Where do the challenges lay in the MVNO market?

All successful MVNOs share a number of common traits: a deep understanding of their customers, a focus on costs, plus ownership of the key customer ‘touchpoints’ allied to a viable network partnership model.

However the new ‘big name brand’ entrants into the market – Google in the USA, Sky in the UK and freemium models such as offered by FreedomPop – will stir-up the market putting pressure on ARPUs. This in turn will force existing MVNOs to place an even greater emphasis on their propositions and delivery capabilities.

Sky’s announcement that it will add mobile from 2016 to its current UK triple-play mix, following TalkTalk and Virgin’s lead, is a good example of the potential disruptive effects that may arise. As part of a quad-play mix, mobile has the potential to act as a ‘loss leader’ reducing the churn of their existing highly valuable TV and broadband customers. Single play MVNOs will face a significant challenge.

Alongside this, all players will be impacted by the data tsunami and the ubiquity of smartphones. The mobile market is witnessing a rapid shift prompted by always available connectivity and increasingly rich information and media content. For MVNOs this growth is putting further pressure on profitability, especially as most wholesale agreements don’t reflect today’s 4G LTE reality. Wholesale models, priced by the minute or MByte, will need to evolve towards more access (fees per user) or throughput (Mbps) type models – familiar to customers in the ADSL or satellite markets.

How do they plan to keep ahead of the pack in an ever increasingly competitive space?

Even today the UK’s MVNO market share is not particularly high when compared to those of other European countries, so there is clear potential for further growth. Witness the announcements of new MVNO launches already in 2015.

But customers do not consciously buy an ‘MVNO’ service. Rather customers choose to buy a mobile service with propositions that reflects their needs and wants and at a price that suits. Increasingly this means as part of a bundle of other services or because of brand resonance. Differentiation will be key.

A supportive mobile network operator partner will be essential given the ARPU and profitability challenges noted. But ultimately having a simple proposition that solves customer needs will remain essential, backed by a strong distribution capability and excellent customer service.

How is the MVNO market likely to evolve over the next year?

As the market further evolves towards high speed data and unlimited tariffs the traditional MVNO model and associated eco-system will need to evolve if it is to remain a viable model. Our top five predictions for the year ahead are:

  1. We will see the rise of dual and triple play providers adding mobile to drive cross-sell and drive retention, squeezing single-play MVNOs.
  2. Traditional ‘Lite’ MVNO models will evolve to drive service innovation. The advent of LTE means control over data will be key not just for policy control but to drive monetisation. This will mean MVNOs will need to invest in appropriate solutions.
  3. Continuing PAYG to contract migration.
  4. Evolving wholesale and commercial models with the more forward mobile operators recognising the value MVNOs still offer and hence willing to meet MVNOs’ evolving commercial and operational needs.
  5. Cheaper smartphones and tablets offering MVNOs new growth opportunities, though with an impact on both wholesale data costs and in the UK context subsidisation.

Where are the major opportunities in the MVNO market?

Enterprises are now beginning to invest in dedicated mobile phones for their employees despite the advent of Bring Your Own Devices (BYOD). Security concerns and the need to control company sensitive information means that for IT managers there is value in controlling your own devices.

Prompted by these security concerns, FMC and the unified communications upsurge, businesses are increasingly seeking providers who can provide a complete single source service at a lower cost. For the channel this can mean exploring existing partner agreements and supply-chain relationships, and diversifying to unlock new revenue streams.

And in the retail channel an enormous challenge exists in the form of PAYG, especially if thin or poor credit history issues can be overcome. With over a million customers estimated to be rejected every year having failed mobile operators’ credit checks, MVNO operators have been pinpointed as best placed to expand into this market and exploit new revenue streams, potentially rebuilding customers’ credit history in the process.