Alex Besen: It comes down to the subscriber acquisition cost, let's say is $800 for MNO, if they go to the MVNO that number comes to maybe $200, $150.
Jeff Johnston: That was Alex Besen, founder and CEO of The Besen Group, explaining why national wireless operators are enabling new competitors via the MVNO business model.
Hi, I’m Jeff Johnston and welcome to the All Day Digital podcast where we talk to industry executives and thought leaders to get their perspective on a wide range of factors shaping the communications industry. This podcast is brought to you by CoBank’s knowledge exchange group.
Broadly stated, mobile virtual network operators, also known as MVNOs, are organizations that resell wireless service under their own brand. Tier one cable operators adopted the MVNO model to address competitive threats from the large national wireless operators. And thus far they have been a disruptive force in the wireless industry.
Alex is a well-respected and sought-after consultant in the mobile industry with a deep knowledge base of the MVNO business model and private networks. This makes him an ideal guest to discuss MVNOs and the impact they are having on the industry.
So, without any further ado, pitter patter let’s hear what Alex has to say.
Jeff: Alex Besen welcome to the podcast.
Alex: Thank you, Jeff, for invitation.
Jeff: I'm super excited to have you here today to talk about MVNOs, or mobile virtual network operators. I think we've been hearing a lot more about this in the press lately, specifically with Cox having just announced their new mobile business, new 5G smartphone business. Maybe you could just help us understand what exactly is an MVNO.
Alex: Everybody, Jeff, has a different definition for MVNOs, but we have our own definition. We define MVNO is an organization that offers mobile and mobile data services with or without spectrum. Note that the spectrum can be licensed, unlicenses, or shared. It may work with multiple host network operators, mobile virtual network aggregators and mobile virtual network enablers. That's our definition for MVNO.
Jeff: Then let's talk about it in the context of the cable operators so we have Charter, Comcast and most recently Cox and then Altice, they're all in the mobile space right now as a mobile virtual network operator. Maybe you can just kind of opine a little bit on what exactly these guys are doing from a strategy perspective as it relates to the things that you just went through.
Alex: The cable companies in the US, they had multiple trials trying to launch wireless services in the past. It didn't succeed but I think they learned from their mistakes and they finally launched their MVNOs independently of each other.
2017 we see Comcast launched the Xfinity Mobile the partnership with Verizon. A year later Charter launched the Spectrum Mobile, again with their partnership with Verizon. Then we see Altice launching on T-Mobile network. Then we've seen WOW launch last year on T-Mobile network as well. This year just at the CES show Cox Mobile. They understand what it takes for them to succeed in the market, leveraging the existing broadband customers, offering a bundled solutions in order to target those mobile subscribers. I think that's their main strategy today.
Of course, some of them if you look at the Comcast and Charter and maybe Altice as well, they acquired some license spectrum like a CBRS spectrum. I think that would be next evolution for them down the road to leverage or to offload some of their mobile traffic to this CBRS spectrum. Also, constantly deploying private networks down the road.
Jeff: Got you. It's been really interesting watching this whole thing play out because these cable operators have the last several quarters I think, have done a pretty remarkable job in terms of acquiring new wireless subscribers. Why do you think the cable operators got into this business in the first place? They're doing well, so certainly was a, I guess in hindsight was a good decision, but why do you think they even got into the mobile business?
Alex: They were losing customers on their existing services. They need to able to launch this mobile service as a bundle in order to balance out the loss that they're having in other business lines, so that's the main reason for them to launch this mobile services, and then bundled with their other especially with the broadband to attract their customer base.
Jeff: That makes sense. The whole bundle strategy, customers tend to be stickier. It's been interesting because if you look at what's happened with the national wireless operators, T-Mobile and Verizon in particular, they've been very aggressive with their fixed wireless access service.
There was a quarter last year where the combination of Altice, Charter and Comcast, they didn't add one broadband subscriber, one net new broadband subscriber to their business. While at the same time, Verizon and T-Mobile had, I think combined were close to a million new fixed wireless broadband subscribers. Pretty interesting dynamics there on the fixed wireless side.
I get the strategy that you launch an MVNO as a cable operator to insulate your broadband customers and that's a good strategy but at the same time, maybe that's not necessarily what's happening because the national operators are having so much success taking some of those fixed broadband customers. But then at the same time, you've got the cable operators who are doing really well acquiring new smartphone subscribers. Any way to reconcile all that stuff that's been going on.
Alex: Yes, Jeff, I agree with you, yes. I think the mobile network operators now attacking back the cable operators by launching that, targeting their broadband customers to fixed wireless access. T-Mobile, as you know they're the number one in the market today with around 7 million to 8 million customers and they're expecting that by 2025 so they're expecting about 8 million subscribers there. Then Verizon is the second player they're expecting about the 4 million to 5 million subscribers by that 2025.
