Mobile virtual network operators, such as fast-growing Virgin Mobile, do not own their own network but run services on capacity leased from operators. Already a success in some cases, they are likely to proliferate under third-generation mobile.

Pinning down the precise properties of an MVNO is difficult. "There are almost as many business models for them as there are MVNOs," says Lars Vestergaard, head of European wireless research at analysts IDC.

Virgin Mobile is actually a 50:50 joint venture with German mobile operator T-Mobile. Its product is therefore quite integrated with T-Mobile's UK service (formerly One2One) with billing and customer service provided by T-Mobile.

However, some other MVNOs, such as FTSE-listed Project Telecom provide their own customer service and billing. Nicola Ainsworth, head of mobile research at research analysts Tarifica, says: "The key question is whose name pops up when you switch on the mobile?

"If the virtual network operator's brand name appears, then you're dealing with an MVNO. If the mobile operator's name appears, but you haven't signed a contract with that operator, you're probably dealing with a reseller." However, some analysts include resellers in their definition of MVNOs.

You could, of course, ask to see the MVNO licence but in many countries, such as the UK, there is no such thing. Nor are these mobile virtual network operators always regulated by their country's telecoms regulator. For example, Oftel does not regulate Virgin Mobile or Project Telecom.

Martin Heath, a partner at KPMG Consulting, says: "There are no licence conditions, no more than you need to set up a fish and chip shop. Regulators should encourage the emergence of MVNOs because they should be more concerned about service competition than network competition."

MVNOs tend to have service provision agreements with the operator(s) from which they buy airtime. Tim Radford, chief executive of Project Telecom, says: "This does provide safeguards because a mobile operator can withdraw service from a service provider who does not fulfil the terms of the agreement."

Lack of regulation helps successful MVNOs make a good return. Mr Radford says: "Our gross margin is around 20 to 30 per cent." Virgin Mobile says it is on course to break even this year after launching in 1999.

Other MVNOs include: Scandinavia-based Tele2, a pure MVNO with its own billing system and tariffing structure; Sense Communications, also in Scandinavia; Virgin Optus in Singapore; and China Motion, a joint venture targeting cross-border business traffic between Hong Kong and China.

Mr Vestergaard warns that: "Success is not guaranteed; a number of MVNOs have foundered." Nevertheless MVNOs are expected to multiply in the 3G world. Mobile operators which have spent billions of euros on 3G licences will be keen to recoup costs by selling large chunks of airtime. And the sort of information-rich services that can be offered over 3G should appeal to big brands that want to remind the customer of their existence.

Ms Ainsworth expects strong brands that can target niche markets better than operators to enter the fray. After all, she says, "mobile operators will not want to do deals with brands that cannibalise their own revenues."

Alberto Prado of consultants DiamondCluster argues that: "To put a compelling business plan on the table, MVNO candidates must have specific assets that can guarantee the success of the venture. For example: a particular recognised brand within the target segment; a content library; an existing customer base; or finally affinity to telecoms.

"Therefore," he adds "the potential [3G MVNO] candidates are likely to come from the following fields: retail (e.g. Virgin, Sainsbury, Carrefour); media (e.g. Bertelsmann, FT); resellers of telecoms services (e.g. Carphone Warehouse, MobilCom, Debitel); and finally companies with affinity to telecoms (e.g. Tele2, Energis).

Other potential MVNOs, according to Ms Ainsworth, include carmakers, which are already starting to make extensive use of telematics and telephony in their vehicles, oil companies such as Esso, BP and Shell (which is expected to launch an MVNO in Asia-Pacific) and utilities. Ms Ainsworth also sees a role for co-branding.

"Companies, such as Disney, could team up with an MVNO, lending their name and some of their content in return for a share of the revenues from their target market, children," she says.

Internet service providers (ISPs) too may become MVNOs. Steve Edwards, senior technical adviser at billing software business Convergys, says: "Future MVNOs are likely to be different to today's...MSN or AOL could realistically be the biggest MVNO in a few years time, offering continuity of service from fixed line connections to mobile connections. Telecoms operators could find that quite intimidating, but in the end, they'd be crazy not to be the supplier of that capacity."

However, some mobile operators are likely to be more enthusiastic about wholesaling capacity to MVNOs than others. "We expect the third or fourth biggest operator in a country to be the most keen on the MVNO model," says Mr Radford.

For example, he believes that in the UK, T-Mobile is most active in this market. Others believed to have a strategy of selling airtime to MVNOs include Singtel of Singapore, Ben in the Netherlands and E-plus in Germany.

Ms Ainsworth says: "There is even scope for 3G licence holders with no existing user base to become MVNO-only operators, avoiding the cost of dealing with customers direct."

But Mr Vestergaard at IDC warns that becoming a 3G MVNO could be more expensive than becoming a 2G one. "It is a different matter for mobile operators to sell spare capacity on a network built some time ago, than to sell it on a network they are still investing in," he says.

"It could be that they will try to get MVNOs to foot some of the network-rollout bill." On the plus side, though, successful 3G MVNOs may well get taken over by the operators - just as they bought up some of their best 2G resellers.

A report by Tarifica, Mobile Wholesale in Europe, will be published in June. See www.tarifica.com

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