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Analyzing the Virtual Mobile Player Viability

The global Mobile Virtual Network Operator (MVNO) subscriber base surpassed 63 million subscribers at YE2005, up 25 percent from the previous year, according to Pyramid Research. MVNOs account for 2.75 percent of the world's mobile users and is projected to rise to 3.3 percent by 2010, reaching more than 100 million subscribers. Still, Pyramid Research contends that the MVNO business faces many challenges and its financials are not as attractive as the hype would suggest.

Pyramid found that most MVNOs are loss-making to slightly above break-even and believes that there is enough fodder to question the MVNO model, at least in its first iterations. Segment pioneer Virgin Mobile UK is profitable, but the company has been in operation since 1999. US MVNO Tracfone has been in the market for a few years and sees EBITDA margins at around 10�15 percent. The pioneer of low-cost MVNOs, Telmore, had even lower EBITDA margins at YE2004.

"The traditional MVNO model has long been a cost story, with the MVNO venture focusing on reducing costs and churn while anticipating lower ARPU levels mainly as a result of its predominantly prepaid subscriber base," says report author, Guy Zibi. Indeed, Pyramid concludes that not all MVNOs will achieve profitability and the next 24 months will either make or break MVNOs, particularly the prepaid-focused ones.

2006 will see the emergence of next generation MVNOs who are striving to turn the traditional MVNO model on its head by focusing on ARPU and generating better margins than their low-end mass market peers. Pyramid is cautiously optimistic about these MVNOs, assuming that they can execute on their plans.

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