When MVNOs Get Too Good

The relationship between virtual operators and their physical network suppliers is an interesting one: the MVNOs basically buy airtime wholesale from the operator, then go out and get their own customers. Given the way telcos typically thing, it’s somewhat surprising they’d enable other companies to “steal” potential customers. MVNOs typically address this with the party line that they’re helping their carrier partners better reach a niche market than they could on their own — whatever works to let the physical operators sleep soundly. But they are selling airtime, essentially, to competitors, and sooner or later there’s bound to be some friction. This has played out in Europe with a round of acquisitions, as traditional operators buy out virtual ones, either in defensive moves to stop price erosion, or just to buy their customer base. But as MVNOs become more popular and more powerful, more conflict is inevitable, like in Canada, where Virgin Mobile and its supplier, Bell Canada, are going through a rough patch. Apparently Virgin isn’t doing so well north of the border, helped in no small way by Bell Canada’s revival of its Solo brand, which targets the same youth, pre-paid market as Virgin. To make things that much stranger, Bell didn’t re-emphasize the Solo brand until after it had made a $75 million investment in Virgin Mobile Canada, and has now become its biggest rival. Both companies will trot out some old line about how they’re competing in a big, fast-growing market, which is another euphemistic statement. While the degree to which Bell Canada is directly competing with itself may be a little unique, its struggle with Virgin foreshadows things to come. The idea of having a network infrastructure provider, then separate companies marketing and selling service makes some sense. But as long as carriers are providing the network and selling service themselves, they’re going to have a conflict of interest — even if it’s a perceived one as much as a real one.

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