ‘Medium’ MVNO
Does not own any spectrum or RAN
infrastructure.
Owns part of the core network for value-added services.
Does not issue its own SIMs, but rebrands those of the MNO.
Responsible for its own billing and customer
care.
‘Thick’, ‘Full’ or ‘Heavy’ MVNO
Does not own any spectrum or RAN
infrastructure.
Has its own core network infrastructure.
Has its own IMSI and network code.
Issues own SIMs and is responsible for billing and customer care.
McKinsey – profitability of ‘light’ MVNOs
MVNOs and Mobile Resellers – Commercial and regulatory issues26
Common issues in resale arrangements
MVNOs and Mobile Resellers – Commercial and regulatory issues27
Issue Comment for discussion
Termination and suspension
rights
When will termination and suspension rights arise and
what will be the consequences (including cure period
and any ‘step-in’ rights)
Financial security and payment What level of financial security is required and what are
the incentives for timely payment
Customer treatment and
responsibility
Who is responsible for the customer interface and what
level of MNO interaction is required
Any restrictions on branding and
marketing
How is the use of the MNO’s network identified and how
is the MVNO’s brand differentiated
Allocation of risk and liability Appropriate allocation of risk to a reseller where
consumer contracts can mitigate risk
Wholesale pricing Level of wholesale discounting and scope and nature of
periodic price reviews
Non-discrimination MVNO will seek the same level of network quality and
service as provided to the MNO customers
Issues that may raise competition concerns
MVNOs and Mobile Resellers – Commercial and regulatory issues28
Issue Comment for discussion
MNO attempts to control retail strategy
of MVNO
MNO and MVNO are retail competitors, hence a market
division (cartel) risk may arise, as well as a vertical market
allocation risk.
MNO attempts to control retail pricing of
MVNO
The MNO and MVNO are retail competitors, hence a price
fixing (cartel) risk may arise, as well as a vertical ‘resale price
maintenance’ risk.
MNO attempts to secure exclusivity with
MVNO
iDA has expressed a view that it does not support exclusivity.
A boycott risk may also arise, as well as an exclusive dealing
risk.
MNO requires MVNO to acquire other
products from MNO
Treatment of forcing and bundling under the Telecoms
Competition Code
MNO seeks to impose post-termination
restraints on MVNO
Common law doctrine of restraint of trade, as well as testing
effect on competition
MNO sets a wholesale price that is too
high
MNO is at risk of a vertical price squeeze, depending on
imputation testing
MNO reduces its retail price, but does
not reduce its wholesale price
MNO is at risk of a vertical price squeeze, even if it is
responding to retail competition
Step in rights on termination, including
any first right of refusal
At what point do step in rights trigger the Singapore merger
control regime
Elements of a ‘heavy’ MVNO
• The more elements in the core network the MVNO itself owns, the greater the functionality that the MVNO
is able to offer that differentiates the MVNO’s services from the operator’s services.
• An MVNO typically has its own customer service and billing support systems and its own customer
relationship, marketing and sales personnel.
• The MVNO does not own any spectrum and does not seek to share any of the radio access network (RAN)
infrastructure (other than using the operator’s RAN).
• An MVNO normally obtain bulk access to RAN network services at wholesale rates.
MVNOs and Mobile Resellers – Commercial and regulatory issues
Example of arrangement for a ‘heavy MVNO’
MVNOs and Mobile Resellers – Commercial and regulatory issues30
• The MVNO will require its own mobile telephone number range, carrier access code
and its own SIM cards. The MVNO will also need to be compliant with mobile number
portability requirements and any international roaming requirements.
• The MVNO will need to establish a point of interconnection with the MNO in Singapore
for signalling and call traffic – and will need to enter into appropriate interconnection
arrangements.
• The MVNO will need to enter into arrangements with other Singapore MNOs that
involve the routing of calls to SingTel as the transit provider. SingTel would then
address call transit in its interconnection arrangements with those other Singapore
MNOs.
• The MNO will carry calls to and from the MVNO customers in Singapore, while the
MVNO will carry calls from Singapore to international destinations.
• The MVNO will:
• interconnect with the MNO to supply/acquire mobile call termination (as well as acquire transit to PSTN call
termination);
• acquire domestic Singapore voice and SMS transit and other conveyance services, so that the MNO will
provide a point of interconnection with other Singapore MNOs;
• acquire domestic mobile roaming services
Network elements in a 3G MVNO
MVNOs and Mobile Resellers – Commercial and regulatory issues31
Interconnection in a 3G MVNO
MVNOs and Mobile Resellers – Commercial and regulatory issues32
• Where the MVNO has its own network code, it has the ability to receive inbound calls at its gateway mobile switching centre.
• In this manner, a heavy MVNO can act as if it is a mobile network operator and negotiate interconnection arrangements separate from the MNO.
• However, an MNO may have concerns that the MVNO may undercut the mobile termination rates offered by the MNO and transit calls.
5. Questions and discussion
33
About Norton Rose Fulbright
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Contact us
Dr Martyn Taylor
Partner / Head of Telecoms (Asia-Pacific)
Norton Rose Fulbright
+61 2 9330 8056
+61 45 777 4711 (Mobile)
martyn.taylor@nortonrosefulbright.com
Profile: http://www.nortonrosefulbright.com/people/56359/drmartyntaylor
nortonrosefulbright.com
2185357236
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