mvnos & m2m (machine to machine) - mobile telecommunications in 2015

MVNOs and M2M

Mobile telecommunications in 2015

Dr Martyn Taylor

Partner

November 2014

Overview

Mobile Virtual Network Operator (MVNO)

• Overview of MVNOs

• Different MVNO structures

• The regulatory overlay on MVNOs

• Interesting MVNO developments

Machine to Machine (M2M)

• Overview of M2M services

• Different M2M applications

• The regulatory overlay on M2M

• Interesting M2M developments

Discussion

MVNOs and M2M – Mobile telecommunications in 2015 2

Dr Martyn Taylor Partner / Head of Telecoms (APAC) +61 45 777 4711 (mobile) [email protected] Winner – Telecoms, Media &

Technology (TMT) Deal of the Year

2014 – Ooredoo’s USD 15 billion

telecoms investment in Myanmar

Finalist – TMT Lawyer of the Year

2014 – The Asian Lawyer

mailto:[email protected]

A1. Overview of MVNOs

3

Mobile Virtual Network Operators


• A mobile virtual network operator (MVNO) is a company that provides mobile services but does not have its own spectrum, nor does it necessarily have all of the relevant network infrastructure.

• Rather, the MVNO uses the spectrum and network infrastructure of an existing mobile network operator (MNO).

• The MVNO enters into a wholesale arrangement with the MNO to obtain bulk access to the infrastructure of the MNO at wholesale rates. For example, it may buy airtime on a wholesale basis.

• The MVNO supplies independently of the MNO in the retail market, as a competitor of the MNO, and can set its own retail pricing structures.

• MVNO market is currently 3% of total mobile market. Hong Kong has world’s highest MVNO penetration at up to 10%.

79

579

128

53 8

Number of MVNOs in 2014

Asia

Europe

Americas

Oceania

Africa

The MVNO business model


• In mature markets, the existing mobile operators typically target the mass market, while the MVNOs target niche market segments that are underserved or have a low incumbent penetration.

• GSMA recognises several types of current MVNO business models:

• Discount MVNOs, targeted at price sensitive consumers.

• Lifestyle MVNOs, targeted at niche demographics, such as teenagers.

• Migrant MVNOs, targeted at particular ethnic groups, supported by cheap

calls to the relevant home country.

• Roaming MVNOs, targeted at consumers roaming from other countries.

• Business MVNOs, targeted at particular types of businesses.

• Media/entertainment MVNOs, leveraging from uniquely offered content.

• M2M MVNOs, targeted at machine to machine services.

Elements of MVNOs

• The more elements in the core network the MVNO itself owns, the greater the functionality that the MVNO

is able to offer that differentiates the MVNO’s services from the operator’s services.

• An MVNO typically has its own customer service and billing support systems and its own customer

relationship, marketing and sales personnel.

• The MVNO does not own any spectrum and does not seek to share any of the radio access network (RAN)

infrastructure (other than using the operator’s RAN).

• An MVNO normally obtain bulk access to RAN network services at wholesale rates.

MVNOs and M2M – Mobile telecommunications in 2015

A2. Different MVNO structures

7

Categorisation of MVNOs

RAN and

spectrum Switching

& core

Subscriber-

specific services

External

interconnection

Interconnection

revenue

Service

differentiation

Own unique SIM

cards and

functionality

VAS &

Apps

Value added

services

Unique

applications

Rebrands SIM

cards of network

operator

Billing &

CRM

Customer

relationship

management

Customised

invoicing

Branding

& tariffs

Sales

channels

Full mobile operator

Heavy MVNO

Medium MVNO

Light MVNO

Rebiller

Reseller


Key differences between the categories


‘Skinny’ or ‘Light’ MVNO

Does not own any spectrum or RAN

infrastructure.

Does not own any core network elements.

Does not issue its own SIMs, but rebrands those of the MNO.

Responsible for its own billing and customer

care.

‘Hybrid’, ‘Thin’ or ‘Medium’ MVNO


infrastructure.

Owns part of the core network for value-added services.

Does not issue its own SIMs, but rebrands those of the MNO.

Responsible for its own billing and customer

care.

‘Thick’, ‘Full’ or ‘Heavy’ MVNO


infrastructure.

Has its own core network infrastructure.

Has its own IMSI and network code.

Issues own SIMs and is responsible for billing and customer care.

Network elements in a 3G MVNO


Interconnection in a 3G MVNO


• Where the MVNO has its own network code, it has the ability to receive inbound calls at its gateway mobile switching centre.

