MVNOs and 3G – The Future of Resale?

August 31, 2005

After a shaky start, 3G finally looks capable of fulfilling its potential in Europe. Hutchison 3G (3) now indicates that it has over 80% coverage for its 3G service in the UK, and both Vodafone and Orange are apparently nearing that benchmark.[1] Some analysts estimate that there will be around 40 million 3G customers in the UK by 2010.[2] Given the revenue opportunities in next generation mobile networks, many companies are considering entering the market. Rather than investing in established mobile network operators (MNOs), many companies have entered the market by “piggy-backing” on the networks of MNOs. These companies are known as mobile virtual network operators (MVNOs) and, broadly, provide mobile telephony services without actually owning their own radio frequency.

According to a recent report, “3G is now poised to fuel the number and diversity of MVNOs, allowing a range of organisations to deliver content and services from their core businesses, including multimedia data services and downloads.[3] Building on the success of the first wave of MVNOs, such as easyMobile and Sainsbury, Analysys notes that “a new wave of MVNOs are already leading the way, with Universal Music, TV channel M6 and radio station NRJ all planning to set up MVNOs in France.” Other new MVNO entrants include Disney and possibly Apple in the US. Existing MNOs are also interested in having a mobile presence in countries where they have no MNO licence, including T-Mobile in France and SingTel in HongKong.

In the UK, Virgin Mobile, which operates over the T-Mobile network, currently has the most active subscribers, with over 4 million.[4] Tesco Mobile, which launched at the end of 2003 over the O2 network, has over 500,000 subscribers.[5] Recent reports identify a number of opportunities for prospective MVNOs, including low-cost roaming through a pan-European offering and converged mobile/broadcasting and other services.[6] The advent of 3G also paves the way for MVNOs to compete in, inter alia, the data markets as well.

A new entrant MVNO needs the ability to identify, at an early stage, the levels of capacity and the bearer and input services it requires from the MNO, how they will integrate with its distribution and sales platform and what products and applications need to be bought in from third parties in order to offer customers a range of products and services which distinguishes it from the MNO. This article gives guidance to businesses who may be interested in entering the UK and Irish mobile markets via the creation of an MVNO.

Defining MVNOs

MVNOs generally lease spectrum from MNOs and in that context buy millions of minutes of traffic from networks. These minutes are priced by the MVNO according to its own business proposition, and can be coupled with value-added services, which the MVNO rather than the MNOs generally provides. These MVNOs can be categorised as “wholesaling” MVNOs. They have a high degree of control over tariffs and service design but operate under certain MNO imposed constraints. They can also secure their own numbering ranges, allowing them to determine how traffic is routed, and select the cheapest providers for backhaul, long-distance, international and roaming traffic. It is a win-win arrangement with the MVNO profiting from the resale of minutes and value-added services offerings, and the MNO, in turn, being able to maximise its spectrum capacity usage.

At its most basic level, an MVNO provides mobile subscription services under its own brand name without having a spectrum licence. But within that broad definition are, on the one hand, MVNOs that have made substantial investments in infrastructure and facilities for the provision of 3G services. Such MVNOs are likely to require the use of the radio elements of the MNO’s network and such fixed parts of the 3G network as are necessary to route calls between the radio elements of the 3G network and also points of interconnection from which calls can be passed on to the MVNO’s network. On the other hand, there are MVNOs that have acquired capacity from the MNO (the giving of capacity commitments will undoubtedly be mandated by the MNO) who make minimal investment in network infrastructure and who concentrate their activities and investments in marketing, customer service and billing. The MNO would then provide the transport and delivery of calls to a terminating network.

Thus, MVNOs come in different shapes and sizes and potential entrants need to decide which model to adopt. One important factor in this decision will be the extent to which the MVNO can operate independently from its host network, which is indicated by its ability to set its own tariff structure and to take its traffic from one network to another.

Light touch regulation of MVNOs

Although generally viewed positively by European regulatory authorities because they provide greater choice for consumers, MVNOs have emerged within regulatory frameworks which were not designed to accommodate them. Most countries’ communications laws distinguish between operators of communications networks and providers of communications services. Most MVNOs operating their own network elements fall into a grey, unlegislated area in many countries.

Two immediate issues for MVNOs are: (i) whether and how they can access host networks; and (ii) how much they will pay for access. Under EU communications law, there is no specific regulation of MVNOs. Thus, an MVNO will generally be entitled to access only where the host operator has been designated with Significant Market Power (SMP).

MVNO access in the UK and Ireland

In the UK, access to host networks is not mandated for MVNOs. Instead, MVNOs must negotiate access with the MNO and other network operators on a voluntary basis.

