Will MVNOs change the competitive dynamics of Israel’s mobile industry?

MVNOIsrael’s Communications Minister, Moshe Kahlon (Likud), has expressed concern with regard to the lack of competitiveness in Israel’s cellular market. The problem, reports Haaretz, is that the three large operators have relatively equal market shares are acting as a “controlling group” (clearly, this is a euphemism for cartel).

From the end of December, Israel will be offering Mobile Virtual Network Operator (MVNO) licenses. MVNOs are mobile operators which pay for access to the network infrastructure owned by major operators. Consequently, companies are able to enter the cellular market without making upfront investments in capital-intensive infrastructure.

The introduction of MVNO licenses could have a significant impact on the competitive dynamics of Israel’s cellular industry – government research suggests that MVNOs could attract 630,000 customers, or 7% of the cellular market. The challenge facing entrant MVNOs will be to prove that not owning the underlying network infrastructure can be used as an advantage in competing with the major operators.

The track record of MVNOs in other markets has been mixed. In the US, Helio attempted to go up against the major operators by targeting a niche demographic, but had difficulty achieving market traction in a capital efficient manner. In the UK, Blyk made a bold attempt at business model innovation by allowing consumers to make calls for free (on an ad-funded basis), but was ultimately unable to build a sustainable business. Despite the numerous examples of failed MVNOs, however, there have been some successes (including the world’s first MVNO, Virgin Mobile UK).

It will be interesting to see if MVNOs can pose a serious challenge to the major cellular operators in Israel. The prospect of new competition – albeit a form of competition which relies on incumbent infrastructure – is a welcome development for consumers. Rumors about Google’s plans to take a mobile device to market in 2010 without a mobile carrier partner suggests that the imminent issuance of MVNO licenses in Israel could prove most timely.

gmugliston

Geoffrey Mugliston (mer-gliss-ton) is a London-based Australia-born entrepreneur, strategist and blogger. He began writing for VC Cafe in 2009 with the objective of showcasing promising Israeli startups to the global startup and investment community. He is co-founder of a consumer internet company with its development team based in Haifa (currently in stealth-mode). He also serves as adviser to a pan-European startup which develops software for print service providers. Prior to his current projects, Geoffrey worked in management consulting with a focus on the infrastructure sectors. When not working (though sometimes while working) he enjoys coffee, running and engaging in intense debate. He holds an undergraduate degree in finance from the University of Sydney.

gmugliston

Geoffrey Mugliston (mer-gliss-ton) is a London-based Australia-born entrepreneur, strategist and blogger. He began writing for VC Cafe in 2009 with the objective of showcasing promising Israeli startups to the global startup and investment community. He is co-founder of a consumer internet company with its development team based in Haifa (currently in stealth-mode). He also serves as adviser to a pan-European startup which develops software for print service providers. Prior to his current projects, Geoffrey worked in management consulting with a focus on the infrastructure sectors. When not working (though sometimes while working) he enjoys coffee, running and engaging in intense debate. He holds an undergraduate degree in finance from the University of Sydney.