Traditionally, telecom operators spend billions of dollars to build their infrastructure such as routers, switching equipment and customer billing systems. It takes time to recover such hefty expenditure and it usually comes at the expense of customers.
Today, technology advancements have created an opportunity for telco players which prioritise innovation to enhance the services offered to customers. This space will best be filled by "asset-light" players whose primary focus is to develop and offer innovative and flexible solutions.
This is a better business model for telcos of the future, according to management consultancy AT Kearney. In a report last December, it pointed out that shorter technology cycles and fast-moving challengers were driving unprecedented capital expenditure pressures on network and IT infrastructure.
Thus telcos are reinventing themselves by turning to lean business models where they outsource to or share their infrastructure with third parties. This is happening worldwide. A relevant case is Indonesian telco XL Axiata, which in 2014 sold 8,000 of its radio towers to a third party, driving down its operating costs.
Mobile virtual network operators or MVNOs are an excellent way for mobile service providers to become asset light. MVNOs maintain an optimum cost structure by sharing a radio network of a mobile network operator (MNO) to serve their own customers.
MVNOs may work in Singapore, as they have elsewhere, because their primary focus on innovation leads to improved service development and a richer customer experience. One example is GiffGaff in England, which launched a member-led service that rewards members for answering user questions and finding new subscribers. Viking in Belgium developed a partnership model which extends customers discounts at a range of online shops along with the opportunity to collect free airtime. Google Fi in the US enables users to switch efficiently between WiFi and 4G for better quality and better spectrum efficiency, at an affordable price.
The introduction and growth of MVNOs seem inevitable in markets where policymakers and regulators seek to enhance mobile competition and encourage innovation. In Singapore, there has been two years of government- industry consultation on the necessity of a fourth mobile operator. Last month, the Infocomm Development Authority (IDA) announced a spectrum allocation framework to facilitate the entry of a fourth MNO to "enhance innovation and competition".
The new entrant will have to bid for the spectrum in an auction. Depending on how the bids turn out, Singapore will know before year-end whether there will be a fourth MNO.
During the incumbent telcos' recent release of their financial results, analysts from securities firms showed great interest in how they will address the presence of a fourth mobile operator. Mobile data traffic has risen and ARPUs (average revenue per user) are healthy, said the incumbents. Naturally, they will respond vigorously to defend their market share. They have also started to pluck the low hanging fruits by offering SIM-only cards with no contracts, foreseeing that this would be one way new entrants would compete.
More significantly, the verbal war has started. One operator said new entrants will start a price war to get customers, but added later that it would welcome new entrants who have innovative products.
The IDA has said that it encourages MVNOs and wants the incumbents to negotiate in good faith with potential MVNOs on leasing their networks.
MVNOs can enter the market and win customers with a focus on service and product innovation, and not be constrained by any large need to recover costs associated with financial investments.
MVNOs are not new entities. The Asia Pacific is home to the second largest number of MVNOs with Malaysia, South Korea, Hong Kong, and Australia serving as successful examples. Market share for MVNOs in Malaysia has grown from 2.9 per cent in 2012 to 6.3 per cent in 2014, while in South Korea, it has gone from 4.5 per cent in 2013 to 7.3 per cent in 2014.
According to the GSMA, an association of mobile operators, MVNOs are a key catalyst for increased mobile penetration. GSMA estimates that the average mobile penetration rate among the 72 countries that host MVNOs stands at 128 per cent, compared with the global average mobile penetration rate of 97 per cent.
While MVNOs have gained traction around the world, launching and operating an MVNO remains challenging.
First, MVNOs must bring to the market more consumer value than established MNOs.
Second, MVNOs need to secure access to the infrastructure of incumbent MNOs, who will be their future retail competitors.
Third, low early brand awareness places new MVNOs at a disadvantage to the established legacy MNOs.
These challenges contribute to one in every four MVNOs going out of business, according to a 2013 report by UK-based business intelligence firm Informa. To succeed, MVNOs, as digital mobile providers, must position themselves as more than just an MNO reseller.
Freed from infrastructure and engineering issues, the MVNOs can focus on innovation, such as a significantly improved and painless customer experience, from selecting a plan and buying a phone to far more efficient connectivity.
Such MVNOs are now emerging and will give mobile data-centric users in the Asia-Pacific region attractive service options.
• The writer is founder of telecoms consultancy AJH Communications.