By contrast, in Ireland an MVNO access condition has been incorporated in the largest 3G licence that has been awarded to date. That Irish 3G mobile licence contains a condition requiring that the 3G MNO negotiates an MVNO agreement on certain terms with the MVNO. Indeed, some of the key provisions (as regards obligations of each party) that ought to be incorporated in the MVNO agreement are referred to in the 3G mobile licence. Further, and unlike in the UK, the Irish communications regulator Comreg has clearly defined MVNOs.[7]

Spectrum release, trading and liberalisation

Before looking at the key commercial issues for prospective MVNOs, it is important to note the expansive developments taking place in the UK with respect to the possible release of newly available radio spectrum over the next two to three years and the transition to spectrum trading and liberalisation in relation to mobile services. Ofcom has proposed, inter alia, the removal of restrictions in licences that prevent the use of spectrum for the provision of mobile services, including 3G and other mobile services, by 2007.[8] If Ofcom’s proposals are made a reality, newly available frequencies at 2010 – 2025 could be used for mobile broadband technologies such as WiMax.[9] Further, the 2290 -2302 Mhz band, currently used by programme makers for outside broadcasts, could be made available for next generation mobile applications and WiMax. In addition, the 2500-2690 Mhz band (otherwise known as the 3G extension band) would be made available for 3G, but use will not specifically be limited to, 3G services. Finally, the 40Mhz of spectrum in the so-called L-Band (at 1450Mhz) may be made available for broadcast multimedia technologies such as video-to-mobile or mobile TV.

This potential extension of spectrum, use and liberalisation means that there will be greater scope for businesses to enter the mobile telephony and converging telephony/broadcasting/IT markets.

Key issues in negotiating an MVNO Agreement

There are a number of key issues which a prospective MVNO needs to consider when negotiating an MVNO agreement, more particularly described below.

MVNO Access: to which host network?

Where the host MNO has both a GSM and a 3G licence, MVNO access will be required to both networks. The MVNO may also wish to negotiate access to any Wi-Fi network owned or operated by the MNO.[10] On the other hand, the MVNO may wish to supplement its own network with a WiFi network of its own. In Ireland, Comreg has recently introduced licence exempt wireless broadband access in the 5.8GHz (5725-5875) band. This is consistent with the current policy of not linking spectrum to specific technologies. Wi-Fi or other fixed wireless access equipment which meets the requirements, set by Comreg, can use this band.

Services required by an MVNO

At a minimum, all MVNOs require use of the radio elements of the mobile networks and such fixed parts of the MNO networks as are necessary to route calls between the radio elements and the first convenient points at which calls can leave (or join) the mobile networks en route to (or from) the facilities of the MVNOs. The MVNO seeking access will clearly want to set out in the agreement the leaving and joining points where, for example, it has a fixed network of its own. Indeed, in Ireland, Comreg mandates in the licence containing the MVNO access condition that the mobile network operator routes all outgoing calls made by the MVNO’s customers to the mobile services switching centre of the MVNO.

At the other extreme (where the MVNO has maximum use of the MNO’s facilities and there is minimum investment by the MVNO), calls from MVNO customers will be handled virtually entirely by the mobile networks as if in fact they were calls from subscribers to the mobile networks. In particular, all the verification operations would be carried out by the MNO, whose databases would have to be geared to receive, process and supply data concerning the MVNOs customers as well as their own.

A 3G call

Care needs to be taken with the definition of “call”. On 3G networks the concept of a call is much wider than a voice call, the traditional concept associated with a GSM network. This definition, in turn, will have an impact on the types of services which the MVNO will need to buy from the MNO in order to access and transport the call. The definition of a call will also have an impact on the pricing of services. For example, data transport will not have the same pricing mechanism as voice transport.

If MVNO access is mandated by the national regulator, as it is in Ireland in the case of one 3G licence, then usually the MVNO access condition will provide some details on the types of services which the MNO must supply, including bearer services, standard supplemental services and input services (ie “wholesale” mobile features and functionality required for an MVNO to produce value-added services, which the host network produces and provides to its own retail subscribers[11]). It is important to check whether the MNO has been found to have SMP for any of the services the MVNO needs, as in such event the price of such services and their terms will be subject to further regulation.

The MVNO will need to ensure that the MNO provides certain types of services which the MVNO may be obliged by law to provide to its customers, such as free access to emergency services and mobile number portability.

The MVNO may also need support and other services, such as handset supply and replacement and other services which the MVNO may purchase on a subcontracting basis from the MNO.


Roaming is generally defined as the ability for a cellular customer to automatically make and receive voice calls, send and receive data or access other services when travelling outside the geographical coverage area of the home network by means of a visited network. If the visited network is in the same country as the home network, this is known as national roaming. If the visited network is outside of the home country, this is known as international roaming.[12]

Prospective MVNOs will generally wish to offer their customers the ability to roam. MVNOs will generally need to obtain from the MNO roaming services to the extent and for those countries where roamed services are part of the package of services offered to the MVNOs customers.

