Mobile Virtual Network Operators (MVNOs) as a recent development in mobile telecommunications is evolving with new technologies, platforms and service propositions. Subsequent to the publication of the License Framework for The Establishment of Mobile Virtual Network Operators in Nigeria (the License Framework), the Nigerian Communications Commission (NCC) on 11th of August, 2022 – in a bid to improve the telecommunication output of the country, enable the expansion and availability of quality mobile coverage, and close the gap between the unserved/underserved Nigerian population – notified the public of its intention to issue MVNO Licenses in various tiers.
An MVNO as defined by the License Framework is a telecommunications product and service operator that rides on top of the capacity of a fully licensed Telecommunications Service provider or Mobile Network Operator (MNO). MVNOs do not have ownership of the spectrum elements, hence they depend largely on the infrastructure of a fully licensed mobile telecommunication service provider; MNOs. They enter into a Wholesale Agreement or Revenue Sharing Agreement with the MNO through negotiations and deliver their services under their own brand after bulk purchasing resources from the MNO at an affordable rate to customers, such that to the end-user, the service appears indistinguishable.
The License Framework provides for a five-tier classification with distinctive services to be offered by the players in different tiers. Tier 1 is a virtual operator, which relies totally on hosts facilities with restricted tariff control; Tier 2 is a simple facilities operator, which can set up its own intelligent network, but has no core switching and interconnect capabilities and has loose tariff control; Tier 3 is core facilities operator which can negotiate interconnect agreements and has major tariff control; Tier 4 is a virtual aggregator/enabler, which performs aggregation and enabling services but only operates in unserved regions, and Tier 5 is the Unified Virtual Operator, which has the freedom to operate in any of the tiers.
The MVNO/MNO relationship
The driving force behind the contractual relationship between MVNOs and MNOs is based on the MVNOs representation to the MNOs that it offers more economic benefits than costs. The benefits include either extending mobile services to market segments with which MNOs have not had much success when there is a market expansion by reaching entirely new or previously unserved market segments, better network utilization and realization of economies of scale, lower operational costs, greater overall profits, and wholesale revenues. The costs include the cannibalization of the MNOs’ market share, services, products or revenue streams by MVNOs, price erosion, backlash from poor MVNO performance, greater customer churn, network congestion etc. In all of these, an MNO will enter into a contract with an MVNO where it is convinced that the benefits of such a relationship outweigh the possible negative impacts.
The driving force behind the contractual relationship between MVNOs and MNOs is based on the MVNOs representation to the MNOs that it offers more economic benefits than costs.
The legal and contractual considerations to consider in an MVNO contract
Legal Considerations
The License Framework provides that it should be read alongside the Nigerian Communications Act, 2003; the Unified Access Service License Framework and other related regulations. The MVNOs, therefore, need to ensure compliance with not only their specific license obligations but the various regulations that affect their operations on a day-to-day basis.
Read also: Mobile Virtual Operators target 27m Nigerians without access to telecom
The License Framework provides that the NCC does not intend to impose mandatory regulation of the relationship between the MVNO and MNO and expects both parties to be able to come to a commercial agreement in a fair and expeditious manner in order to foster an “organically” competitive market. It may however be compelled to intervene where the negotiations are conducted in bad faith, in an unfair manner and there is anti-competitive behavior
Contractual considerations
The License Framework expects the MNO and the MVNO to enter into a “Commercial Wholesale Agreement” which must be filed with the NCC. The License Framework proceeds to provide a template outline for the agreement with the expectations that the proposed outline should serve as a guide to the parties.
Service levels: Service level cannot be overemphasized as it helps to determine the extent of services required from a party. It provides specificity regarding the services provided and the metrics that will be used to measure their performance with penalties for missing the targets and, in some cases, bonuses for exceeding them. Service levels in MVNO contracts should provide a detailed description of every service offered, the services to be purchased by the MVNO and any other additional services to be purchased from the MNO, how the services are to be delivered, what the hours of operations are, a list of all technology and applications used, specific services that will not be offered to avoid confusion and eliminate room for assumptions from other parties, etc. All these should be expressly spelt out to avoid contractual issues.
Exit plan: This is another issue that should be considered. Where termination occurs or during renegotiations parties where are unable to agree on terms, parties should agree the seamless to switching to another MNO by the MVNO without interruption/disruption to customers and the ways in which the MNO must assist with the transfer to a replacement MNO at the end of the contract. The contract should clearly state that the MVNO shall reserve the right to terminate the contract with or without notice if the MNO commits a material breach(es) and or is in persistent breach of any of the provisions of the contract or fails to carry out any of its obligations in a fit and proper manner or where the MNO loses its license or permit to provide the services to MVNO.
Access to interfaces: Access interface refers to the technical access point for connection to the MNO’s Service Platform. The MVNO may need access to various MNO systems and interfaces, whether on SIM cards or on the underlying network, in order to provide its service. There is a need for parties to agree on the MNO granting the MVNO access to all existing and future systems, platforms and applications.
Benchmarking wholesale prices: Another contractual issue in MNVO contracts is the challenge of how MVNOs or MNOs will receive a fair value in the Wholesale Agreement. MVNOs should seek a contractual mechanism to benchmark and adjust wholesale prices during the contract in order to allow for the testing of the wholesale prices in the contract at regular intervals against current market rates. MVNOs are to work with MNOs and agree on trigger points that will prompt parties to benchmark their wholesale rates against the market.
MNO Roadmap and network investment plans (including spectrum): The MVNO needs to have a sight of the MNO’s technical development roadmap and network investment plans in order to allow the MVNO to plan its retail offerings and market campaigns for its customers. Having the MNO’s roadmap will be an indicator of how the MVNO’s business model should be designed and its niche market thereby giving it complete confidence in the relationship, the commitment of the MNO and assurance of its profitability.
Confidentiality clause: Confidential information is usually exchanged in the course of executing the contract hence parties are to agree that all information or data, of a commercial, financial, technical, planning, management, legal, personal or whatever nature concerning or relating to either party its staff or officers in any way whatsoever, including any information relating to the business activities, actual or proposed, of either party shall be kept in confidence. Parties are to clearly agree that the MVNO’s confidential information which the MNO obtained while providing wholesale services shall not be used to poach the retail customers of the MVNO.
Non – discrimination: There should be a non-discrimination clause such that under no circumstance should the MNO provide preferential services to its own customers over the MVNOs when it comes to network quality or range of services or coverage thereby putting the MVNO and its customers at a disadvantage. This to a very large extent will prevent conflict of interest.
Data protection and privacy: Each Party shall undertake to comply with the data protection laws regulations and implementation framework including but not limited to the Nigeria Data Protection Regulation 2019 in the processing of personal and sensitive data obtained in the course of the performance of their obligations under the contract. Parties shall ensure that they adopt and implement adequate physical and technical measures to guarantee the confidentiality, secure processing and storage of personal data.
International roaming – It is important for the agreement to be clear on whether or not the MVNO will be able to offer its customers international roaming facilities and the terms and arrangements for same.
Conclusion
As the licensed MVNO in Nigeria gear up to roll out services and products into the market, a lot of innovation is expected in order to achieve the objectives of the Licensing Framework and they are expected to contribute to the nation’s GDP. It is however important that the MNO and the MVNOs, are mindful of their legal obligations as well as related issues and considerations.
