You have probably been reading my posts on MVNOs = Mobile Virtual Network Operators, in particular the latest developments in France (a few MVNOs appearing in France such as Debitel with SFR, Breizh Telecom with Orange, Universal Mobile with Bouygues Telecom), in Germany (Tele2 close to signing with e-plus), and in the UK (Virgin Mobile going public).
Waow, this sounds like a fantastic opportunity to get into this market. Tele2 France talking about the 68% gross margin of SFR... (well, he didn't mention the required investments, nor the time it took them to break even).
Let's do some maths:
1) Imagine you target 100,000 customers by the end of 2005 (this is what Debitel is saying. Breizh is not commenting).
2) imagine a monthly ARPU of 47€ (source: the French regulator's latest figure for bundles; which I use as a proxy for pre-pary (more than 95% of Virgin's installed base, or the Danish market benchmark). I suppose this ARPU is excluding tax. This ARPU does not account for bad debt (an issue with mobile telephony), nor revenue-share with service providers. Plain ARPU billed to customers then.
This gives us 47*12=564 euros/year/custoemr. Compare this to what an ADSL provider charges every month (between 14,90€ and 29,90€ on average), or a mail order operator such as glowria (same range) as a DVD rental service.
3) therefore potential turnover is 5,64m euros. At the end of the year. Assuming a linear growth, you need to factor a 50% growth factor, hence only 28,2m euros for year 1.
4) now, you need to factor in all the costs: cost of goods sold (COGS: buying capacity from providers), Sales & General Administration (SG&A), Marketing (including distribution), technology (billing, provisionning, data mining, etc.), customer services...
I don't have ratios for all these numbers, but let's assume you are buying capacity at a retail-minus cost of 25% (that is you get a 25% margin on retail prices or 75% costs. And of course, you want to be competitive vs. the market (but not completely slash costs otherwise you won't be able to get a MVNO deal). Try 8%.
Therefore revenue (let's call it gross margin) is now:
28,2 * 25% * (1- 8%) = 6,48m € gross margin (ie. 23,1% of sales).
Remember, this is before SG&A, Marketing, technology, etc.
5) the following years are tricky: You will keep the number of subscribers of year 1* churn (what is it in the mobile world?), and add the new number of subscribers * growth rate. Then multiply by yearly ARPU (which you might try to grow with more services). Und so weiter for the following years.
assuming a churn of 10%, an additional penetration of 80K subscribers, ARPU of an aditional 4€/month:
(100,000 * (1-10%) + 80,000 * (50%)) = 130,000 subscribers
(47+4)*12 = 612€ ARPU
Turnover = 130,000 * 612 * 23,1% = 18,38m euros (a 183% increase on year 1!).
I'd love to hear your feedback, better assumption numbers, and other wild guesses why operators are entering the MVNO game. Some I kind think about is economies of scope (ie. increase existing ARPU slightly, while not increasing costs much), triple-play, stickiness, hype, dressing the window shop for M&A, or complete ingenuity in trying to reproduce the Virgin Mobile concept.