Mobile Virtual Network Operators: Beyond the Hyperbolae

Duarte Brito, Pedro Pereira, Apr 19, 2007

The diffusion of mobile telephony has been very fast. In the European Union, in 2005 426 million people, almost 93 percent of the population, had mobile telephones, whereas in 1998 only 18 percent of the population did. Although the market is maturing and the number of subscribers is stabilizing, new service providers, defined broadly, continue to enter the market. Between 2004 and 2005, the number of service providers increased from 166 to 214 in the European Union. Value-added 3G services and personalized services are becoming increasingly important. About five years ago, a particular type of mobile telephony firm was launched in the United Kingdom, Sweden, and Finland: mobile virtual network operators (MVNOs). In this paper, we discuss briefly, and in non-technical terms, some aspects related to the entry of MVNOs. These aspects range from issues related to the entry process itself, such as barriers to entry and exclusionary practices, to the effects of entry on prices and product differentiation. The paper is organized as follows. Section I presents some useful definitions. Section II discusses entry barriers and describes the role of MVNOs. Section III discusses exclusionary practices. Section IV analyzes the impact on prices of the entry of MVNOs. Section V discusses the choice of product characteristics by MVNOs. Finally, Section VI concludes.