Understanding interconnect billing for MVNOs

Mobile Virtual Network Operators (MVNOs) offer mobile telecoms services to customers by reselling wholesale minutes purchased from a Mobile Network Operator (MNO).

An MVNO will typically :

  • Use the MNO’s network
  • Receive its own number ranges from the
  • Local Exchange Carrier
  • Issue and activate its own SIM cards
  • Set its own tariffs
  • Bill the customer and own the customer database
  • Manage customer service, distribution,
  • branding and marketing

Many MVNO customers are unaware that the MVNO does not have its own network and that their service is being provided by an MNO. Virgin, for instance, has been voted ‘the best network operator’ by customers in the same year as the MNO its service is based on was voted ‘the worst mobile operator’.

In fact, the world’s first MVNO was Virgin Mobile, which launched in the UK in 1999. There are now another six MVNOs in the UK with approximately 360 planned, or operational MVNOs worldwide, according to consultancy firm Takashi Mobile.

From an interconnect billing point of view, the MVNO has a single interconnect agreement with the MNO. The MNO is, in effect, a transit operator handling all incoming and outgoing traffic to and from the MVNO.

Interconnect and the MVNO

For outgoing calls the MVNO pays the terminating interconnect charge levied on the MNO by the terminating operator plus an airtime fee to the MNO.

For incoming calls the MVNO charges the MNO an interconnect termination fee less the airtime fee. The MVNO termination fees are usually the same as the MNO termination fees charged to the originating operator.

Different MVNO models

Virgin Mobile is still the largest MVNO in the UK and has also set up operations in a number of other countries including Australia and the US. The company has benefited from a ‘cool’ image associated with youth and fun and from a reputation for taking on large incumbent business, even though they are a substantial global business themselves.

Other MVNOs have successfully leveraged their existing brand, customer base and distribution capabilities, in particular, supermarkets like Tesco and Sainsbury’s.

For some existing operators, the MVNO model is seen as a way of offering a bundle of services, including fixed, broadband, mobile and content. The hope is that this will reduce churn and provide a converged platform for other existing and future services. BT Mobile and Carphone Warehouse are examples of this trend in the UK.

Most MVNOs have, however, focused on simplicity and aggressive consumer pricing combined with a great marketing campaign. Tesco Mobile, in the UK, offers highly competitive rates and a simple tariff that does not even differentiate between peak and off peak rates.

As the MVNO is paying airtime charges for both incoming and outgoing calls in addition to interconnect charges for outgoing traffic – and because all these charges are not under the control of the MVNO – initiating a price war against other mobile operators can leave the MVNO with very slim margins.

Interconnect billing systems

Most MVNOs do not have their own interconnect billing capability and typically rely on the MNO interconnect billing system to calculate interconnect revenue and expenditure and the airtime charges correctly. It is not unusual for the MNO to have a share in the MVNO (for instance, CellC South Africa owns 50% of Virgin Mobile SA) and this may increase the level of trust the MVNO has in the MNO.

Outsourcing the interconnect billing function for both the MNO and MVNO to a specialist and, above all, an independent vendor may provide a more viable option. The interconnect vendor can keep a watchful eye on the traffic being processed for both parties and ensure that each is compensated correctly.

For information on how iCONX can help either side of the MVNO commercial partnership, please email: info@iconxsolutions.com and we will be happy to discuss your needs.