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High-Capacity SIM Cards: Actual "Network Components" for Mobile Virtual Network Operators (MVNOs) White Paper

By Giovanni Landi and Dan Bloom Revision 1.2 February 2007

SanDisk Corporation Corporate Headquarters · 601 McCarthy Blvd. Milpitas, CA 95035 Phone (408) 801-1000 · Fax (408) 801-8657 www.sandisk.com

High-Capacity SIMs for MVNOs White Paper

SanDisk, the SanDisk logo and Store Your World in Ours are trademarks of SanDisk Corporation, registered in the United States and other countries. Other brand names mentioned herein are for identification purposes only and may be trademarks of their respective holder(s).

© 2007 SanDisk Corporation. All rights reserved.

Revision History

Rev. 1.2 Date of Change February 7, 2007 Description of Change Updated to include new product names Rev Originator Dan Bloom

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Table Contents

Purpose and Scope .......................................................................................................... 4 Introduction ....................................................................................................................... 4 What is a Mobile Virtual Network Operator (MVNO)?................................................... 4

Definition ..................................................................................................................................... 4 A growing trend ........................................................................................................................... 5 Two types of MVNOs .................................................................................................................. 6 The horizontal business model ................................................................................................... 7 The vertical business model........................................................................................................ 7

The World of the Vertical Mobile Virtual Network Operator (MVNO).......................... 7

Challenges Typically Confronting the MVNO.............................................................................. 8 The Need..................................................................................................................................... 8 Existing solutions ........................................................................................................................ 8 High-capacity SIM cards ............................................................................................................. 9 Examples of Revenue-Generating Applications Enabled by High-Capacity SIMs ..................... 9 Customer services ................................................................................................................ 10 Personalized services ........................................................................................................... 10 Location based services ....................................................................................................... 10 Portability .............................................................................................................................. 10 SanDisk SIM 5000 High Capacity SIM cards and the Mobile Virtual Network Operator (MVNO)10

Conclusion ................................................................................................................................. 11

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Purpose and Scope

This document introduces the SanDisk SIM 5000 (formerly mSIM MegaSIM) high capacity SIM card as an effective tool that enables mobile virtual network operators (MVNOs) to attract and retain mobile subscribers.

Introduction

Although mobile virtual network operators (MVNOs) do not control the networks on which they operate, they can utilize high-capacity SIM cards to enable new ways to reach out and market to specialized vertical customer segments. By leveraging the capabilities enabled by high-capacity SIM cards like the SIM 5000, MVNOs can build their brands by offering valuable services and premium content that appeal to specific subscribers.

What is a Mobile Virtual Network Operator (MVNO)?

Definition

The wireless world is alarmingly confused about what an MVNO is.1 The term "MVNO" can be defined in several says. Here are just a few examples: "MVNOs are wireless companies that have their own brand, marketing, retail outlets, and phone offerings, but use another operator's infrastructure (towers and network) instead of building and operating their own."2 "There are many definitions as to what constitutes a MVNO. Essentially though it involves a company that does not own or control radio spectrum or associated radio infrastructure but does own and control its own subscriber base with the freedom to set tariffs and to provide enhanced value added services under its own brand."3 "A service provider buys his basic product from a network operator, packages and brands it and then sells it as a mobile offering to the end user. A real MVNO has a much greater flexibility e.g. his own operator code, own SIM cards and the possibility of both National and International roaming"4 "The key factor on which the MVNO concept depends for its implementation is the acceptance by the mobile networks of mobile calls transmitted by (or to) customers who are `owned' by another operator. Technically and operationally, this would be arranged by the MVNOs' issuing their own `smart cards' in place of those issued by the mobile network operators. These smart cards - SIM (Subscriber Identity Module) cards - contain the key functions identifying the customer to the network. They act as a passport for the customer and their handset: provided they are recognized by a mobile network operator."5

1 2

From http://www.mvnodirectory.com/mvnodefined.html. From http://www.phonescoop.com/glossary/term.php?gid=113 3 From http://www.virtel.com.au/mvno/mvno.asp 4 From http://www.ctia.org/news_media/wireless_newslines/press_release.cfm?press_id=6780 5 From http://www.ofcom.org.uk/static/archive/Oftel/publications/1999/consumer/mvno0699.htm

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"A mobile network operator without a physical land based infrastructure, such as base stations, within the country where the network (MVNO) operates."6 Although there is general consent that an MVNO is not in control of the network on which it operates, other measures used to define an MVNO are less clear. For the purposes of this white paper, we will include in the MVNO category any player in the mobile space that, even if not in control of the network, is in control of the customer relationship. The MVNO relationship with customers includes activities such as SIM card provisioning and, managed through the SIM card, authentication, billing, and distribution of added services. MVNOs also have the capability to offer roaming services and added services, both independently of the service provider (the host MNO).