I think, yes, they're competing for the same subscribers one targeting their mobile, the other one's targeting their broadband. I think the one who provides the best customer service, the simplicity and efficiency, I think will win the race there in the fixed wireless access, in terms of the customer acquisition there.
Jeff: Right. Okay. Yes, it'll be fun to see how that all plays out. Let's get back to the MVNOs in particular. I'd love to get your thoughts, Alex, on how do you see these services evolving, or how do you see maybe these business models evolving for MVNOs? Do you think they'll just continue to resell service off of their network providers network, in the case of Comcast and Charter and Cox just continue to resell with Verizon?
Or do you see these business models evolving to more of a hybrid approach or some people say the thing about these MVNOs in the US is they're light MVNOs because they don't have their own core and numbering assets and could it evolve one day to where they become full MVNOs where they have much more control over their customers and the networks they access? If you were to look three, five years down the road, how do you see these things evolving?
Alex: The way I see it is that they do not want to own the core network elements so I think what they have done initially when they launch their MVNOs, they outsource everything to the MVNE partners or MVNA partners. Okay? Now, slowly they reached a million subscribers, now more than a million subscribers. They're bringing some of those functions in-house, right? They're signing up the agreements directly with the BSS/OSS vendors, with other MVNEs themselves, but I don't see them launching their own MNO down the road.
I think they want to build their own towers or they're going to build their own network. This is not their expertise. I think they will leave it to the network operators doing that and then they just continue their MVNO agreement as is.
Maybe they will offload some of the traffic to CBRS spectrum or Wi-Fi spectrum as they've been doing but be able to target also some enterprises on the business line and leverage the Wi-Fi and the CBRS spectrum for private network business. I see that as a combination moving forward for them. You see that Cox is doing it in Las Vegas. Charter is doing it. Comcast, they had some announcements, the public announcements recently with the hotel I believe and then the stadiums.
Jeff: I just want to be clear as I'm tracking with you here. When you think about their CBRS spectrum that they own, you see that being deployed more in a private network model as opposed to building small cells in urban areas where there's heavy traffic that they can offload from Verizon's network, in the case of Charter, Comcast, and Cox. Am I following you correctly there?
Alex: Not maybe on the license spectrum, Jeff, but they will offload the traffic to the Wi-Fi networks, but for the license spectrum that they have, I think they will target the enterprises. Okay? I think you will see them competing with Verizon and T-Mobile in the enterprise segment as well because now they have a CBRS spectrum, they have other lower band spectrum where they can say, "Look, we can offer you more a total turnkey solution for your needs, so stadiums, commercial estate, shopping malls, hospitals, hotels will be the target as we see it today.
Jeff: Got you. So take advantage of their assets and go after that market as opposed to the retail subscribers and trying to serve them with those assets. All right. That's interesting. What about some of the smaller cable guys? I don't know if you've looked at this at all, but we've seen, call it the tier 1 MSOs or the tier 1 cable operators have all jumped into the wireless industry here, but there's a whole bunch of smaller tier 2, tier 3 cable operators that I guess if I looked at it, I would think that they too would be exposed to the kinds of threats that the larger ones are in terms of fixed wireless deployments in their markets.
Do you think it makes sense for some of these folks to look at offering a bundled smartphone broadband/cable service as well?
Alex: Of course, yes. Jeff, definitely. I think they're watching the bigger cable operators closely. They see their success now in the mobile market. I think they have two options. I think they have either they will go on their own to the each mobile network operator like a T-Mobile or Verizon, and assign an agreement with them directly. Or they will become like under the agreement with the big Comcast or like a Charter and then they leverage their pricing from there.
As you can imagine, this wholesale agreements is based on the price, the volume. The more subscribers they have the cable operators bring to the network operators, the better discount they get. Since the smaller tier 2, tier 3 cable operators, they cannot get a better discount or deep discount on their own. They might be willing to go under the bigger, Comcast or Charter agreement and use their agreement in order to launch their mobile services. We expect that.
I think the target or the key players, the Atlantic Broadband, CN, MediaCom, CableOne, those are the ones we expect to launch their mobile services sooner or later.
Jeff: It makes sense that they would partner with or leverage the larger cable operators contracts or infrastructure. How complex is it for the likes of a CableOne for example, to get into this business?
Alex: For the operations I think they will outsource most of the functions to a MVNE, the enablers like the Comcast and Charter in the beginning of the mobile service. Everything was outsourced. They will also just the smaller players they will outsource it to MVNEs. They don't have to understand all the complexities of running a mobile network. They just focus on marketing and sales. That's what they need to be doing.
Jeff: There's a full ecosystem out there that's mature, that can help these folks get to market.
Alex: Oh, for sure, yes. There is.
Jeff: Sometimes I get questions from people that say, I don't understand why in the world would Verizon or a T-Mobile or an AT&T, why would they want to enable new competition for retail customers through this MVNO model? Because as I mentioned earlier, the cable guys are doing really well in terms of acquiring these high valued postpaid subscribers at the expense of the national operators. What are your thoughts on that? Why do you think the national operators are interested in even supporting this business model?