• In this manner, a heavy MVNO can act as if it is a mobile network operator and negotiate interconnection arrangements separate from the MNO.

• However, an MNO may have concerns that the MVNO may undercut the mobile termination rates offered by the MNO and transit calls.

Regulatory:

• Rebillers, resellers and MVNOs tend not to

be subject to significant regulation.

• Mandated resale of mobile services is also

less common, given existence of significant

mobile competition in many jurisdictions.

• Accordingly, there is a heavy emphasis on

commercially negotiated arrangements.

Regulators less inclined to intervene.

• However, still scope for regulatory

involvement to resolve issues with:

• network access and interconnection;

• wholesale pricing (eg price squeezes);

• discrimination (price and non-price).

Key commercial and regulatory issues

Commercial:

• Rebill and resale arrangements are

generally straightforward. The wholesale

customer may acquire the retail service, less

a wholesale volume discount.

• MVNO arrangements tend to be customised

and non-standard hence are more

document-intensive and heavily negotiated.

• MVNO arrangements may raise complex

interconnect issues, such as whether mobile

call termination charges are appropriate,

and arrangements for MVNO interconnect

with third party operators. May involve

charges for transiting of calls, SMS, MMS.

• MVNOs offer heavily differentiated services.


A3. The regulatory overlay on MVNOs

13

Regulatory stance towards MVNOs


• A regulatory regime friendly to MVNOs is normally regarded as important, given that MVNOs are dependent on the MNO and potentially at risk of discrimination.

• Generally, nations that permit MVNOs have more competitive mobile markets. However, the extent of price competition associated with MVNOs will depend on the terms and conditions on which the MVNOs get access to the mobile networks of the MNOs.

Regulatory stance Example jurisdictions

Require MNOs to share with MVNOs Hong Kong, Norway

Regulatory measures facilitate MVNOs Belgium, France, Denmark, UK

Regime indifferent to MVNOs Australia, Canada, Japan, Portugal

Discourage MVNOs Argentina, Bolivia

Prohibit MVNOs Italy, Greece

Singapore – Historic view of iDA on MVNOs (2001)


Historically, the IDA preferred regulatory forbearance:

• iDA must balance the need for regulatory intervention to encourage healthy competition vis-à-vis the need to encourage investment in 3G networks and services

• Regulatory intervention, while seeming necessary and desirable to facilitate MVNOs’ entry into the Singapore market, could unduly distort the commercial decision-making of market players.

• While regulatory intervention helps to facilitate the entry of MVNOs, it does not create sustainable and cordial partnerships.

• MVNOs wishing to offer 3G services must commercially negotiate with MNOs for network access, with IDA intervening only in cases of “unduly restrictive or anti-competitive practices” under the Telecom Competition Code.

Current state of Singapore mobile market


MV

NO

s

SIN

GT

EL

46%

28% 25%

STA

RH

UB

M1

Singapore mobile market

shares 2014

<1%

Six existing MVNOs, but they are niche

operators and have an aggregate market share

of less than 1%.

Example: PLDT offers prepaid SIM cards with a

broad range of value-added services targeted at

Filipinos.

Historically, Virgin Mobile attempted to enter the

Singapore market as an MVNO in 2001:

• Virgin Singapore was launched as a JV with Singtel.

The operations were closed down a year later after

failing to attract a significant number of customers.

• Failure of the joint venture was attributed to a

saturated mobile market and Virgin Mobile's

positioning as a "premium" brand.

Singapore mobile market remains highly saturated with

a mobile subscriber penetration now exceeding 150%.

View of iDA expressed in 2014 discussion paper


• IDA is exploring possible approaches for facilitating the entry of MVNOs given that IDA’s 4G spectrum auction in 2013 did not attract new mobile market entry.

• IDA views MVNOs as introducing innovative pricing and services to consumers and stimulating mobile competition.

• IDA included a general duty to negotiate in good faith with MVNOs as a condition of the 2013 4G spectrum auction,

• IDA is now exploring additional measures to encourage hosting of MVNOs by MNOs, particularly non-affiliated MVNOs.

• For example, re-allocation of 900MHz could include measure to promote hosting of MVNOs – next slide.

• Pricing of access to an MNO’s access network will be a key factor driving the business case of MVNOs

Measures that iDA could use to promote MVNOs


A4. Interesting MVNO developments

19

The potentially disruptive ‘Apple SIM’


• Apple SIM is a proprietary subscriber identity module (SIM) produced by Apple.

• Apple SIM is included in cellular-enabled versions of its iPad Air 2 and iPad Mini 3 tablets in the United Kingdom and United States.

