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* MVNOs take on established telecoms firms with cheap deals
* MVNOs' market share 10 pct in March vs 7 pct year before
* Telefonica, Vodafone lose market share
By Clare Kane and Robert Hetz
MADRID, June 3 (Reuters) - Revenues may be declining andcustomers disappearing for phone companies in recession-hitSpain, but that has not stopped Jaime Bustillo from launching anew mobile operator in the depths of a downturn that has left 27percent of the workforce unemployed.
Bustillo, who used to work for Spain's second-biggestoperator Vodafone, established Airis Mobile in May as anarm of low-cost technology firm Airis and hopes to attract50,000 mobile customers in a year.
The business model Bustillo has set up - offering deals withlow-cost smartphones and cheap call rates to other Europeancountries - is tailor-made for the economic crisis as thousandsof Spaniards seek work in neighbouring countries.
"Really we are competing with (low-cost internet telecomsfirm) Skype," Bustillo said in an interview, adding consumershave shifted to place less emphasis on operators and more onhandsets since Apple introduced its iPhone.
So-called mobile virtual network operators (MVNOs) likeAiris Mobile do not own networks. Rather, they rent capacityfrom established operators to sell on to their customers,usually at low prices due to their small overheads, with cheapdistribution through the internet or convenience stores.
Their share of the Spanish market grew to 10 percent inMarch from 7 percent a year before as cash-strapped consumerslook to save money.
"Virtual operators can certainly take a bit more marketshare ... We aren't going to be as big as Telefonica or Orange, what we're looking for is something specialised,"Bustillo said.
Across Western Europe, MVNOs have 13 percent market share.Markets vary hugely, according to data from consultancy AnalysysMason, with MVNOs accounting for 24 percent of the market inGermany, which has a strong tradition of discount retailing, andjust 5 percent in Italy.
"There are some MVNOs that have successfully played onbrand, (but) it's a relatively small proportion of the total.Most are targeting price or convenience," said Ceri Jones,manager at Analysys Mason.
NO GET RICH QUICK
Bustillo's model has been proven to work in Spain by otherslike Austrian Meinrad Spenger, who set up virtual operatorMasmovil in 2008 and now has 140,000 clients and predicts MVNOscould reach 15 percent market share in a few years.
In March, industry leader Telefonica's market sharefell to 35.6 percent from 38.6 percent a year earlier, whileVodafone's shrank to 25.7 percent from 28.6 percent.Total mobile revenues in Spain dropped to 2.9 billion euros($3.7 billion) at end-2012 from 3.4 billion euros a year before.
For 6.9 euros a month, Airis Mobile offers 1 GB of internetsurfing, national calls for under a cent a minute and callswithin the EU for 9 cents a minute. SIM-only customers atTelefonica get 500 MB internet, 500 free texts and free nationalcalls with a 15 cent connection charge for 9 euros a month.
But Spain's leading operators are relaxed about the growthof MVNOs. Virtual operators have high margins, but theirmarketing budgets are usually small, which limits their reach topotential customers, and they do not tend to subsidise handsets- a key selling point for customers wanting expensive models.
In some countries like France, MVNOs have had to get theirpricing approved by incumbents that also benefit from wholesalerates. Virtual players have also lost market share there afterwidespread price cuts from traditional operators.
"There is an opportunity for MVNOs but it's a reallydifficult and tough market place ... It's not a get rich quickscheme that's going to work for everybody," said Carrie Pawsey,senior analyst at technology and telecoms research firm Ovum.
Virtual operators are usually much more limited in scope,targeting immigrant communities with own-language services andlow international rates or small businesses often overlooked bytraditional operators. Fixed-line specialists in Spain have ledMVNO growth in recent months by offering mobile servicespackaged with home phone and internet services.
Generalists tend to be bought by operators when they get toa big enough size to be a real competitive threat and used as asub-brand, something that has happened in the Nordic countries,where there is a longer history of MVNOs in the market.
Virtual operators are also heavily dependent on friendlyregulation. Spain's telecoms watchdog did not open up the marketto MVNOs until 2006, more than ten years after some countries,and in 2008 they had just 1.3 percent of the market.
But while MVNOs are unlikely to compete head-to-head withfirms like Telefonica, they promote competition and are vitalfor innovation when incumbents are weak, said Jacques Bonifay,chairman of the European Association of Full MVNOs.
"Because we are still small and we need to innovate tosurvive, we are really pushing hard," he said.
