MVNOs are grappling for a piece of the UK mobile market, with familiar faces departing and
new contenders emerging. Financial pressures on mobile networks have increased as margins become thinner, with MVNOs feeling the squeeze as it becomes difficult for operators to obtain a return in investment from virtual networks.
This has led to big names exiting the market, with Sainsbury’s recently ending its joint venture with Vodafone. Smaller brands such as WWF came and left the market quite quickly, owing its departure to the cut-throat nature of wholesale.
‘It is a fiercely competitive market and the main sellers are cutting each other’s throats and our impression was that this was simply the wrong vehicle for fundraising,’ Richard Eaton, head of media relations, explains to Mobile. ‘Some options work and this one did not.’
The financial pressure facing MNOs has led to reluctance when it comes to investing in wholesale. Vodafone believes that an MVNO on its network must deliver the right return in investment for a partnership to be commercially viable.
Vodafone Group CFO Nick Read says: ‘They have to be commercially the right terms and we have to get the right return on the investments that we’ve made on our infrastructure and our spectrum.’ Reed’s comments are echoed by CEO Vittorio Colao, who explains that MVNOs need to be prepared to pay their own way.
‘There needs to be a willingness from the guy who buys capacity to understand there are new investments and a lot of costs they’ll have to participate in,’ he said. ‘It’s a bit too easy to say “I want 4G but I don’t want to pay more”, that’s just the way it works.’
O2 has used a different approach towards the wholesale market, opting to invest in a small number of partners. CEO Ronan Dunne tells Mobile: ‘There’s the large MVNOs of which there are a relatively small number, they’re either large because they have existing bases which may be in the market looking to move, or large because the sponsorship behind them is one that can do things to real scale.
‘We’ve decided to have a small number of partnerships in the wholesale space; it’s Tesco Mobile and Lycamobile, and the two contracts which we have signed but not yet delivered into the market are TalkTalk and Sky.’
Three has taken a different route into the MVNO market, choosing to aggregate players using an MVNE platform model, launching a virtual network enabler – Hue – earlier this year to act as a point of entry for MVNOs wishing to join the network. Three’s late entrance into the mobile market saw it invest heavily in 3G spectrum, giving it a strong data centric network. It has used this to its advantage, bringing to market disruptive MVNOs that can make the most out of data usage on the network, such as free mobile service FreedomPop and Carphone Warehouse’s iD proposition.
New MVNO players
The different conditions in the mobile market have opened up new opportunities for the Post Office, which has launched its own MVNO as the market has shifted towards offering bundled services. Head of telecoms, Geoffrey Smyth explains that as consolidation continues to squeeze the UK MVNO market, this shift will only increase, claiming BT’s takeover of EE will ‘change the dynamic’.
He says: ‘Change is accelerating, and again I think BT’s merger is going to change the dynamic. BT’s bundling strategy with TV to launch BT sport has demonstrated that its primary focus has been in bundles. In the MVNO space you can see unlimited bundles emerging, and customer demand for this will be critical for MVNOs that succeed in a period of consolidation.’
A number of global MVNOs are setting their sights across the pond. New entrants to the market don’t face any regulatory procedure, making the process of setting up an MVNO in the UK more straightforward.
FreedomPop CEO Stephen Stokols explains that the brand is an example of a disruptive business model that uses non-traditional revenue streams to make money: ‘The threat is coming from the fact that we are leveraging new technologies to deliver a truly new and unique business model that takes voice technology and data and says let’s commoditise it further – the thing we charge for is value-added services.
‘In some senses the big carriers in first or second place, and who have a level of complacency, are quite concerned. We figured out how to make free calls and data work – and there’s also a sense of fear with Google launching its Fi MVNO.’
The concept of offering free services also saw Rok Mobile launch its global virtual network in the UK earlier this year. The brand used free music streaming as its USP, with MD Joel Spencer claiming the MVNO will look to break down barriers between the mobile and music industries.
He says: ‘You have a mobile and separate streaming service, and there’s been a technology barrier with the two not quite understanding what each service does. We think the UK mobile market needs a bit of a change and we can provide that by bringing these two worlds together. We can break down the barriers and simplify the process.’
Different business models
Not all new entrants into the wholesale space are looking to enter the mainstream space. Anywhere SIM’s CEO explains that the brand looks to appeal to the portion of the UK population suffering from mobile signal not spots, switching users between three networks depending on which signal in strongest.
Matthew Wright says: ‘Traditional MNOs are very focused on the vast majority; we see ourselves as solving a common problem that a big-enough proportion of the UK experience. In the past it’s been financially difficult to deliver a solution, but now all of the ingredients exist to deliver a competitive proposition. They are arguably niche markets – this isn’t a mainstream proportions – it’s aimed at people who want to make sure that coverage is as small a problem as it can possibly be.’
Another example of a different business model is the one adopted by charity or cause-based MVNOs. These enable users to donate a portion of their top-up allowance, or pay a premium to donate to a cause or charity of their choice.
While charity or cause-based MVNOs have typically struggled to compete in the UK mobile market, the virtual networks have been forced to do things differently from traditional MVNOs, and adopt a unique business model. The People’s Operator believes that claiming success in the charity MVNO space lies in looking at things differently from the rest of the industry.
‘Don’t rush,’ says CEO and co-founder Mark Epstein. ‘A lot of MVNOs have a nice idea but there’s no solid business behind it and that doesn’t help anyone. It doesn’t help the causes or themselves, we see many that come and go in a year and we’ve been around four years.
‘We’ve looked at this in a completely different way to the MVNO industry.
'Our cost per acquisition is £8 and that is very important. If you can keep the cost per acquisition low that’s vital. We’re not sponsoring football teams or sporting events, you don’t see TV ads for us.
‘We analyse the whole market and individual MVNOs don’t have the scale, they need an umbrella brand. Now we’re growing rapidly but it doesn’t come overnight, you’ve got to have all the components in place to succeed well.’
The MVNO operates a virtual network that boosts its customer’s donation to a charity or cause with a percentage of its own profits, and claims that its success in the UK it due to its multi-brand approach.
‘Alone you won’t have enough support to be successful, and with Sainsbury’s, even when your brand is as big as that it won’t work,’ Epstein concludes. ‘With a lot of companies the fundamentals of the business model are flawed; one brand doesn’t have scale to deliver a successful MVNO.’