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Is there a glass ceiling for MVNOs?

The decision to launch an MVNO should be founded on solid analysis and consideration of opportunities and business aims.

There is consensus within the MVNO world that their market will continue to grow, even in mature markets. This was evidenced by the show of hands when this question was posed at this year’s MVNOs Industry Summit in Barcelona. And whilst this could be seen as a self-selecting audience, one only needs to look to new announcements of licences and agreements to see that there remains solid optimism in the market.

However, it strikes me that this assumption should be challenged in the light of historical trends. Whilst the MVNO market share in mature markets such as France and Germany appears to be continuing on its upward trend (see Figure 1), these seem to be the exceptions and not the rule. In many parts of Scandinavia the MVNO market share has been falling in recent years; for example, Denmark (4.2% from a peak of 10.9%), Finland (2.1% from a peak of 11.7%) and Sweden (0.4% from a peak of 3%).

Figure 1: MVNO market share of subscribers by country [Source: Analysys Mason, Telecoms Market Matrix, Q4 2010]

Figure 1: MVNO market share of subscribers by country [Source: Analysys Mason, Telecoms Market Matrix, Q4 2010]

Whilst some of these trends have admittedly been driven by market consolidation, they suggest that, at least in some markets, the upper threshold of the MVNO market share has been found.

Where is this expected growth going to come from?

We have identified two potential sources of MVNO growth – hardware/device companies offering data services and high street retail stores. Both approaches face specific challenges, which are outlined below.
Manufacturers and vendors are increasingly interested in building a direct relationship with end users. Apple famously built an aggressive revenue share partnership with mobile operators. More recently, Vodafone UK has been keen to eulogise on its recent partnership with Amazon to provide wholesale data for Kindle devices. In addition, data SIMs embedded in laptops and tablets are the norm and there are rumours of MVNO development by Dell (one is currently live in Japan), Sony and Intel. Differentiation and competitive, tailored pricing will be central to the success of these ventures.

However, the pricing of mobile broadband is relatively straightforward with little room for differentiation. Whilst in most mature markets host operators will negotiate reasonable wholesale data contracts, it would be highly unusual to find that an MVNO was able to offer lower retail prices for mobile broadband than the host operator, particularly for higher data users. This only leaves billing flexibility and customer services as MVNO differentiators, which may be appropriate for an ISP, for example. However, in many cases, the MVNO model may not appear appropriate. The likes of Dell, Sony and Intel may struggle to replicate the unique success of Amazon’s content-based pricing (hiding the mobile data fees) or Apple’s revenue-sharing approach.

Turning to the second potential growth area, many mobile users now carry several SIMs, maybe including a SIM from an ethnic MVNO, providing low-cost calls to numbers abroad. This suggests that if a retail store introduces an MVNO offer, this could be adopted as one of many SIM cards used predominantly to benefit from in-store discounts and offers. Whether a high street store MVNO would provide sufficient additional revenue in terms of sales or savings on marketing to justify the creation of an MVNO has yet to be seen, but it is undoubtedly a model that will be tested in future.

Fundamentally, the message for the market is that whilst MVNO market share in mature markets may continue to grow beyond the perceived glass ceiling, a carefully considered approach will be required to succeed.