A growing trend

Starting in 1998 in Northern Europe, by mid-2006 the MVNO phenomenon had made its way into Western Europe and North America, while making more gradual forays into Asia. The United States is home to the largest number of MVNOs ­ over 60 in all ­ while virtual operators' progress is Asia differs a great deal from country to country.7 According to idate, MVNOs were reporting a base of 30 million subscribers in Western Europe, mid2006, boasting 60% growth in only two years, and accounting for roughly 10% of the total mobile services customer base.8 In their predictions for 2007, Strand Consult wrote: In the MVNO market, meanwhile, we'll start to see a lot of new players. Some will be forced eventually to give up or consolidate, and we'll see a number of players focusing on Value Added Services (VAS). The question is not whether, in 2007, we will come across an MVNO with the same type of service offering as Vodafone, but in what country it will be. By the way, we have several qualified guesses to offer on that one! We also believe it will be easier, going forward, to strike revenue-share deals with technology providers, which means that eventually the customer will have a hard time seeing any difference in the solution offered by a company such as Vodafone and one from an enhanced MVNO. Incidentally, if you are among those that believe 2007 will be the year in which MVNOs die in their masses, you should reevaluate your thinking ­ it's going to be a big year for MVNOs!9

6 7

From http://www.mvnodirectory.com/mvnodefined.html. From IN 378 MVNO Uk.PDF, "MVNO: The New Deal" from www.idate.org, November 28, 2006. 8 From IN 378 MVNO Uk.PDF, "MVNO: The New Deal" from www.idate.org, November 28, 2006. 9 From http://www.strandreports.com/sw2386.asp.

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Two types of MVNOs

According to www.idate.org, "Existing MVNOs have taken one of two approaches: · · Low-cost MVNOs playing the price card, at the cost of fragile profits. Niche MVNOs working to attract overlooked or poorly served customer niches ­ the real challenge there being to generate ARPU from existing customers with tailor-made offers."10

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www.mvnodirectory.com even defines four types of MVNO business models : 1. 2. 3. 4. Lifestyle MVNOs ­ building on brand goodwill to provide innovation Champion MVNOs ­ affordability without sacrificing quality No-Frills MVNOs ­ the bare-bones mobile service at rock-bottom prices Institution MVNOs ­ leaning on monopolistic positions

Although this additional segmentation may be useful for some purposes, MVNOs can generally be categorized into two types - those that have made the discount choice and reach out horizontally across the market and those that target specific customer niches vertically with innovative and specialized services.

Figure 1: Two Types of MVNOs

10 11

From IN 378 MVNO Uk.PDF, "MVNO: The New Deal" from www.idate.org, November 28, 2006. From http://www.mvnodirectory.com/research/MVNOSuccess.html#TableOfContents.

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The horizontal business model

These MVNOs offer good mobile telephony services at a very competitive price, thanks to strong existing retail and distribution networks. A typical example are retail brands now offering basic prepaid cards offered off-the-shelf as any other supermarket product. This business model relies on existing customer loyalty and contact frequency. Customer acquisition cost is very low wile churn is very high, and ARPU is consequently also quite low. According to www.idate.org, the arrival of MVNOs at the lower end of the market has "meant a sharp drop in retail prices and plummeting ARPU."12 Although the vast majority of current MVNOs have taken this "quick-and-dirty approach," there is evidence in the market indicating that this model will not be viable for much longer; that only those MVNOs offering some kind of value added services to their customers will survive, and that lowering prices alone is not enough. Even in the case of large retailers, the next logical step, after initial launch of the service, will be to connect their telecom services to typical loyalty schemes, at least for some of their best customers. This will drive evolution into what more closely resembles a vertical business model.