Alex: Jeff, great question. I give you this simple answer. It comes down to the subscriber acquisition cost. To acquire a new subscriber in the mobile business from a network is very expensive. It is a high cost. In order for them to basically open the network to MVNOs saying, "Hey, if you have a customer from an existing line of business is already your customer. It will be cheaper for you to come in and launch your mobile service under our network."
The subscriber acquisition cost, let's say is $800 for MNO, if they go to the MVNO that number comes to maybe $200, $150. See that's exactly it. Financially, it makes financial sense for them to attract those MVNOs to their network and leverage the network capacity, is available for them to-- they need to fill up the network as well. They have all this spectrum holdings they have, so they need to fill up, so that's the main reason for them.
Jeff: Okay. Yes, that makes a lot of sense. I wonder too, it's probably like if I'm sitting in AT&T shoes for example, and somebody comes to me that wants to launch an MVNO on my network. I want that business because if I just say, no, I don't want to enable competition, chances are somebody else is either Verizon or T-Mobile's going to do it so I guess if I'm going to lose retail customers, I'd rather do that while I'm gaining wholesale customers than just losing retail customers completely. Right?
Alex: Exactly, yes.
Jeff: We've seen the cable operators do a lot in this space. There's been a lot of prepaid pretty large prepaid, very successful MVNOs as well over the years. Are there other companies or organizations or industries that you see down the road that might want to mirror what the cable guys are doing here with MVNOs?
Alex: Yes, I think, Jeff, private networks-- I'm going to go back to private network business because it is very-- looking to details of private network business is very close associated with MVNOs because private networks the enterprises who are going to deploy these networks at their facilities at the offices or factories or warehouses, they can have their own network, closed network but the minute they think about accessing that network on a public macro network, they become MVNO and the market is huge.
Is in billions of dollars because you have all these different segments, they're looking to launch these private networks, indoors and outdoors. Either they're going to go to-- it can be just data only MVNOs like IOTs devices only. So the market is going to be huge for the, I don’t know for the next five to 10 years for this wholesale market. Yes.
Jeff: Okay, so that's a good point actually, that it doesn't have to be voice, for voice and data, it can be just data so you could have a utility company for example, that was deploying a private network in multiple locations across the country, but then on top of that, they want to, maybe there's some markets where they don't want to deploy private networks or maybe they want to offer their own phone services to their employees.
They could be this MVNO. It could take the form, I guess, of not going out and acquiring new subscribers, but you could see organizations becoming an MVNO just to provide service to their own employees.
Alex: Exactly. Yes. Jeff, if you look at FirstNet today, this is the largest private network in the US over 3.5 million subscribers. They do have that at a private public partnership at AT&T. That's a good example. They have their own spectrum. You can look at some trucking companies out there. You can be at your facility in a warehouse but then if you live in a warehouse, you're on the highway, you need to access the macro network that you become MVNO. The minute you access the publicly available macro network, you're MVNO somebody else's network, right? They need to a signed partnership agreement with one of the tier 1 guys.
Jeff: Got you. Car companies have got to be right. I mean, with all the technology going into cars, especially with autonomous driving, right?
Alex: Yes, exactly. That's a perfectly good example. Yes, Jeff, yes.
Jeff: We got to think broad. When we think MVNOs, we can't just think cable guys offering 5G smartphone services. It's much bigger than that.
Alex: Yes. You will see minimal data only MVNOs for IoT devices.
Jeff: Got you. Good. Well, that's good stuff, Alex. We've covered a lot here today, which has been wonderful. Before we wrap it up, is there anything that we didn't talk about or that I didn't ask you about that you think is important to touch on before we say goodbye?
Alex: Yes. I think that what I recommend, the listeners is that MVNO business is a complex business. We recommend that all the new entrants to the MVNOs do their due diligence, understanding the fundamentals of what it takes for them to match this MVNO and what business model is appropriate for them.
There are multiple models out there and they need to be able to select the one that is right for them based on their criteria, and what the qualification is. What is the key expertise that they bring to their customers?
Jeff: Great. Well, that's some great advice, Alex. I'm going to leave it there. Thank you so much for being on the podcast today.
Alex: Oh, thank you for having me again, Jeff.
Jeff: A special thanks goes out to Alex for joining us on the podcast today. I think my biggest takeaway from talking to Alex is that MVNOs come in all different shapes and sizes and that we’re likely to see a broad range of companies enter the market. The other thing that resonated with me is why national wireless operators are enabling these disruptive market entrants, because when you think about it, it’s kind of counter intuitive. But I guess it’s clearly better to lose a retail customer while gaining a wholesale customers versus just losing a retail customer with no offsetting gain.
Hey thank for joining me today and watch out for the next episode of the All Day Digital podcast.
