MNOs and MVNOs: from competition to collaboration to expand the IoT connectivity opportunity - podcast

Principal Analyst, Michele Mackenzie discusses the trend of collaboration between MNOs and MVNOs  for the purpose of expanding the IoT connectivity opportunity. 

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Podcast transcript

Strong competition in the IoT connectivity market is nothing new – enterprises have long had a choice between operators and MVNOs for connectivity contracts. However, operators' attitudes to these competitors appear to be changing. While MVNOs have traditionally occupied the role of competitor (or occasionally, served as an additional route to market), operators are increasingly turning to them as technology and platform partners to deliver their IoT connectivity offering. Although these companies pose a potential threat to mobile operators' IoT businesses, some MVNOs are open to opportunities to collaborate with mobile operators. Some MVNOs may also present operators with investment opportunities (either via acquisition or a stake in the MVNO's business).

In the course of our research, we identified three categories of MVNO. The traditional MVNOs who take a traditional approach and focus on simplifying the connectivity proposition for customers. This category includes companies such as Com4, Transatel and Wireless Logic. Entrants from across the value chain who are established players in other parts of the value chain that have now entered the IoT connectivity market. This category includes Arm and Telit. And the disruptor MVNOs that operate on a fully virtualised, cloud-native core network. This category includes players such as Emnify, Soracom and Telna.

Each category of player has its own strengths and weaknesses and could potentially pose a threat to established operators' IoT businesses. For example, the SoftBank Group has provided Arm with the freedom and financial means to rapidly expand its IoT offering to include connectivity and connectivity management. Telit is also building on its strengths in hardware and its existing customer base to expand into new areas of the value chain. Traditional MVNOs are not standing still; Wireless Logic, for example, is also growing through acquisition and entering new geographies following its acquisition by Montagu Private Equity in 2018.

At MWC 2019 we discussed a shift towards partnerships and collaboration between mobile operators and MVNOs. Our recent research supports this observation. Certain MVNOs, typically those that are newer entrants, have built a cloud-native approach to providing core network functionality. For example, EMnify, Soracom and Telna have all built virtualised core networks on AWS, with connectivity management and other functionality on top. A virtualised platform could potentially facilitate significant cost efficiencies and a scalable solution as the IoT market grows. Moreover, some MVNOs are enhancing their connectivity offering with software services and now boast differentiated technical propositions or capabilities with which operators could struggle to compete. This has resulted in some operators exploring partnerships or even acquisition opportunities with MVNOs. For example. KDDI acquired Soracom in 2017. Soracom provided KDDI with the B2B IoT business platform to complement its B2C offering, as well as a differentiated platform. Deutsche Telekom will be using 1NCE's platform to support its connectivity offering for some applications (typically lower ARPC applications) and NTT acquired a majority stake in Transatel in 2019 to fulfil its ambitions to become a global provider of IoT solutions.

We are also aware of several other partnerships that are not in the public domain. One of the consequences of this shift towards collaboration is that some MVNOs now compete with vendors such as Nokia WING for operator attention.

If managed well, investment from operators will provide the financial resources and stability to enable MVNOs to further develop their platforms and expand their geographical presence. For example, Soracom remains a separate business unit with its own P+L but benefits from KDDI's financial might. Soracom now manages its own IoT fund to invest in IoT start-ups and is an investor in Unabiz, a Sigfox network operator. A relationship such as this with an MVNO means that the operator can leverage the MVNO's innovative technology approaches to serve demand for global IoT connectivity, a service which is complex, costly to build internally and represents a different technological approach to operators' traditional systems. In the legacy smartphone business, MVNOs have provided a new route to market for operators, mainly supported by operators' technology assets. In the IoT market, many MVNOs have built their own platforms to support global IoT connectivity and benefit from recent technological innovation. This differentiated approach will become more important as the high-volume, low ARPC LPWA market develops and will likely pave the way for further collaboration and partnership between MNOs and MVNOs.

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Article: MNOs and MVNOs: from competition to collaboration to expand the IoT connectivity opportunity