Just a few years ago MVNO launches came thick and fast, heralding a brave new world of cut-price tariffs, niche marketing, and innovative products.
MVNAs were at the forefront of this revolution, joining forces with mobile operators to set up MVNOs that could tap into hard- to-reach market segments ranging from cash-strapped students, ethnic communities, football supporters and animal lovers to charity fundraisers, the grey market and bargain hunters.
But over the past 18 months the flow of MVNO launches in the UK has slowed to a virtual standstill with some MVNOs and aggregators falling by the wayside. This year alone has seen ad-funded MVNO Ovivo collapse, the demise of MVNA Viacloud, after its Bahrani backers pulled out, and staff cuts at MVNA Cognatel after its network partner Vodafone decided to focus on larger MVNOs. So what is driving this slowdown in the UK’s MVNO market?
Frankie Spagnolo, founder and director at the International MVNO Association (iMVNOx) says operators have fundamentally shifted their focus in a way that has impacted both large and small MVNOs.
‘Both MVNAs and MVNOs in the UK market – even the ones supported by big networks – have seen rapid change in the support from their host MNO, leaving MVNOs and aggregators across the UK closing their doors or shifting their business models,’ she says, adding: ‘The sad fact is that once the carrier support goes so does the support from big money, big brands, and big distribution.’
The MVNO market has also been hit by the same forces that brought down Phones 4u, according to John Strand, CEO of Strand Consulting.
‘By not keeping Phones 4u alive, the operators have sent a strong message to the mobile market that the future of the UK market is no longer based on dealers and middle men. The future of this industry no longer includes high dealer commissions and heavily subsidised phones,’ Strand argues.
He adds: ‘If MVNOs are to thrive they must find a way of adding value in a cost-effective way or they will be out of business.’
Dario Talmesio, principal analyst at Ovum, echoes this view, pointing to Vodafone’s change of strategy with MVNA partner Cognatel earlier this year as evidence of a sea change in the industry.
He says: ‘Operators’ appetites for any kind of MVNOs have reduced over the years, unless those MVNOs are really strong and carry a lot of value and revenue potential. That is driven by the market delivering fewer margins, which means operators become less happy about sacrificing their own margins.’
Talmesio sees falling revenues as a key pressure on MVNOs. He says: ‘We all know what has been happening to mobile pricing – the lower prices fall, the lower the arbitration opportunities and the fewer customers prepared to risk going with an unknown brand. A few years ago consumers would risk signing up to a new brand if it meant saving £30 a month but now, will they do that for a £2 a month saving? Unless MVNOs can offer something really different in this market, they will suffer.’
Tim Stone, MVNO consultant of Graystone Strategy and former Viacloud chief commercial officer, argues that one of the biggest challenges to smaller MVNOs and aggregators is the operators' grip on data pricing. ‘Data is the future but, apart from Three, the operators are very nervous about providing data at a competitive price in the marketplace. MVNAs have to be able to get aggressive data pricing to make a successful MVNO.’ Stone adds: ‘Those MVNAs that only aggregate smaller MVNOs will have difficulty surviving in the current market, unless they also develop a strong relationship with their MNO partners and support them through enablement with some of the upcoming scale MVNOs.’
Level playing field
Chris Burrett, director of critical evaluation and execution at Millennial Mobility, argues for a more level playing field for MVNOs and aggregators. He explains: ‘It would be great to see a truly open wholesale market where the operators’ own brands and their MVNA/O partners all have an opportunity to buy at the same rates.
‘I wonder how many MVNOs on Three’s network can match Three’s 3-2-1 PAYG proposition, and still make money? To be able to offer the same services, such as MMS, 3G, 4G and so on, within reasonable timescales, or be properly supported in offering new services that the MNO can’t, would surely be beneficial for all involved?’
Spagnolo believes MVNOs and their aggregators are caught in the crossfire between operators’ retail and wholesale divisions, each desperate to protect their share of dwindling resources as the impact of EU roaming rules kicks in.
‘2014 has seen the true beginning of the “fall of the roaming empire”,’ she explains. ‘Between this and continued disruption from the OTT players, the retail guys are shaking in their boots. In offices across the UK, retail divisions of each of the major networks have called for far fewer crumbs to be scattered on the wholesale wind and the wholesale guys, well, they very rarely win in these battles.’
So with these forces raging against MVNOs and their aggregator partners, what does the future hold for them?
Talmesio argues that although the market is difficult it is still growing, pointing to Ovum research, which predicts the MVNO share of the UK market to expand from 14% to 18% by 2019.
‘The big guys are driving some of that growth as well as the growth of connected devices, M2M, the arbitration of international roaming, or opportunities as global sim card providers or tapping into SMEs selling mobile and other solutions to their clients. What they need to be is very specialised and very different.’
Spagnolo says MVNOs can adapt but asks at what price?
‘Some of the ethnics have survived by going global such as Lyca or by steadfastly serving their niche audience with simple solutions and excellent customer service such as NowMobile,’ she explains.
‘Virgin and other big brands such as Tesco have hung on tooth and nail, maintaining a solid presence backed by big brand awareness, despite a lack of true influence.’
Chris Burrett spells out a wish list of what he believes the MVNO market needs to succeed, but remains sceptical.
‘I’d like to see an MVNA business model that is more in line with that of the handset and accessory distributors – low margin, high volume, supported by better pricing at certain volume breaks as well as value-adding services. Low set-up costs matched to a realistic expectation of what you can get for you money, and flexible payment terms would both be of significant benefit too.
He adds: ‘I’ve always thought that it would be interesting to see a traditional distributor partner with an MVNE to enable such a model, but it seems unlikely in the UK now that the MNO options appear to be limited.’
Burrett argues that without that change MNOs as well as MVNOs and MVNAs will all be the losers. He explains: ‘It would be truly disappointing, and maybe even short-sighted, if the MNOs are only hunting the “big fish” brands now without supporting their MVNA partners to bring in the smaller fish –smaller fish who could become the next big thing and deliver propositions and services that only far-sighted and flexible entrepreneurs can bring to bear.’