The vertical business model

Unlike the horizontal business model, the vertical business model relies on strong brands, a deep understanding of customer desires, appealing to a segmented population with specific offers, products, look-and-feel, etc. For these MVNOs, the issue is to extend the grip on the customer into the mobile telephony space, offering phone service but most importantly making of the mobile telephony a new channel for both existing and new products and services. Mobile telephony in this case has become another contact occasion between the brand and its customer, and has to be lived by the customer as seamlessly integrated into the brand experience. The aim of MVNOs practicing this business model is to appeal to subscribers and to gain their loyalty by offering real value in the way of targeted content and applications. This business model, with its greater potential for higher ARPU, appears to be more viable and is worthy of further discussion in this white paper.

The World of the Vertical Mobile Virtual Network Operator (MVNO)

The MVNO space has been very active and players with big brands have entered the mobile telephony space in the last 18 months. Examples are Virgin Mobile (UK), NRJ Mobile (France), Ten (France) and BT Mobile (UK). Additionally, new entrants have announced their intention to enter the market, for example Pipex (UK), Extreme (UK), El Cortes Ingles (SP), Carrefour (FR, BE), Coop (IT), CarPhoneHouse (UK, SP), TMobile (SP), Tele2 (FR, SP) and Euskaltel (SP).

12

From IN 378 MVNO Uk.PDF, "MVNO: The New Deal" from www.idate.org, November 28, 2006.

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Challenges Typically Confronting the MVNO

Even with a strong brand and a focused vertical business model, success for the MVNO is not automatic. Just ask the Walt Disney Co., which just pulled the plug on its ESPN-branded MVNO after less than a year of operations. The company said shutdown costs alone will run $30 million.13 Even Helio, the MVNO joint-venture established by SK Telecom, and the US-based Earthlink is arousing mixed responses.14 There are complex technical issues, there is a relation with the hosting MNO (SP or service provider) to be managed, and, even if mobile telephony is becoming a commodity market, customers in this particular space are demanding, and much more careful in the way their money is spent. Customers need to see real value, not just brand recognition. Real value needs to be strongly linked to the relative brand the MVNO is trying to promote.

The Need

In order to succeed, the MVNO needs the ability to attract and retain subscribers through branding. MVNOs are marketing organizations that strongly rely on their brand. A great deal of MVNO success is dependent upon specific services, accurate customer segmentation and the ability to market the brand in such a way that the customer is "owned." Furthermore, the MVNO needs the ability to control applications and content delivery as a means to support its brand and generate revenue.

Existing solutions

Despite all the differentiation that has been developed by players in the market, the basic common point of all of these initiatives has always been the central focus on all relationships between the MVNO (and the MNO before) and customers has been on the device. While this has happened for obvious reasons, it has quickly shown its disadvantages. The handset-centric approach has many limitations: first of all, it relies mainly on pure brand recognition as a customer loyalty factor, while we have seen that in mobile telephony, in general, customers are more demanding and want to see real value for what they are paying. Secondly, reliance on the handset is risky because it puts the brand in direct competition with other strong recognized brands, typically the handset manufacturer's, thus weakening the position of the MVNO. Furthermore, there are many different types of handsets, from a variety of manufacturers, with different operating systems and features. Contenting with this variety adds to the challenges faced by MVNOs (as well as MNOs) when working to build a unique user experience for the subscriber. So, how does an MVNO maintain subscriber loyalty and deliver real value without relying too much on the handset?

13 From Forbes, "What Would An iPhone Look Like?" Rachel Rosmarin, 10.04.06, 6:00 AM ET 14 From an e-newsletter from telecomskorea.com.

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Given that the MNO controls the network infrastructure, options for the MVNO are somewhat limited. There is one "network component" remaining, however, upon which the MVNO does maintain absolute control ­ the SIM card. Typically, the SIM card has enough capacity to be used to encrypt voice and data transmissions and store data about the specific user so that the user can be identified and authenticated on the network. The SIM also stores data such as personal phone settings specific to the user and phone numbers. There is even a little room left over for a few minor branding elements, such as a start-up screen or graphics, for the MVNO. What's needed, however, for the SIM card to be effective as a medium to deliver real value, such as content and applications tailored to the subscriber, is sufficient storage capacity.