Information exchange and data protection

A key element in any MVNO agreement is obtaining access to information. Each party will need information from the other. At its most basic level, this means, in the case of the MVNO, obtaining in good time call detail records (CDRs) from the MNO so that the MVNO can bill its customers and refund customers where over-charging has occurred. As cashflow is critical to an MVNO’s operations, it is important that the CDR format per service type is set out in the MVNO agreement and the actual CDRs are provided in advance of the date by which the MVNO has to load the information into its system and bill its customers. This is particularly important if roaming services are involved. The format of a CDR will clearly differ between a voice call and a data message.

The MVNO will undoubtedly require network and service interface information in order to structure its own services and where necessary to structure agreements with third-party service providers, with whom the MVNO may have contracts separate from the contract with the MNO.

Also the MVNO will want to ensure that information it provides the MNO such as marketing and business plans, forecast capacity requirements and intentions as to the provision of value-added services (which may need to be passed over to the MNO for network dimensioning and network conditioning purposes) is not used by the MNO to its own competitive advantage.

The MVNO and MNO will also need to make mutual commitments regarding compliance with data protection legislation generally and also more specifically with respect to billing data.

Specific Obligations

Disconnection, fraud and security

Generally the MVNO will not want the MNO disconnecting any of its customers, unless there are legitimate reasons for doing so, such as network security or fraud. At the same time, the MVNO will want the right to demand that the MNO disconnects a handset in certain circumstances, such as in the case of a lost or stolen handset or in the case of fraud. The parties will also need to incorporate provisions providing for mutual cooperation in the case of fraud.

Branding the MVNO

The MVNOs who have succeeded to date are those with strong brand recognition. It is essential when negotiating an MVNO agreement that the MVNO’s brand is not submerged or rendered less effective by requirements imposed by the MNO. Where disclosure of the host MNO is not required under regulatory law, the MVNO should always ensure that its brand has primacy.

Marketing is equally important. New MVNO entrants need to market their services at a high level. MVNOs must be able to design competitive tariffs and services, distribute products, procure handsets, create roaming opportunities and enter into strategic alliances for content and services. As the MNO and the MVNO will in all probability be competitors, the structure of the MVNO Agreement and individual clauses will need to conform to the competition rules.

Pricing of services

Broadly, the pricing principles applicable to the provision of services to MVNOs should reflect the nature of an MVNO and the extent to which it is engaged in interconnection or pure resale of network capacity. MVNOs with extensive networks of their own which make only minimum use of the host MNO’s facilities are identical to other network providers and should therefore be entitled to interconnection on the same basis as that adopted for interconnecting operators. Such MVNOs should therefore be able to buy services which are interconnection services from the mobile network on a long run incremental cost (LRIC) basis.

Where a national regulatory authority (NRA) has mandated MVNO access in a 3G licence, as in Ireland, generally the pricing basis adopted is not LRIC-based but retail-minus. For example, the Irish regulator mandates that access must be priced at a level at least 35% below retail. Retail minus pricing usually sets prices by reducing the MNO retail price for the access by the costs avoided in providing the access in question.

Where the call is essentially data, the service provider will need to establish a basis with the MNO for pricing data transport and, particularly, how the pricing is related to data which is sent by a customer and data which is received by a customer.

As regards roaming services purchased from the MNO, it is generally very difficult to get pricing which is stable and fixed, but the MVNO should aim to get some framework for pricing so that it can make reference to it in its agreements with its customer. The MVNO should also aim to obtain an assurance that the MNO will not uplift the price charged to the MNO for the roamed service.

SIM cards and mobile numbers

SIM cards and mobile numbers are critical elements for the MVNO to secure ownership of its customers. Essentially the SIM card contains the information that identifies the user to the host network. Without a SIM card, a handset can usually make emergency calls only. So not only is it important to obtain a supply of SIM cards from the MNO, but also a right to have them replaced if they are faulty.

As the functionality programmed into the SIM card is increasing, it may be necessary in the context of the services that the MVNO wishes to provide, to secure an obligation in the MVNO agreement to have this software modified/updated or, more appropriately, to secure a facility to have the SIM cards replaced by cards with greater functionality. The same requirement may also apply to 3G data cards. In this context, the MVNO may need a contract with the phone supplier.

The SIM card contains the mobile network code (MNC). It is essential that the MVNO obtains its own MNC and also that it obtains an allocation of mobile numbers. In some countries such as the UK, the MVNO will be unable to get an allocation of mobile numbers from the regulator and will therefore need to secure a mobile number allocation from the MNO with whom he is negotiating an MVNO agreement. In other countries, such as Ireland, it is possible for the MVNO to obtain the MNC code and an allocation of mobile numbers directly from the regulator.