• The Apple SIM supports wireless services across multiple supported carriers, which can be selected from a user interface within their operating systems, removing the need to install a SIM provided by the carrier itself.

• Consumers may switch seamlessly to any cooperating operator through a simple change in your settings menu

• Not yet included in iPhones.

• Potential that Apple itself could become an MVNO.

MVNOs in China


• In May 2013, the Ministry of Industry and Information Technology (MIIT) required the three Chinese MNOs to support MVNOs, and requested plans for each MNO to partner with at least two privately owned brands.

• Nearly 100 private enterprises submitted applications for MVNO licenses in the first round of licence releases.

• MIIT issued the first MVNO licenses in December 2013, with testing to occur over two years.

• Most of the 19 MVNO licenses issued in the first two rounds were given to partners of China Telecom and China Unicom, as the two lagged behind in competition with China Mobile.

• By September 2014, around 25 MVNOs had been signed by the three MNOs, but only half have commenced operations. Take-up has been very low at only 200,000 users in aggregate.

• MVNOs have been asking MIIT for the MNOs to offer more flexible wholesale prices. C

HIN

A M

OB

ILE

62%

24%

CH

INA

UN

ICO

M

CH

INA

TE

LE

CO

M

Mobile market

shares 2014

14%

B1. Overview of M2M services

22

The Internet of Things


• Moore’s law is unleashing low cost, high processing power, tiny chips that can be put into anything from a power outlet to a water pipe.

• A ‘thing’ can therefore be controlled by an Internet-activated micro-computer with its own IP address.

• Wireless networking technology is lowering the cost of communications to the point where most ‘things’ can be connected inexpensively.

• The rise of ‘big data’ makes the cost of storing large-scale data trivial compared to even a few years ago.

• As a result, it is economic to integrate things with processors and connect them to the Internet, to realise substantial benefits, including via real-time data capture and control.

• Powerful applications have the ability to co-ordinate the various ‘things’, leading to the industrialisation of the Internet.

The M2M business model


• Machine to machine (M2M) is the name given to a range of technologies that permit information to be exchanged automatically between machines or devices, without human intervention.

• M2M has existed for many years (eg SCADA). However, greater use of low-cost broadband wireless and Internet applications is now driving innovation and rapid M2M market growth.

• M2M covers a broad range of technologies and applications and has provides significant further potential for business innovation:

• Greater ability to collect more accurate information.

• More timely (including real-time) information flows.

• Automated diagnosis and implementation of solutions.

• Greater ability to react to information, providing greater control.

• Overall, greater efficiency and quality in service delivery.

Elements of the M2M process


An M2M process involves a number of discrete stages:

• the collection of a data event by an autonomous hardware device, such as a sensor or meter;

• the transmission of that data through a wireline and/or wireless communications network;

• the receipt and analysis of that data by another autonomous device (sometimes as part of a set of data from multiple autonomous sources) using a telemetry-based software application;

• the translation of that telemetry into meaningful information, including computer-generated directions given to further machines or humans.

Customer expectations are driving industry innovation


Embedded SIM:

• In the M2M market, a SIM may not easily be changed via physical access to a device or may be used in an environment that requires a soldered connection, thus there is a need for ‘over the air’ provisioning of the SIM.

• The GSMA’s Embedded SIM Specification provides a single, de-facto standard mechanism for the remote provisioning and management of machine to machine (M2M) connections,

• Allows the “over the air” provisioning of an initial operator subscription, and the subsequent change of subscription from one operator to another.

Customer expectation Industry innovation

Malfunctions in devices

can be quickly

distinguished from

network malfunctions.

Replacement of

customer helpdesks with

on-line network status

reports and diagnostics.

Switching devices to

different networks

without swapping SIM

cards.

Embedded SIM cards

with remote activation.

Switching devices to

different networks during

a home network

downtime.

Domestic roaming where

the home network has

an outage.

Integrated M2M

connectivity platforms,

devices and software

solutions.

Joint ventures and

alliances between telcos

and other suppliers of

M2M solutions.

B2. Different M2M applications

27

M2M growth forecasts – a USD 1.2 trillion market


Source: Machina Research (2012)

• Currently around 2% of mobile connections, by 2022 this will increase to around 22%.

• Global M2M revenue forecast to increase from USD 200 billion to USD 1.2 trillion, of which around 10% involves connectivity and associated services.

• M2M data traffic usage is expected to remain low, at around 1 - 2% of network traffic.

