R Systems interview: MVNO/MVNE emergence on the Romanian market

Bogdan Danila, Business Unit Director at R Systems, shared with us his view on the benefits if MVNO/MVNE’s emergence on the Romanian telecom market. We invite you to read below the full transcript of our interview with him.

Why do you think the MVNO business model is possible in Romania? Aren’t margin rates for such a business model too low?

Bogdan Danila [BD]: I believe an MVNO business is possible in Romania due to the fact that it is possible in most of the countries worldwide. Romania is unique in many ways, but I am hoping it is not unique to the level that it will not be able to follow the global trend in terms of MVNOs. By the way, in 2012 the number of MVNOs surpassed the number of operators that have their own network. Romania has low tariffs indeed, but margins are still reasonable. Existing operators will have to consider whether it is worth expanding the number of users through MVNOs, at smaller margins, thus making way for MVNO businesses. We, at R Systems, think that MVNOs will be able to grow by combining the mobile telecom business with other business sectors, especially those of large chains of retail stores that can use mobile communications as a tool to attract users and ensure customer loyalty. We also think that machine-to-machine applications have an unlimited potential. And one more thing: mobile Internet penetration is still relatively low, there is a potential for increased penetration and MVNOs could accelerate this process.

Why aren’t there any MVNOs in the Romanian market?

BD: I can think of several reasons. First, the concept is not that well-known in Romania. Therefore, both entrepreneurs and operators are reluctant. Second, the default reaction of traditional operators is rejection. The reasons for this can be many, being generally related to “cannibalization” or simply to the lack of trust that another player could be able to attract users that a basic operator cannot attract by traditional means. In the end, it all comes down to the MVNOs which must present operators with a mutually-beneficial business case. Moreover, conditions have recently changed and will change even further. There are more and more smart phones, increasingly cheaper, that require Internet access packages. Operators now have strategies to attract and keep users by offering them voice packages. At the same time, voice interconnecting tariffs will decrease, reaching reasonable prices starting with 2013. Most likely, this will not lead to lower prices for end-users, but the entry barrier will not be so high anymore, allowing other players to create and launch exciting service packages. Furthermore, data absorption is not possible anymore as operators are connecting users directly to the Internet, without any need for interconnection. Another interesting reason is that retail prices in Romania are lower than wholesale. We hope that this will be corrected soon. Many MVNOs are launched by companies operating in other business verticals and the lack of mobile telecom knowledge can be a problem. If operators would facilitate the access to their infrastructure, then perhaps there would be more MVNOs in the market. But this was not a priority for them. With the MVNE we will be launching, we aim to undertake the task of integrating with the mobile operator, on our industry specific protocols, and to provide simplified interfaces and services to MVNOs. The start-up costs of a “thick” MVNO are quite large and they can be a barrier to entering the market. With our platform, we aim to make MVNOs’ access to market much easier.

An MVNO can focus on a niche neglected by traditional operators, but if that niche proves to be profitable, isn’t there a risk to be immediately occupied by an operator?

BD: I think it depends on the niche. First, that niche might not be so large as to be very attractive to the operator. The operator might be interested, on the other hand, in having more MVNOs, addressing this way a larger number of niches which, per total, can be relevant to him; or that niche could be more difficult to reach by the operator. An MVNO could already benefit from a major supply chain, such as hypermarkets chains, gas stations etc. Other MVNOs could offer customers mobile services bundled with other benefits that are not accessible to the operator: discounts on shopping and other services and content, insurance, miles for flights etc.

How does an MVNE help an MVNO? What infrastructure is R Systems making available to MVNOs?

BD: An MVNE facilitates the technological access for an MVNO. Generally, there are several barriers in the MVNO-MNO relationship: technical, financial, commercial, and legal. Like any MVNE, we aim to minimize technical barriers and reduce initial financial investments. We leave the commercial and legal aspects to be dealt with by the MVNO and operator, and perhaps by regulatory agencies. Specifically, our MVNE platform provides the following functionalities to a potential MVNO:

  • Monitoring voice, data and messaging traffic for billing purposes, and the possibility of disconnection for reasons such as non-payment or expiry of offers;
  • Pricing and offers management;
  • Billing, either pre-paid or by monthly bills;
  • Managing payments by recharging or invoices, and tracking payment delays;
  • Means of provisioning users in the network;
  • Means for users to check their account by SMS, phone menu, automatic voice interaction, Web portal or social networking;
  • Automatic mechanisms for managing customer relationships and loyalty;
  • Open interfaces for a potential integration with the MVNO’s own systems, for example a CRM system for customer relationship management or an existing billing system;
  • Reporting on systems quality, services or at business level.

BD: We will also provide specialized technical services such as: 24/7 monitoring of systems and service quality; Customer relationship management; System configuration and customization. At business level, we can offer consultancy for defining strategy and creating a business model proposal, and financial modeling for when the MVNO enters the market.

What advantages would the emergence of MVNOs bring to the market? How about for operators?

BD: The market would diversify. There is currently a battle over the number of minutes and SMSs included in the operators’ offers. Furthermore, data packages are increasingly getting on the hype. Only smart phones and their applications are currently “cheering up” the market. An MVNO that comes with a different proposal can have a real impact on a market that is “tired” after a fierce battle that lasted for several years. Mobile communications are now a part of everyday life; the quality of services is so high for everyone that it can no longer be a means of differentiation. Operators will need to team up with other players in other industries to pack mobile communications with something else, something different. We help operators and other business sectors to achieve this goal. Operators are experts at what they are currently doing, and they will do this even better and more efficiently. And they will remain profitable. But on the long term they must be open to addressing market opportunities guided by experts in other fields. We can compare this openness with the opening of the Internet at macro level, or with the opening of smart phones at micro level.

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