Service levels

In order to get access to capacity on the MNO’s network, the MVNO will be required to give capacity commitments. The MNO may impose capacity restraints and where these are accepted by the MVNO, they should not detract from the MVNO securing appropriate network service levels from the MNO.[13]

In some countries, the regulator may mandate that the contract between the MVNO and certain customer classes (or indeed all classes) provides for certain service level commitments for certain types of services. Additionally, the MVNO who has aspirations to provide mobile services to segments of the corporate sector or to provide a full managed service to a particular corporate end user, will also need to provide service level commitments, not just on network availability, but also perhaps on data transport, help desk services and billing. Liability for breach of the service level commitments is a major negotiation point for both the MVNO and the MNO. Whilst it may be argued by the MNO that it is impossible to provide service level commitments on a mobile network, in practice, service levels can be supplied/negotiated for certain elements of a mobile network. Where content is purchased independently by the MVNO, the MVNO should require service level commitments from each content provider.

Structuring the MVNO

There are two primary ways of structuring an MVNO:

(i) by setting up a stand alone company, whose assets and liabilities can be ringfenced from those of sister companies within the group of which the MVNO forms part; and

(ii) by the MVNO entering into a joint venture agreement with the host MNO, with whom it proposes to enter into an MVNO agreement.[14]

The joint venture agreement will raise many issues, such as identification, valuation and tax treatment of assets to be transferred into the joint venture, the type of shares to be issued to each party and the percentage shareholding to be taken by each party, the decisions at director and shareholder level that require to be agreed by both parties, the financing obligations by both parties, the extent of borrowings by the JV and how borrowings will be financed. There are usually specific provisions dealing with dividends, and the exit provisions will need to be detailed and will need to anticipate the various consequences of one party seeking to exit or being required to sell out.

Where an MVNO has a need to exit a joint venture it is extremely important not only to consider and provide for the various exit scenarios which could apply in the context of any JV, but also to ensure that they are aligned with the termination provisions in the MVNO agreement between the MNO and the MVNO joint venture.

Paul Foley is a Corporate Partner at McKeever Rowan: Davina Garrod is a EU/UK Competition/Communications lawyer at McDermott Will & Emery:

[1] Ofcom presentation on “Consumers in a Mobile World”, 11-12 May 2005.

[2] According to a speech given by Peter Ingram, Chief Technology Officer at Ofcom, at the FT World Mobile Communications Conference “Where Value Matters – Content Drives.”.

[3] Analysis Report on “The Future of MVNOs in the 3G Era” (June 2005).

[4] Ofcom figure as at March 2005.

[5] Ofcom figure as at December 2004. There are various other MVNOs in the UK, including Sainsbury, One-Tel, FT.Mobile and Tesco. Further, BT has recently announced that it will provide an MVNO service on Vodafone’s 2G and 3G networks as part of its “Bluephone” service.

[6] IDC Report, “Opportunities for MVNOs in Western Europe” (June 2005).

[7] An MVNO in Ireland is defined as “an organisation operating a physical network infrastructure comprising at a minimum, a mobile switching centre, home location register and authentification centre (or 3G mobile equivalents), having its own unique mobile network code with distinct IMSI and E.164 number series (where applicable) and issuing its own branded SIM cards (or 3G equivalent) but without a mobile radio access network.” MVNOs are also defined in Hong Kong. This is also the position in Hong Kong, where 3G operators must reserve up to 30% of their capacity for use by MVNOs. In Hong Kong, MVNOs must have their own mobile switching centres and gateways, interconnect and roaming agreements, billing and customer care systems and to issue their own SIM cards. MVNOs may be given their own mobile numbering ranges and operating licences, since in Hong Kong these are relatively cheap and straightforward to obtain. MVNOs are also treated favourably in Sweden and Spain.

[8] Ofcom Spectrum Review: Implementation Plan 13.1.2005

[9] The term WiMax describes a set of standards being developed to deliver broadband, wide area wireless communication over a wide range of frequencies between 1 and 60 Ghz. There are two main versions of WiMax, 802.16d and 801.16e. WiMax can be used to backhaul 802.11 hotspots and WLANs to the Internet and enable a wireless alternative to cable and DSL for last mile broadband access.

[10] Wi-Fi is the certification logo given by the Wi-Fi Alliance for wireless networking equipment that passes the Alliance’s tests for adherence to IEEE 802.11 standards and for interoperability with the IEEE 802.11 WLAN standard. Conforming equipment is mainly used in the 2.4 GHz and 5 GHz bands.

[11] See Part 7 of the Schedule to the Irish 3G mobile licence for “3”.

[12] These definitions are those of the GSM Association.

[13] The MNO will need to impose capacity restraints where it has roaming access obligations and MVNO access obligations to others.

[14] For example, Virgin has an MVNO JV with T-Mobile.