Five Things That Make Operating an MVNO Tough to Do Right

Written by on April 23, 2013 in BillingViews, Opinion with 0 Comments

Business and social networkWe’re in the midst of a new wave of MVNOs. There’s a resurgence of interest in this once-thought-to-be-debunked business model. It is fueled in part by growing demand for contract-free prepaid services and competitively priced mobile broadband (or just wireless broadband, because at 4G speeds, any broadband might as well be wireless). The immutable fact that any aspiring MVNO quickly runs into is that MVNO billing is actually very tough to do correctly. There’s a glut of “cloud billers” in the market – see our ongoing debate on what cloud billing even means- who profess that all things can be billed simply on a subscription basis. And there is a variety of others claiming that MVNOs are easy to set up and operate. But they’re wrong.

MVNOs have to target market segments with innovative product models; bill accurately; scale operations quickly; manage a range of third party relationships; and cope with constant change coming from carriers, partners, and customers. This is all very easy to get wrong. Furthermore, the most important questions for any MVNO are likely “how many subscribers do I need to win in order to make this business a) worth pursuing, b) profitable, and c) sustainable?” Whatever the answers are to those questions, any MVNO will discover quickly that confusing “virtual” for “simple” is a dead end mistake.

My colleagues at IDI Billing Solutions have shepherded the most successful U.S.-based MVNOs from start up to sustained success. I’ve turned to them to develop a short list of five of the many things that make building, operating, and billing for an MVNO very tough to do right. Here’s what we came up with:

1) Managing Call Records: Whether an MVNO offers prepaid or postpaid services, it will face the challenge of processing usage events from the variety of call records it will receive from its wholesale carrier. 3G, 4G LTE, and 4G WiMax data session records, for example can be vastly different. Layouts aside, aggregating that data across sessions and joining up incremental records across files is extremely complex. Having up-to-date usage data can also be a challenge depending on how frequently the carrier cuts files. Because the MVNO doesn’t control the switch they “may not be able to dip into the network to get what you need. Getting creative with the data you have is required in order to properly classify events for rating, billing, and reporting,” says Jason Ingalsbe, director of application development, for IDI Billing Solutions. It takes significant data massaging to end up with an event record that can be billed against in a way that reflects the MVNO’s offering accurately. “You need to understand all the different events in order to process them accurately and reliably,” Ingalsbe says.

2) Managing Complex Products and their Fulfillment Processes: As I’ve gone out and studied the expanding market for “cloud billing” solutions, I’ve noticed that product catalogs are key differentiators. Some platforms really don’t have what you’d consider a product catalog. They might offer simple, flat, or linear ways to define a product for subscription billing purposes, but they don’t offer actual product management. There are many reasons why this can be problematic for an MVNO, but among the most important is cost management. Many MVNOs have to be “very conscious of how their offering maps into the vendor’s network, as there may be different margins for services depending on how they are provisioned,” says Tim Wrona, vice president marketing and product strategy for IDI. Similarly, different methods of activation at the warehouse may carry additional costs, such as programming devices prior to shipment rather than doing over-the-air provisioning. Product management for an MVNO isn’t just about what you offer to whom and how you price it, it’s about being profitable in a largely low margin business. If fulfillment processes aren’t aligned with wholesale costs, it’s easy for an MVNO to burn itself out of cash and lose.

3) Managing Change and its Impacts: Relating to the second point, change management can be a killer for an MVNO. “Change management is the toughest part of this business,” says Ingalsbe. Products need to keep up with market demand; they need to be available in different flavors in different regions; and fulfillment needs to adjust to available resources and process dependencies relating to third party partners (like the guys who ship your handsets; provide your roadside assistance value-add; or resell your products in their retail stores). Costs change as do taxes; pricing; carrier requirements; interfaces to carriers and other third party partners; regulations; the list goes on. Keeping up with change and managing the impacts that even minor changes can have on end to end business processes is an ongoing challenge that makes it tough to operate an MVNO efficiently and profitably.

4) Turning Vanilla into 31 Flavors: The basic resources that carriers provide to MVNOs on a wholesale basis are plain – vanilla if you will. If the MVNO just plays off of what the carrier provides, they’ll struggle to differentiate and target their offerings to focused segments. “Even a midsize MVNO is at the mercy of the carrier, so you to come up with creative ways to work with what’s given,” says Wrona. That requires an understanding not only of how to price, package, and combine available services and information, but also how to massage the carrier’s resources to fit more unique product models (as discussed earlier in regards to aggregating event records or managing various fulfillment processes). There’s no way to get around the need to understand intimately the different resources wholesale carriers make available. “The knowledge of how to operate in an MVNO environment is the biggest barrier to entry for any MVNO,” Wrona says.

5) Scaling the business: As mentioned earlier, before launching an MVNO, a provider has to have a clear idea of how many subscribers it needs to acquire and sustain in order to be profitable enough to make the whole venture worthwhile. There has to be a forward-looking operational plan in place that prepares for the large scale environment. The problem with just dipping a toe in the water with temporary operational processes is that if and when success hits, the business will not scale; customer experience will suffer; and growth can actually sink the company. The ability to scale, not just in terms of billing or ordering transactions, but across the entire business – products, third party relationships, change management, returns, adjustments, customer care, etc. – is necessary to sustain growth and succeed. MVNOs that don’t stay ahead of their own growth curve are doomed to implode.

Ultimately, the point here is not to dissuade companies from pursuing their MVNO ambitions. Rather, any MVNO needs to dispel the myth that’s it’s a simple business model and be prepared for a complex undertaking. Because the network aspect of its service is acquired on a wholesale basis, an MVNO is not a capital intensive business. It is, however, expense intensive, complex, and highly competitive. Any aspiring MVNO needs to prepare itself for this reality.

Related reading, here.

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Edward Finegold

About the Author

About the Author: Ed Finegold is CSO for Validas, a company that specializes in personalized user experiences that leverage analytics-as-a-service to simplify mobile buying, selling, pricing & billing. Ed has been a regular contributor to BillingViews. .

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