High-capacity SIM cards

High-capacity SIM cards, available from leading manufacturers such as Gemalto, Oberthur, Giesecke & Devrient (G&D) and SanDisk in capacities up to 1-gigabyte15, enable the MVNO offer to be viable and profitable because they render the mobile offer user-centric (not handset-centric) and emphasizes the role of the service provider. The SIM is the only network component the MVNO is able to buy, operate and manage in total independence. Because of this, high capacity SIMs are one of the only tools that can deliver so much value to MVNOs: · · With high-capacity SIM cards, the independence of the MVNO increases dramatically Abundant capacity, measured in average flash per user (AFPU), increases potential to offer a much greater number of services and premium content, potentially leading to greater ARPU (see Figure 2) Service definition and creation process can be made easier and more open, both internal and to third parties The high capacity SIM can be used as a tool to increase brand differentiation, thus increasing customer loyalty, which is a key issue for MVNOs.

· ·

Figure 2: Higher AFPU Leads to Higher Potential ARPU

15 1 gigabyte (GB) = 1 billion bytes.

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Examples of Revenue-Generating Applications Enabled by High-Capacity SIMs Customer services

A high-capacity SIM can store manuals, installation drivers, explanatory videos that will always be ready-to-access for the user. MVNOs that do not have a strong retailer base or do not want to invest in heavy customer-service platforms can use the additional memory to interact with users to offer help with low investment.

Personalized services

High-capacity SIMs works like traditional SIMs and offer traditional voice services. But beyond that, SIM 5000 can help the user to help himself, by customizing his profile once (and then updating it when required) so that specific services can be found more quickly. SIM 5000 can be an off-line portal built by the MVNO (with specific intervention by the use himself), without heavy investments in on-line portals such as Vodafone Live.

Location based services

A high-capacity SIM offers the possibility to manage LBS (Location-based services) entirely at user level, with no use or intervention of network capabilities. SIM 5000 can calculate the position of a user with his terminal, hosting complete national maps and cell databases. Therefore specific powerful LBS can be offered with very little network consumption, thus reducing costs for the MVNO.

Portability

High-capacity SIM cards are portable. They allow users to transfer content and service agreements from old to new handsets and from work to personal handsets. Being that high-capacity SIM cards are subscriber instead of handset-focused, they help to centralize the position of the MVNO, reducing likelihood of churn and increasing potential loyalty to help MVNOs to keep subscribers within their network.

SanDisk SIM 5000 High Capacity SIM cards and the Mobile Virtual Network Operator (MVNO)

The SanDisk SIM 5000 (formerly mSIM MegaSIM) high capacity SIM card product line is an extremely powerful platform with independent processing power, high-speed interfaces, advanced cryptography and flash storage for both MVNO-driven and subscriber-generated content. SIM 5000 enables the delivery of compelling new services and mobile content to subscribers and provides the means for MVNOs to benefit from new revenue streams. SIM 5000 products allow MVNOs to lower operating costs, increase customer personalization and attraction, and strengthen the MVNO brand. SIM 5000 cards allow MVNOs to increase average revenue per subscriber while differentiating network-based products and services. The abundant storage capacity, advanced security features and independent processing power delivered by SIM 5000 enable services like: · · Secure downloading of content, audio and video clips Flexible DRM, including on-card rights management

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· · · · ·

Full PIM functionality Storage of new applications for subscriber activation MVNO based personalization and branding Personal storage for user-generated content such as large phone directories and highresolution photos The ability to customize services based on subscriber tastes and habits

SIM 5000 is the ideal repository for services, applications and content that the MVNO is offering to differentiate its offer from traditional MNO. This renders the MVNO as independent as possible from the "hosting" MNO. The SIM card is the only "network component" that the MVNO will actually control completely, therefore MVNOs looking to build a mobile offering on their existing brand strength and awareness should evaluation options carefully and consider proven, advanced flash-based products, such as the SIM 5000 from SanDisk.

Conclusion

MVNOs can utilize high-capacity SIM cards to enable new ways to reach out and market to specialized vertical customer segments. By leveraging the capabilities enabled by high-capacity SIM cards, vertically-oriented MVNOs can build their brands by offering valuable services and premium content that appeal to specific subscribers. The SanDisk SIM 5000 (formerly mSIM MegaSIM) high capacity SIM card product line, with its independent processing power, high-speed interfaces, advanced cryptography and managed flash storage, is an advanced platform well-suited for both MVNO-driven and subscriber-generated content. SIM 5000 also enables the delivery of compelling new services and mobile content to subscribers and provides the means for MVNOs to benefit from new revenue streams and minimize churn. SIM 5000 products allow MVNOs to lower operating costs, increase customer personalization and attraction, and strengthen the MVNO brand. For more information, please visit the SanDisk website at: www.sandisk.com

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