Driving Mobile Content Business Revenues for

Mobile Virtual Network Operators

(MVNO’s)

White Paper

November 2005

Corporate Headquarters:
Motricity
2800 Meridian Parkway, Suite 150
Durham, NC 27713
Phone: 919.287.7400
Fax: 919.287.7401
Rev 2.1.

LEGAL NOTICE

Copyright © 2005 Motricity, Inc. All rights reserved.

The contents of this document constitute valuable proprietary and confidential property of Motricity, Inc. and
are provided subject to specific obligations of confidentiality set forth in one or more binding legal
agreements. Any use of this material is limited strictly to the uses specifically authorized in the applicable
license agreement(s) pursuant to which such material has been furnished. Any use or disclosure of all or
any part of this material not specifically authorized in writing by Motricity, Inc. is strictly prohibited.

All company, brand, and product names are referenced for identification purposes only and may be
trademarks that are the sole property of their respective owners.

Copyright © 2005 Motricity, Inc. All rights reserved

ii
 Table of Contents
Introduction.................................................................................................................................... 1
MVNO Overview ............................................................................................................................. 2
Background .................................................................................................................................. 2
Differentiating MVNOs ................................................................................................................. 3
Voice vs. Mobile Content .............................................................................................................. 3
Increasing ARPU ......................................................................................................................... 3
Major Growth in Mobile Entertainment Media.............................................................................. 4
The Complexity of Delivering Mobile Content............................................................................ 5
The Simple Solution -.................................................................................................................... 5
What Exactly Can Motricity Provide?........................................................................................... 6
Motricity’s Real-World Experience ............................................................................................... 7
Conclusion ..................................................................................................................................... 7

iii
Rev 2.1.

This page intentionally left blank.

iv
Introduction
Currently, there are approximately 200 planned or operational Mobile Virtual Network Operators
(MVNOs) worldwide.1 Although initially a European phenomenon, MVNOs are fast becoming the clear
choice for capturing the attention of mobile consumers globally. The convergence of media,
entertainment and telecommunications, along with increased network performance triggered by the
introduction of 3G and improved display capabilities in mobile devices, has created new revenue and
business opportunities for MVNOs.

Speed is of the essence in this new and vibrant mobile society. While MVNOs enjoy global support
and seem to understand the importance and relevance of mobile data services to their business
models, the overall demands of establishing a new business are overwhelming and may cause delays
in the launch of these services, sometimes out as much as eighteen months.

MVNOs are well positioned to serve niche markets and sub-segments more effectively than larger
operators that are often burdened trying to be all things to all customers. While this positioning is an
advantage, to be successful MVNOs must excel across several important factors, including:

• Extending brands to the mobile space in a timely manner

• Differentiating from the competition
• Generating incremental revenue, and
• Establishing operational and back-office capabilities

Taken separately, each factor is simple in concept, but executing on all factors is challenging. What do
MVNOs need to do to overcome these challenges? How can they rapidly offer, manage and deliver
innovative mobile services to different demographics and niche sectors? Few companies, if any, can
build up an MVNO from scratch, like Virgin Mobile UK has already done at great expense. So what
other choices do MVNOs have to respond to the growing subscriber demand for mobile services?

A primary challenge faced by MVNOs is selecting the right partners to ensure rapid launch and
minimal complexity and upfront investments. In the US, Mobile Virtual Network Enablers (MVNEs)
have emerged to assist MVNOs in supporting back-office functions by focusing on basic services.
However, MVNOs’ success is highly dependent on dynamic marketing and delivery of innovative
content and data services. While building back-office capabilities such as ordering, customer care,
billing and logistics is expensive and time-consuming, the same is true for content delivery systems.

How much time does it take and how expensive is it to build and manage a content delivery system? In
the past, Mobile Network Operators (MNOs) content delivery platform initiatives have taken over a
year to build and have cost tens of millions of dollars – and in some cases have exceeded a hundred
million dollars. Neither the time nor expenses involved are viable options for MVNOs. They require a
rapid and efficient approach to launching content and data services; deployment should occur in 90-
120 days with a platform that includes a robust content catalog and the capability to manage a content
developer ecosystem. Moreover, these objectives need to be achieved with limited upfront capital
investments.

Just as MVNEs have interceded to build back-office functionality, Motricity can step in to provide
MVNOs with management and delivery of content and data services. Motricity’s comprehensive and
advanced platform, Fuel, enables rapid launch of comprehensive content and data services with
minimal investment. Partnering with Motricity allows MVNOs to focus on fulfilling the unique needs of
their customer base.

This paper offers the following evidence: (1) that MVNOs need to enable mobile content and
applications in order to succeed in today’s fiercely competitive market and (2) that Motricity is well-
poised in the mobile market to drive business in the rapidly growing MVNO sector.

