DUBLIN, Ireland-Service providers and mobile virtual network operators (MVNOs) are viewed by many network operators as parasites feeding off their infrastructure investment. At the same time, many consumers view them as developers of value-added services that drive down costs in the market.
Service providers do not have spectrum licenses, but rather buy airtime from a specific network and resell airtime packages to customers. An operator’s service providers resell minutes using the same tariffs as the operator. MVNOs, on the other hand, buy raw, unbundled minutes and develop their own tariffs and additional services using intelligent network (IN) platforms.
The debate over the merits of service provision is closely linked to another trend sweeping across many parts of Europe: the acquisition of independent service providers and retail outlets by established network operators. Unlike regular service providers, which have exclusive deals with one network operator, independent service providers can buy minutes from any network.
This acquisition trend has raised flags with consumers about reduced customer choice, as well as the resulting concentration of service distribution lying in the hands of fewer companies.
Independent service providers argue that network operators are being anti-competitive by denying them access to airtime. Carriers reply that by investing in dedicated retail outlets and service providers they can guarantee a higher level of service to all customers.
Stephen Brewer, chief executive of Eircell, Ireland’s largest cellular operator, asserted service providers can only be justified in the early stages of mobile-market development as an artificial vehicle for increasing competition.
“Service provision is something I have fought against,” he said. “We are investing (a) million pounds every week to build our networks, and we want a fair return on this investment. In Ireland, for example, there is no service provision license-no structure in place-and with unlicensed service provision being put forward, it’s an impossible arena for us to work in.”
Brewer believes the Irish market will benefit from networks acquiring retail outlets. “Only a couple of years ago, you’d have had a job trying to find someone in a phone shop who knew more than you did about buying a mobile phone,” he said. “Now all retail staff can talk about tariffs and the most suitable product for the customer’s usage profile.
“I want to develop our shops into business centers where people won’t be served by someone who gets paid on commission and just wants to sell them a phone and get the next customer in.”
Irish consumers complained they could not buy packages from Esat Digifone (Eircell’s only competitor) in some of the shops controlled by Eircell and that this was an indication the policy of buying service providers was anti-competitive.
“Esat Digifone chose to remove its franchise. We still support retailers who offer both networks,” replied Brewer, who also believes his strategy of bringing independent shops under the Eircell banner has improved the quality of the remaining independent outlets. Brewer denied that such outlets would be forced to sell only Eircell Services.
Esat Digifone Chief Executive Barry Maloney rejected this claim and said the company could not compete on even terms with Eircell in the retail outlets owned by Eircell.
Favorable regulation
The networks’ stance on MVNOs won significant support in October when U.K. telecom regulator Oftel decided against forcing mobile operators to open their network infrastructure for use by MVNOs.
Oftel said potential MVNOs had failed to come up with sufficiently innovative services or demonstrated they would sufficiently drive down call costs to justify regulatory action. The regulator chose to wait and see how the 2000 introduction of mobile indirect access-where users can choose alternative operators from their handsets-would affect the market before deciding whether active regulatory support of MVNOs is needed.
The regulator was also concerned that existing operators would review their network buildout because MVNOs benefit from a network provider’s coverage without the investment. But despite delaying regulation, Oftel Director General David Edmonds admitted the current market is not yet fully competitive and continuously is being reviewed.
In response to Oftel’s decision, independent service providers and MNVOs put forward a fairly compelling case-at least from a consumer perspective. They argued the networks must be exploiting customers if independent service providers and MVNOs can buy minutes from the networks, add a profit margin and sell them to consumers at the same rate or lower than the network does directly.
Brendan Dowling, managing director of Irish independent service provider Cellular 3, reckons there is real competition only in markets where independent operators are permitted. “In other markets, operators keep prices as high as possible,” he said. “But eventually the mobile industry will replicate the fixed-line market, where prices have fallen dramatically and services such as fixed-to-mobile integration will become the key selling point.”
He said prices have fallen more rapidly in markets where service providers have been facilitated, but agreed that a service provider has to be truly independent or that an MVNO has to offer added value-echoing the concerns expressed by Oftel’s Edmonds.
“In the U.K., for example, there are many service providers, but they are all closely tied to a specific network. Virgin Mobile is the only truly independent operator,” said Dowling.
Virgin Mobile launched in November as “the United Kingdom’s fifth mobile operator,” although it uses One 2 One’s network.
“We will compete with One 2 One, as well as the other operators,” explained Virgin Mobile spokesman Steven Day. “We have access to its network, but our tariffs are completely different from One 2 One’s.”
Previous discussions between Virgin Mobile and BT Cellnet broke down because the operator only offered a service provider option instead of an MVNO.
Virgin Mobile has developed a tariff structure it claims is unique in Europe, where subscribers pay less per minute the more they use their phone. This is only possible because of the IN platform developed by Virgin Mobile over a 10-month period.
The advantage for One 2 One is that its network is being more fully used. “One 2 One has by far the highest level of network capacity of all the U.K. networks, particularly during daytime hours,” said Day.
