Before I answer that question, let's define with a Mobile Virtual Network Operator (MVNO) is.
An MVNO is a mobile and internet services provider which does not own its own mobile or internet infrastructure. It offers its services through a Mobile Network Operator (MNO) which owns their wireless network infrastructure. An MVNO is simply a reseller of services.
There are three MNOs in Australia, they include Telstra, Optus and Vodafone. These three providers own their own infrastructure, every other provider uses all or part of these services.
Probably the most popular and most successful MVNO in Australia is Virgin Mobile. Launched over 10 years ago and now owned by Optus, Virgin Mobile provides all of its services via the Optus network. However you are serviced by and pay your bills to an entity called Virgin Mobile (Australia) Pty Limited.
So the question is, are they cheaper than your Telstra's, and Optus' and if so why?
In an article I read recently, they had asked the same question to the Director of another popular MVNO, Amaysim. His opinion was that they are cheaper because Telstra and Optus have huge advertising budgets.
I think this is partly true, but Amaysim themselves have huge advertising budgets rumoured to be in the millions and they are very competitive when it comes to pricing.
My opinion as to why they are generally cheaper begins with the service model. When you begin an MVNO you are starting a new service business. You start small and build and expand the business and model as you go. What you have the opportunity to do however is to shape the model. Will you service customers by phone, online or even retail. There are some MVNOs which use a combination of phone and online. Live Connected for example only service via their website.
The choice of service model can make a huge difference. The overheads in having a call centre can be significant. Whilst they can bring in a lot more customers they also add to the cost of managing these customers.
The second key factor is sales model. The more you can sell direct and online the more margin you will keep for yourself. If you sell through a channel you need to provide incentives by way of a commission for each sale. Whilst supporting a channel can cost you money how much can you actually sell by going direct? Customers will not just find your site. They need to be directed there. Online advertising costs money, so does search engine optimisation.
MVNOs like Virgin use all forms of channel. Online, resellers, affiliates, and even their own retail stores. Having such a broad network has delivered significant growth for them but it has also added much by way of costs.
So whilst MVNOs can be cheaper and usually are, the bigger they grow the more they begin to look like a smaller version of Telstra and Optus. This will eventually add to their cost base and put pressure on their margins and pricing. Whilst greater volumes should deliver better buying power, there is a limit to how low you can buy services for. This means there is a cap on the margins you can make. If you are a low cost operator, then the pressure to stay competitive begins from day one.
My Name is Ranya Georgalas and I enjoy blogging about all sorts of topics. I work in Marketing, Social Media and Affiliate Marketing. I started blogging several years ago and now I own many blogs. The most popular being http://prepaidplans.com.au/2008/08/optus/
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