Existing and future applications


Automated

provisioning

Remote

monitoring

Middle East

‘smart cities’

initiative

security

systems and

monitoring

intelligent transport

networks

smart

metering for

utilities smart medical

devices

traffic

management

inventory

management

Areas of future innovation may include…

• ‘just in time’ inventory monitoring

• law enforcement and surveillance

• tailored insurance premiums

• tailored products and marketing

• anticipatory healthcare and support

• asset geotracking and monitoring

• preventative maintenance

• intelligent and networked cars

• intelligent houses and appliances

• information-intensive micropayments

Potentially huge range of applications


Source: Beecham Research (2014)

B3. The regulatory overlay on M2M

31

Legal and regulatory issues


• Common issue in 21st century telecoms are regulatory systems based on 20th century technologies. Pace of technological innovation has far exceeded pace of regulatory change.

• While many legal issues are common to other technologies, there are some nuances and issues that are unique to the M2M environment.

• Key issues:

• spectrum management;

• device certification;

• numbering,

• data security and privacy;

• contractual liability.

• Also market liberalisation issues such as regulatory restrictions on roaming and restrictions on the use of MVNOs, as well as general competition policy where mobile operators refuse to provide access.

Spectrum management


• Key implications for spectrum policy:

• greater flexibility in use of spectrum (technology neutral);

• spectrum usage locked in for longer periods (e.g., 2G devices).

• If an operator does not hold its own spectrum and wishes to sell M2M services, it would be necessary to enter into an MVNO or resale arrangement with an existing operator – see later slides.

• Many existing wireless standards are optimised for traditional mobiles (high data rates with fewer devices), but would have difficulty supporting M2M (low data rates with many devices.

• Some jurisdictions are considering allocating spectrum specifically for M2M purposes (e.g., US – auction in 2014 for 3.5GHz band).

• Global industry standards are evolving, including in the context of LTE, to carve out a niche for M2M decides (e.g., low cost devices that use half duplex or single receivers on lower power levels).

Device certification


• Most jurisdictions require certification of radiofrequency devices with certification requirements varying between regimes.

• There are typically three layers of regulation: (a) regulator approval; (b) industry standards association approval; and (c) operator approval. The latter is often the most difficult to obtain.

Numbering – generally a scarcity issue


• M2M devices require numbers to function, including:

• IP-addresses (IPv4 and IPv6);

• telephone numbers (E.164);

• IMSI numbers (E.212).

• Compatibility with IPv6 is mainly a software/firmware issue, so should be fixed. Regulatory intervention could be necessary to mandate updating of equipment.

• Scarcity of E.164 telephone numbers is real risk, meaning that technology solutions may be required or that the ITU expands the E.164 numbering allocations.

• A single network can allocate between 1 and 10 billion IMSI numbers, so IMSI number exhaustion is highly unlikely.

• Open questions include whether M2M should have specific numbers and whether such numbers should be portable.

.

Data security and privacy


• Significant increase in the range of information potentially gathered on individuals, including ability to assimilate and process information.

• Key issues with generic privacy laws include:

• obtaining consent to the use of personal data;

• requirements limiting the retention of personal data to defined periods;

• requirements regarding the security of personal data that is stored;

• restrictions on export of personal data to other jurisdictions.

• Privacy laws can be applied to individual sectors and activities - such as collection of data from smart meters (e.g., California, Germany).

• If proprietary rights exist in M2M data, it may be often unclear whether such data is owned by the end user, the distributor or the telco. The relevant contracts may need to address this issue.

B4. Interesting M2M developments

37

Vodafone embedded SIMs in BMWs


• During 2012, Vodafone and BMW announced a five-year deal to fit all BMWs with mobile SIM chips for telematics services.

• The deal involves fitting SIM cards within the vehicles at the assembly plant, so they are embedded in the vehicle during manufacturing.

• The SIMs are built to last up to 10 years.

• The SIMs allows BMW to roll out a host of new services on its ConnectedDrive platform including automatic emergency call, remote locking and unlocking using the smartphone app, 24/7 concierge service and TeleService which provides direct communication to the auto-maker for vehicle maintenance and diagnosis purpose.

• A range of similar deals have also been concluded with other car manufacturers.

Disruptive potential – example of a ‘Smart Grid’


Source: http://smartgridtech.wordpress.com/smart-grid/

C. About Norton Rose Fulbright

40

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Contact us

Dr Martyn Taylor

Partner / Head of Telecoms (Asia-Pacific)

Norton Rose Fulbright

+61 2 9330 8056

+61 45 777 4711 (Mobile)

[email protected]

nortonrosefulbright.com

21853572 42

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