Who, in their right mind would want to be a virtual network operator or VNO? Plenty it seems, and despite the chequered history of VNOs, particularly the mobile type (MVNOs) more are lining up, for a variety of reasons, to have a go.

The most popular form of VNO seems to be brand driven. Big name brands, looking to provide an extension of their services to existing customers, seem to think being a communications provider improves customer loyalty. In the case of retailers such as supermarket giant, Tesco, in the UK, that offers its customers everything from banking and insurance to renewable energy, fixed, mobile and ISP services seem to be a natural fit, and Tesco has been very successful in this space.

Cross the Atlantic and take a look at Best Buy, a giant in consumer electronics, that has failed dismally in the MVNO space, despite it selling the gizmos that connect to the network linked to its own airtime plans. As one journalist put it, “you better have a bullet proof business model, compelling value proposition, or targeted demographic to get into the space.” What is most puzzling about the Best Buy move is that it also offered products and services from most of the network providers to its customers in a store-within-a-store model in each of its retail establishments. Almost a case of biting the hand that feeds you.

Showing only 11,000 customers after two years of operation, the ill-fated move into the MVNO may have impacted Best Buy’s share price and may have contributed to the demise of CEO, Brian Dunn. Questions being asked included – Why compete against your partners? Why carry the OPEX overhead of a private-label service? And why confuse your customers?

Other big brands, like Virgin, have been comparatively successful in the MVNO space – not only appealing to its core customers as a cool alternative to the boring old telcos, but by offering simple and creative plans that appeal directly to its target markets. Mind you, this has not always worked. In the limited, highly-competitive and highly-saturated market of Singapore, even the Virgin brand could not break in.

Other big brands like Red Bull, ESPN, Disney, Carrefour, Shell have had varied success in different markets but brands often treat their MVNO operations as loss leaders simply to reinforce other parts of their business.

The MVNO Directory (yes, one actually exists) states that successful MVNOs should target a market sector or groups, and provide a service to these groups based on their unique make up. It also makes mention of targeting order books of the host MNO and any competitors. This makes good sense because identifying a disenfranchised or poorly managed sector, like SMEs, within existing operators should surely be an integral part of any MVNO business plan.

It is likely that the vast range of new digital services flooding the market, including M2M (machine to machine), may trigger the emergence of a new type of MVNO. New business models will likely emerge as part of this trend, including M2M wireless operators, or M2M MVNOs. Utilities, eHealth and other providers may find the option of becoming an MVNO more economically viable than building an independent communications network and it would allow them to leverage the systems, applications and standards that CSPs have, but that they are not necessarily familiar with.

We have recently seen the emergence of MNOs acting as MVNOs in foreign markets with the two-fold purpose of servicing national customers living abroad and avoiding the cost of establishing their own network in a new market. China Mobile’s MVNO deal with Everything Everywhere in the UK is a prime example.

Why stop there? Perhaps OTT players and other digital service providers (DSPs) may also see the benefits of becoming an MVNO to ensure that their data traffic continues unencumbered and help to placate the growing concerns of mobile network operators investing heavily in infrastructure with no guaranteed return, just like China Mobile mentioned previously.

Whichever way you look at it, the MVNO market looks set for growth, but at who’s expense? The only caveat being how efficiently they can operate on potentially low margins. Whilst MVNOs such as Free Mobile in France, that managed to capture 2.6 million customers in its first three months with one simple plan, will cause nightmares for competitors, not having them as an MVNO customer may be even more disturbing.

First published at TM Forum as The Insider, 9 August 2012