1
http://en.wikipedia.org/wiki/Mobile_Virtual_Network_Operator
1
MVNO Overview
Background

Over the last few years, the MVNO market has seen tremendous growth, emerging as a viable
alternative to traditional MNOs in many segments. The projected world’s mobile subscriber compound
annual growth rate (CAGR) is 5 percent while the MVNO subscribers are forecasted to climb at a 24
percent CAGR by 20102 — a potential audience of hundreds of millions.

Northern Europe has traditionally been the home of successful MVNOs. Back in 2001, two MVNOs
established themselves in Denmark – CBB and Telmore. At present, the Netherlands, United
Kingdom, Finland, Belgium and Denmark have the most MVNOs per country. In North America, the
MVNO market is currently close to $4 billion and projected to be $10.7 billion by 20103.

Much of this growth will be driven by substantial demand for mobile content, multimedia services and
improved segmentation; content being a far better tool for segmentation and differentiation than voice.
MVNOs themselves are typically designed to target specific segments; for example, Virgin is an MVNO
that markets directly to its channels within several countries. In the US these channels are travel,
entertainment, mobiles and lifestyle, the latter being a communities channel. Within each channel, say
travel, Virgin uses its market recognition to position for selling directly to its travel consumers and
others in that niche.

In order to launch innovative data services, MVNOs must evolve through a series of strategic decisions
and major design stages as shown in Figure 1.

Service
Strategy & Network(s) Handset(s) Operational
Figure 1 Financing Selection Selection Capabilities Voice Data

Each stage plays a critical role in the overall success of an MVNO, but also consumes vast time and
resource attention. The fourth stage, Operational Capabilities, is especially challenging given the
inherent complexity and costs associated with establishing the various back-office support functions.
As a result, the subsequent stages of launching and managing content and data are delayed. Figure 2
illustrates the increasing complexity of each stage; by the time the MVNO reaches stage four, it has
often consumed mindshare and resources that can result in a lag in time-to-market.

Figure 2

2
2005 Yankee Group: MVNO Markets; 2005 Informa Telecoms and Media; and Motricity MVNO Market Forecast
3
2005 Yankee Group: Mobile Virtual Network Operator (MVNO) Markets
2
Differentiating MVNOs

While MVNOs pursue different segments, there tend to be two general MVNO models: data-oriented
and voice-oriented. Data-oriented MVNOs need to rapidly launch data services or risk delaying
business growth. Voice-oriented MVNOs can enhance business performance by adding data services
to attract new subscribers and prevent existing voice subscribers from churning.

As previously stated, most MVNOs understand the importance of data services, with many being
launched around data-centric value propositions; for example, ESPN Mobile. More traditional voice
MVNOs such as TracFone are likely to launch data services in the near future. However, both data
and voice-oriented MVNOs will have to address cost-effective solutions and specific end user needs in
innovative ways to increase average revenue per user (ARPU). More importantly, increasing ARPU
must be achieved without incurring large programs requiring extensive build/deployment schedules
and excessive upfront investments.

Voice vs. Mobile Content

Increasing ARPU

Virgin Mobile USA reached over three million subscribers in three years. Last February the company
released the following information related to its 2004 data operations:

• Over 70 percent of Virgin Mobile customers sent or received text messages

• Over 60 percent of Virgin Mobile users used non-voice data services
• Over half of its customers downloaded ringtones last year representing approximately 8
percent of the total US ringtone market - a number disproportionately larger than its total
mobile market share4

The last statistic alone is phenomenal, while all the above statistics emphasize the importance of
MVNOs generating ARPU through the use of mobile content and multimedia applications. Voice-based
services are becoming a commodity and the erosion in ARPU has forced a focus on delivering
branded mobile content - such as ringtones, games, applications, information, enterprise data, and m-
commerce – to enhance ARPU, reduce churn and differentiate services.

In the following graphs, a set of base assumptions has been used, which show the significant effect on
MVNOs’ ARPU over a 3-year period if they stay with voice only (Figure 3) and if they delay the launch
of mobile content services (Figure 4).5

Figure 3 Figure 4

4
2005 Informa Telecoms and Media: MVNO Strategies
5
2005 Informa Telecoms and Media; Strategy Analytics; and Motricity Analysis and MVNO Financials Tool
3
Major Growth in Mobile Entertainment Media

Ringtones, games, music downloads and video streaming now generate more revenue than all forms
of content accessed over the Internet.6 This proven level of paid-for-consumption model, together with
the increasing importance of mobility, establishes mobile entertainment as a key revenue source for all
forms of digital media, as shown in Figure 5.

Figure 5

The above information that describes the potential increases for MVNOs in ARPU and revenue, along
with the explosive growth of mobile entertainment media emphasizes that:

• Mobile content creates higher ARPU over voice

• Today’s mobile environment presents myriad opportunities to increase revenue
• Mobile entertainment is an expanding source of revenue, and most importantly,
• Consumers have developed an appetite for mobile services and content and are willing to pay
for such services

To be successful therefore, MVNOs both large and small must evolve beyond being simply resellers of
wireless services and focus on offering value-added services (VAS) that are not just highly segmented
and differentiated but also a core element of the MVNO infrastructure buildup. For example, Amp’d
Mobile, a US MVNO, is running a guerilla marketing campaign using video clips and MP3s to lure a
technically sophisticated younger market in order to differentiate from the heavy competition of Virgin
Mobile, Boost Mobile, Helio and Mobile ESPN.

