If you’re like me, you’re often up late pondering the big questions in life, like “Hey, wtf is going on in the telecom and internet connectivity space?” And if you are asking these sorts of questions, then do I have just the post for you.
How does it all work?
While this whole world is kind of confusing, what one should know is the following:
Telecom operators, often referred to as Communication Service Providers (CSPs) or Mobile Network Operators (MNOs) are responsible for building the connectivity solutions that allow devices to connect to the internet and cellular networks.
Traditionally, they done this by building out Radio Access Networks (RANs). 4G LTE was the fourth generation of RANs and was the first to base the network on the internet protocol, allowing internet data to be passed over cellular networks more easily. Each new generation (G) of networks requires a new set of equipment and networking equipment to be deployed to take advantage of the new network. The end devices attempting to connect to the network also have to be compatible with the new type of network.
However, and this is key, now the traditional functions of calling and messaging can be done over internet! This is done via Voice Over Internet Protocol (VoIP) and Over The Top messaging (OTT). Apps like WhatsApp have leveraged this tech to essentially build a brand new form of network that leverages iternet rails versus traditional SMS and cellular rails.
What about 5G?
5G is the fifth generation of mobile networks, originally deployed in 2019, it has been slowly rolled out to more and more of the US and world. 5G, relative to 4G, has faster transmission speeds, lower latency and more capacity (more devices can connect to a single connectivity point). But many of your are probably wondering the same thing I was “I feel like they have been advertising 5G for awhile, but I don’t really notice any difference relative to 4G LTE”. And you would be right! 5G relies on much higher-frequency spectrum bands that cover smaller areas than lower-frequency bands leveraged by 4G and 3G, so most of the time when you think you are getting true 5G, you are getting a muted version of it. Where 4G LTE and previous generations relied on macro-cells, or cell towers, 5G, due to its reliance on high-frequency spectrum, requires what are called “small-cell stations”. Small-cell stations are a new type of infrastructure for telecom providers that drastically change the economics of internet connectivity. Historically, a infra provider like Verizon could focus on fewer but larger macro-cell stations that would cover a large swath of land with 4G frequency. 5G is different. To truly enable 5G, tens of thousands of small (but much cheaper) stations have to be built. This is partly because high-frequency spectrum can’t penetrate hard surfaces, so often cities are the hardest places to enable 5G. To further complicate the economics for telecoms, governments have largely been auctioning off just the lower-band frequencies, which don’t give the full 5G experience. When they do auction off higher-band frequencies, they charge exorbitant amounts for it.
All of this matters, I swear. Enabling true high-frequency 5G will be an extremely OpEx-heavy investment for telecoms, so they will focus on areas where they think there is the greatest ROI. At the same time, it opens the doors for more regional players who now can afford to build out their own networks (a small-cell station costs around $25k to build). Expect to see more regional MNOs pop up. At the same time, 5G’s greater speeds now allow them to offer internet via Fixed Wireless Access (FWA) points. Confused as to how T-Mobile is offering home internet now? It’s via FWA, which are in a sense just a small-cell station for your home.
I’m dying to know what the difference between a MNO and a MVNO is. It also seems important to the broader point you’re going to attempt to make. Please explain!
MNOs, as mentioned above, are mobile carriers who own and operate their own networks. This would be T-Mobile, Verizon etc. Mobile Virtual Network Operators (MVNOs) on the other hand are like Mint Mobile or Cricket Wireless. These are carriers that operate brands that leverage a MNOs infrastructure and roaming deals.
MVNOs can take different forms:
Owned subsidiary, like Cricket Wireless and AT&T, where the brand can operate as a way to cater to a different type of customer.
Independent subsidiary, like US Cellular, which has either one or a few deals with MNOs to operate on their networks. These deals really matter, as the price and type of capacity you get - uncommitted capacity for instance means more calls will drop - will dictate the business model of the MVNO.
MNOs and MVNOs have complicated relationships. On one hand, a MVNO can be a good way for a MNO to reach a broader audience and make fuller use of its network capacity. On the other hand, sometimes this customer acquisition cannibalizes their own customers, reducing ARPU. A MNO may give a MVNO favorable wholesale and roaming rates if they sign exclusivity contracts. That can be beneficial for the MVNO as they increase margins, however it forces them to be almost wholly reliant on the MNO. If a carrier views a MVNO as a great brand a way to connect with a larger share of audience, they may even buy them. T-Mobile bought Mint Mobile for $1.2b a year ago!
Are there any other key technical ways in which a MVNO could differentiate itself from a MNO? I feel like I have heard the acronyms BSS and OSS thrown around before.
Wow! What a well-informed imaginary reader. Legacy Business Support Systems (BSS) and Operational Support Systems (OSS) are some of the main reasons that MNOs are hindered from building cool new experiences, running sophisticated targeted marketing campaigns, or automating many of their internal processes. BSS’ are how carriers to take customer orders, provision services, and collect revenue. OSS’ are how carriers monitor, analyze and manage their networks. Service fulfillment, service assurance, service inventory, network planning and product lifecycle management all leverage a company’s OSS. The issue is that most of these systems were custom-built by vendors back in the 1980s and therefore are super hard to change. Ever tried to add a new line or cancel an existing one with AT&T and had a bad experience? It could be because their BSS was built in such a way that it had to be done manually in a store! Given how core and complex these systems are to a MNO’s business, they can’t easily rip-and-replace them. There are many similar parallels to be drawn to core banking systems.
MVNOs and other upstart internet connectivity brands can provide superior customer experience by using next-gen BSS and OSS platforms. What made Mint Mobile so special? Ryan Reynolds and a streamlined onboarding experience.
So it seems like traditional telecom provider’s business models are under threat?
It’s a mixed bag. On one hand, there is a pretty clear exponential trajectory of data consumption happening in the world right now. More people are coming online, streaming higher-resolution content, resulting in a greater demand for internet connectivity. But this internet connectivity is now coming from a more diverse set of places. LEO satellite constellation providers like Starlink are bidding on 5G frequency, setting themselves up to become a potential MNO. Meanwhile, in the enterprise, when data connectivity was between an on-prem location, like an office building, and a data center, the CSPs sold Multi-Protocol Label Switching (MPLS) solutions that connected them. However these were costly to build and hard to upgrade to accommodate additional needs. As enterprise internet demands have move towards the cloud, these are becoming redundant. The telecoms then started offering SD-WANS to compete, but cloud providers have countered by offering their own connectivity solutions built over their own fiber optic lines.
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Tying this all together, now is an incredible time to be building a startup in the internet connectivity and telecom space. There are a greater number of ways to connect to the internet and incumbent business models are under threat, opening up avenues for collaboration. New network hardware is easier to connect to for third-parties, creating possibilities for automation. The OpEx considerations of 5G means more companies can reasonably build out defensible infrastructure.
As always, if you are building a startup in the telecom and internet connectivity space, please reach out at nickb at northzone dot com.