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
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Dr Martyn Taylor Partner / Head of Telecoms (APAC) +61 45 777 4711 (mobile) martyn.taylor@nortonrose.com 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

Mobile Virtual Network Operators
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•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
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•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.

A2. Different MVNO structures
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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
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‘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
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
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
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Interconnection in a 3G MVNO
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•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
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Regulatory stance towards MVNOs
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•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)
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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
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MVNOs
SINGTEL
46%
28%
25%
STARHUB
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
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•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
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A4. Interesting MVNO developments
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The potentially disruptive ‘Apple SIM’
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•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
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•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.
CHINA MOBILE
62%
24%
CHINA UNICOM
CHINA TELECOM
Mobile market shares 2014
14%

B1. Overview of M2M services
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The Internet of Things
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•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
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•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
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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
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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
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M2M growth forecasts – a USD 1.2 trillion market
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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
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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
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Source: Beecham Research (2014)

B3. The regulatory overlay on M2M
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Legal and regulatory issues
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•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
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•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
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•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
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•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
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•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
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Vodafone embedded SIMs in BMWs
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•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’
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Source: http://smartgridtech.wordpress.com/smart-grid/

C. About Norton Rose Fulbright
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•Now the world’s third largest legal practice with more than 3,800 lawyers in 53 offices.
•We have a global focus on six core areas of expertise, including technology & innovation.
•Our reputation is to provide high quality and commercial advice, yet to be friendly and approachable.
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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)
martyn.taylor@nortonrosefulbright.com
nortonrosefulbright.com
42 21853572
Norton Rose Fulbright Australia is a law firm as defined in the Legal Profession Acts of the Australian states and territory in which it practises.
Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and
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