Despite accepting that mobile virtual network operators (MVNOs) may soon be a very real factor in the Irish market, senior executives at three of Ireland’s existing mobile network operators – O2, Vodafone and Meteor – have warned that potential MVNO players will face a difficult task breaking into Ireland’s already crowded market. And price alone, they warn, may not cut it.
The three senior executives – O2 Ireland CEO Danuta Gray, Vodafone strategy director Gerry Fahy and Meteor’s head of regulatory affairs Andrew Kelly – candidly offered their views as part of a Digital Ireland investigation into the likely shape of an MVNO marketplace, which will appear in the Irish Independent on 27 January. Incumbent fixed-line operator Eircom, which fosters ambitions to return to the mobile sector, declined to comment.
MVNOs – companies that offer mobile services on the back of the infrastructure of an existing mobile operator – are enjoying widespread success across Europe. In the UK Virgin Mobile is launched an initial public offering based on its success in the UK marketplace. Last month, the Commission for Communications Regulation (ComReg) issued a directive citing operators such as Vodafone and O2, with 94pc of the available mobile market, as having “significant market power” and, therefore, it was directing them to host MVNOs on their networks.
Already, O2 has said that it is likely to mount a legal challenge in the European courts if MVNOs get the go-ahead in Ireland. In an interview with siliconrepublic.com last week, the chairwoman of ComReg Isolde Goggin said that there were at least five hurdles that her organisations proposals for MVNOs must pass before a market framework can be enforced, including gaining approval from the European Commission. The first of these hurdles, assent from the Competition Authorities, has already been gained.
“It is likely that further operators will arrive in Ireland, possibly in the form of MVNOs,” said Gray. “O2 is not opposed to the arrival of other players including MVNOs, however, we believe that they should enter the market on commercial terms. This is already a highly competitive market with three operators present and a fourth one on the way later this year. We believe that this market competition should be given the chance to work without forced intervention from the regulator.”
With or without forced intervention from the regulator, Gray indicated that MVNOs would be hard-pressed to derive a profit in the Irish marketplace. To do so would require long-term vision and plenty of investment. “Potential MVNOs would need to consider issues such as the overall size of the market, current penetration that is standing at just under 90pc and the substantial costs involved in investing in a full virtual network operation. O2 currently invests €4m per week on our 2G and 3G network and we believe that a long-term approach is required to reap the benefit of this ongoing investment.”
Meteor’s Andrew Kelly said that ComReg’s decision to push for MVNOs on the basis of lack of competition was disappointing in terms of recent breakthroughs by Meteor. “In September Meteor launched national coverage based on a national roaming deal that ComReg helped broker. Inexplicably, ComReg ignored the very positive impact this had on competition and based what, therefore, became a flawed analysis on very outdated data.”
Kelly also believes MVNOs will be hard-pressed to derive a profit. “With four network operators and potentially a 3G MVNO competing vigorously next year sustaining profitability in a highly penetrated market as the 6th or 7th player will be difficult. As with Denmark, some players will struggle resulting in closures or consolidation.”
Kelly added that MVNOs traditionally make their killing in the prepay market, which is already addressed by existing players and where prices are the lowest in Europe, and therefore would have no option but to try and make a difference in the post/bill-pay market, where ComReg argues there is not enough competition. “Vodafone and O2 may try to protect themselves by bringing on no-frills MVNOs but this will do nothing for the competition in the bill-pay/business market and as Meteor already offers 69pc savings the prepay market here will not be as attractive to no-frills MVNOs,” Kelly said.
Vodafone’s strategy director Gerry Fahy warned that price alone would not guarantee success for an MVNO in Ireland. He said: “While brand is important to any prospective entrant, the ability to offer attractive customer propositions that can be differentiated from competitors is equally necessary and this relies to a significant degree on service infrastructure. Price alone is not sustainable as a competitive tool.
“No-frills MVNOs invariably operate in the prepay market. Even ComReg accept that Irish prepay rates are among the lowest in Europe. Given the intense price and non-price competition in the Irish marketplace already, a successful MVNO would need to differentiate themselves on something other than price,” he added.
Intriguingly, Fahy hinted that there is an opportunity for an established brand name with a customer base to create momentum as an MVNO. “Given the projected level of increasing competition, there could be an opportunity for an additional player who combines a strong brand, an existing customer franchise and unique and differentiated services. Solely price-based competition would not provide a long-term sustainable business model,” Fahy said.
By John Kennedy