MVNOs need to develop a viable value proposition and a profitable economic model that goes beyond
the low margins of the voice minute resale business. By offering mobile content and data services from
day one, MVNOs have the potential to both address and develop untapped sub-segments with a
unique value brand, and in a differentiated manner that is both attractive and cost-effective.

What’s stopping them?

6
(2004-2009) Strategy Analytics, Global Cellular Data Forecasts
4
The Complexity of Delivering Mobile Content
Simply put, delivering mobile content is a complex process. Integrating multiple systems for content
aggregation and delivery, merchandising and marketing, and billing and settlements is a huge barrier
to entry in the mobile data space for MVNOs.

In addition, with millions of mobile applications, thousands of devices, hundreds of manufacturers and
tens of operating systems, the complexity of mobile content delivery increases exponentially, and even
more so when the multiple vendors that are used for mobile content and applications integration are
added into the mix.

The intricacy does not end there. MVNOs would have to source content, qualify it on different devices,
purchase a storefront platform, provide expert merchandising, ensure billing to customers and
settlement to content partners, and be specialists in hardware and software in order to guarantee
content delivery for a smooth end user experience. The ground up costs to the MVNO for such an
enterprise would be substantial, if not impossible.

This difficult to solve and multifaceted puzzle is counter to what MVNOs are seeking to provide; a
simple, tailored experience for targeted segments. Without an efficient and effective solution for
management and delivery of content and data services, MVNOs can encounter the difficult and
multiple problems described above. Furthermore, ongoing platform operational costs coupled with the
headcount to maintain a content developer program and perform the ongoing marketing and
merchandising of content in this fast-paced environment increases costs and complexity.

So how do MVNOs effectively launch and support profitable mobile content and data services, build
long term customer loyalty and deliver content to markets that complement their brands?

The Simple Solution -

Motricity offers proven technology and capability to help MVNOs solve the content and data puzzle. As
a leader in the mobile content management and delivery industry, Motricity is uniquely positioned to
manage the complete life cycle of mobile content, making content sourcing, partner relations, content
management and customized delivery of a premium content catalog easy from day one.

5
What Exactly Can Motricity Provide?

Motricity can offer MVNOs the benefits of a single mobile content platform, which includes:

• A reliable platform solution that supplies flexible, scalable, and proven carrier-grade delivery
systems ensuring maximum uptime, 24x7x365 monitoring, 99.99%+ SLA and Tier 1 & 2
customer support
• An extensive Content Developer Services program led by industry veterans and staffed with a
team of Motricity content specialists dedicated to sourcing, testing and managing content
• Hosted, customized, turnkey content solutions with a rapid implementation capability
• A unified content management system that streamlines the sourcing and distribution of mobile
content and acts as a single point of contact for a diverse ecosystem of content providers
• Customization of end user preferences, mobile communities, and enhancement of mobile
application functionality and subscriber interaction
• Sophisticated merchandising and marketing capabilities
• An open technology, supporting J2ME, Windows Mobile, Symbian, Palm OS, MP3, ringtones,
graphics, SMS, premium WAP, and other digital media applications
• Testing and support for a multitude of device types for both CDMA and GSM MNOs

The high-level diagram in Figure 6 shows how MVNOs represent a core element in Motricity’s content
mobile ecosystem.

Figure 6

6
Motricity’s Real-World Experience

Motricity has real-world experience in launching an MVNO from the ground up, from building the
business case, to architecting and implementing the components. Motricity’s proven track record to
date includes:

• Enabling more than 250 million subscribers worldwide

• Supporting the largest inter-carrier community worldwide
• Delivering over 200 million paid downloads
• Powering over $500 million in content revenues
• Managing over 500 content providers
• Qualifying over 200 devices from numerous manufacturers

By partnering with Motricity, MVNOs will receive significant payback in a relatively short period of time.

Conclusion
We have determined that content and data services represent a critical component of MVNO value
propositions, and that launching and managing mobile data services is complex and costly. Motricity
offers a proven, scalable content management and delivery platform that enables MVNOs to launch
mobile data services rapidly – without excessive upfront deployment and integration costs.

Motricity’s industry leading market position results in favorable relationships with content providers and
aggregators allowing MVNOs to benefit from an existing ecosystem that is both comprehensive and
flexible. Comprehensive refers to over 20,000 application developers from over 30 countries making
available more than 125,000 unique applications and digital media titles, which can be extended with
MVNO content partnerships. Flexible refers to the ability to rapidly ingest additional content and titles
which an MVNO may want to include in its offering.

MVNOs no longer have to delay launching while struggling to manage content and data services.
Motricity offers a proven, scalable solution which allows MVNOs to return to their primary mission of
meeting the unique needs of their customer base.

7
Notes: