June 20, 2001 – With the introduction of packet-based networks, mobile virtual network operators are poised for take off, according to research firm Strategy Analytics.

In fact, Strategy Analytics predicts that around 10 percent of global cellular revenues – topping $65 billion – will go to the mobile virtual operators' network (MVNO) sector by 2005.

Mobile virtual network operators, an emerging business model, do not own their own spectrum. Instead, they buy time from traditional mobile operators for resale to their own customers.

Mobile virtual network operators have been struggling for acceptance for the last two years in the United States, reports Strategy Analytics. In Europe, MVNO's have had an easier road, tailgating on the popularity of Global System for Mobile Communications (GSM), General Packet Radio Service (GPRS), and the advantages of a single standard, according to MobileIN.com, a mobile industry research firm.

Since MVNO's provide opportunities for companies to offer cellular service without building infrastructure or licensing their own spectrum, the "virtual operator" concept is particularly attractive to companies with well-established brands and sufficient volume to offset low profit margins.

Virgin Mobile, one of the more than 150 companies in the Virgin family fathered by Sir Richard Branson, generally is considered to be the MVNO poster child. The Virgin empire, best known in the U.S. for its mega music stores and Virgin Atlantic Airlines, now includes Virgin Mobile in the U.K., Australia and Asia, with preparations underway to launch in the U.S.

Virgin Mobile uses the brand's market recognition to position itself for selling its MVNO services directly to consumers. The vision, according to Sir Richard Branson, is to simplify the mobile life of the average citizen: "Buying a mobile phone in today's marketplace is a very complicated process, with hundreds of packages designed to confuse and exploit the consumer. (Virgin aims) to bring simplicity, clarity, and the best possible deal for the consumer."

MVNO's have been strongest in value-added data services, the market with the greatest revenue opportunities, according to MobileIN. In addition, MVNO's are expected to benefit from riding the wave as simple resellers gain popularity in the U.S.

The traditional mobile operators profit from MVNO's by broadening their customer base without acquisition costs, while MVNO's profit from customer use of minutes. MVNO's can also "own" the customer by controlling branding, marketing, billing, customer care and the Subscriber Identity Module card, notes MobileIN.

Value-added services such as brand appeal, distribution channels, and other affinities differentiate MVNO's from the incumbent mobile operator, allowing for customer acquisition and preventing the MVNO from needing to compete on the basis of price alone.

It all comes down to services, though, says Sara Harris, senior analyst with Strategy Analytics Wireless Networks Services: "Strong brands will attract customers, but seductive, desirable services will retain them."