Tough time ahead for Irish MVNOs

26 Jun 2003

Mobile virtual network operators (MVNOs) will face a tough time if they foster plans to enter the Irish market, with an already saturated mobile sector and the risk of enduring the wrath of O2 and Vodafone’s duopoly if they get too big for their boots. That was the consensus reached at last night’s Wireless Wednesday event in Dublin, where analysts and past and future players in Ireland’s currently non-existent MVNO market gathered to discuss the sector’s future.

While MVNOs – companies that offer mobile services on the back of the infrastructure of an existing mobile operator – are now enjoying unprecedented popularity across Europe, they are walking a shaky tightrope if they are too successful. This difficult balancing act is currently being borne out by Virgin Mobile in the UK, which has raised the ire of its host mobile firm T-Mobile after boosting its customer base by 54pc to 2.64 million subscribers for its competitive voice and text options, as well as slashing the cost of a text message to 3p.

While the Virgin and T-Mobile spat is ongoing, a similar drama was played on the Irish stage two years ago when Vodafone’s Irish operation, then Eircell, caused the closure of the country’s first MVNO Cellular 3 when the company showed the first signs of success.

Cellular 3, under the Imagine brand, acquired bulk airtime from Eircell and then began to operate as an MVNO, quickly amassing 20,000 customers, through its own brand and through associates like Spirit. Eircell’s decision to stop the service resulted in a High Court case. The court ruled that despite having 64pc of the Irish market, Eircell was not in a dominant position and was right to protect its position. Cellular 3 closed for business with the loss of around 240 jobs.

While the MVNO trend is spreading across Europe on the back of the Virgin Mobile success, and traditional firms like Tesco are becoming MVNOs in their own right, the Irish market will present a difficult market for a new player to crack. Between them, just two operators, O2 and Vodafone have 96pc of a market that has reached 80pc population penetration.

At last night’s Wireless Wednesday event, Nicholas McQuire, an analyst with pan-European firm Pyramid Research, said: “There is a fine balance between incentivising an operator into hosting an MVNO and the best business case for that MVNO. If they are too successful, the operator may shut them down. A proper regulatory and competitive environment needs to exist. The way forward, as demonstrated by Virgin Mobile in the UK and German markets, is to become a pan-European operator. A pureplay MVNO would have a hard time in Ireland.”

Neil Philpott of Amdocs, a services provider to the mobile communications sector, said: “The devil is in the detail. MVNOs will have to battle with securing roaming agreements, providing SIM cards, ensuring uninhibited access to base stations and much more. This will require deep pockets as it is very expensive to do this. Return on investment will be a long term struggle. The big question is whether the Irish market could sustain that. I agree that pan-European alliance between MVNOs in various markets is the way forward.”

“There are no MVNOs in the Irish market today”, said Iarla Flynn of the Association of Licensed Telecoms Operators (ALTO). “While ComReg (the Commission for Communications Regulation) has voiced its support for the entry of MVNOs into the Irish market, there are no protection mechanisms for MVNOs that fall afoul of their host operators.”

He added that Hutchison 3G, which received the third 3G licence for Ireland last year, is obliged under its licence agreement to provide for MVNOs. “But Hutchison is still battling with the analysts over whether 3G is likely to happen as a market in the UK and it is unlikely whether it will support MVNOs by next year. As well as this, Eircom has signalled its intention to return to the mobile market in June next year.”

Brian O’Donoghue of Imagine, who had his fingers burnt as managing director of Cellular 3, is still wary of the future of MVNOs in the Irish market. “There is an easy duopoly in the Irish market between Vodafone and O2 and neither has indicated that they would welcome the arrival of an MVNO into the marketplace. They are also dealing with congestion problems on their own networks and probably wouldn’t welcome more congestion.”

O’Donoghue recalled how Cellular 3 launched its services during the summer of 2000 and succeeded in weaning away some 10pc of Vodafone (then Eircell) Irish contract customers, increasing its revenues from €1m to €23m within 12 months. “That really upset the status quo and our agreement with Vodafone subsequently disappeared,” he said.

All the speakers present agreed that Meteor – which has 4pc of the Irish mobile market and a network offering more than 98pc population coverage – presents a major opportunity for MVNOs to enter the market. “Meteor opens up a major opportunity and if it buys into the notion, could bring about the chances of seeing a disruptive movement in the market that is long overdue,” O’Donoghue said. “With all of that spare capacity, it could host at least five MVNOs, and result in an erosion of around 20pc of the current existing marketplace within two years.”

By John Kennedy