Mobile virtual network operators fail to shake up the industry
The likes of Virgin Mobile, FNB Connect, Mr Price Mobile and Standard Bank Mobile only contribute about 1.8% of total subscribers
It has been 13 years since the first mobile virtual network operator (MVNO) entered the SA market with much fanfare. More than a decade later the MVNOs, which lease network infrastructure from mobile operators to sell data and voice services, have failed to gain traction and shake up the industry.
The MVNOs — which include Virgin Mobile, FNB Connect, Mr Price Mobile and Standard Bank Mobile — contribute about 1.8% of the total mobile subscribers.
Peter Takaendesa, a portfolio manager with Mergence Investment Managers, said the MVNO sector has largely failed to gain scale in SA. Total MVNO subscribers are still a small part of the total mobile market despite a number of players entering that market over the past decade, he said.
The Competition Commission, which aims to lower data prices and stimulate competition, said on Monday MVNOs have struggled to grow in SA because of unfair pricing for network access from large network operators, among a host of factors.
“As a result, MVNOs are simply not a material feature of the South African market and have remained niche operations designed to provide benefits to support the retention of other customer bases,” the commission said.
MVNOs have been a good segment in their business. Their success has been down to making it simple to run their operations on Cell C’s infrastructure and systemsDouglas Craigie Stevenson, Cell C CEO
The competition authority has ordered mobile network operators to reduce roaming fees, including those of MVNOs.
All the MVNOs piggyback on Cell C’s network, making them the biggest customers of the third-largest network operator.
Of Cell C’s 15.9-million subscribers recorded at the end of its last financial year, 1.9-million are from its MVNO partners.
Cell C CEO Douglas Craigie Stevenson said MVNOs have been a good segment in their business. Their success has been down to making it simple to run their operations on Cell C’s infrastructure and systems, he said.
In 2018, Cell C said it made R486m out of a total R7.8bn for the six months to June from its MVNO customers.
The first MVNO to launch in SA was Virgin Mobile, which entered the market in 2006. At its peak, the network is said to have had close to 500,000 subscribers but this is now estimated at about 200,000, said Steven Ambrose of Strategy Worx.
Virgin Mobile has been surpassed by FNB Connect, which has become the biggest MVNO after launching in 2015.
FNB Connect CEO Len Pienaar said that in an increasingly competitive sector “we needed to differentiate ourselves and be more customer centric than ever before by offering customers an end-to-end solution for both their banking and telco needs”.
He says the local MVNO market still lags more advanced markets, such as Western Europe and the Middle East, where in 2015 MVNOs made up 10%-40% of the market.
The global MVNO market is estimated to be worth about $60.6bn, according to US-based research and consulting firm Grand View Research. It estimates that the market will be worth $94.82bn by 2025, representing a 7.6% compound annual growth rate, driven by growing demand for data services, increasing numbers of mobile users across the globe and increasing internet services such as the cloud, the internet of things and mobile money.
Takaendesa said FNB Connect has “arguably been the most promising MVNO given the strong brand behind it and subsidies meant to retain more banking relationships with customers, but that has also failed to cross a million subscribers four years after launching in 2015”.
He said Telkom Mobile added more than 4-million subscribers in just 12 months to end-March to reach a total of almost 10-million subscribers.
Philip Short, an analyst at Old Mutual, said judging the success of an MVNO operator depends on the company’s strategy and brand.
Such operators are probably not out to dominate the telecom space but rather offer telco products as a value-added service to customers, bundled with banking products, as in the case of FNB. Such services may make it harder for customers to switch to competing banks, he said.
We believe that there is opportunity for more players — like retailers, banks and other companies with large customer bases — to enter the marketLen Pienaar, FNB Connect CEO
For new entrants in the telecom sector, Short said there is no sense in building new towers when the larger players already have it. There is a move towards infrastructure sharing, the best examples being Cell C roaming MTN’s network, with Telkom and data-only network Rain, which both roam on Vodacom’s network.
On branding, Short said Mr Price Mobile offers affordable cellphone deals and prices on its network that fit in with its core brand. As FNB has been a technology-focused bank, it makes sense to have a network as part of their offering, he added.
Clothing retailer Mr Price, which launched Mr Price Mobile in 2014, said in its latest annual financial results that its cellular and mobile revenue grew 62.1% to R677m. It did not say how many subscribers it has.
Pienaar said MVNOs in SA have the chance to capture their fair share of the market. “We believe that there is opportunity for more players — like retailers, banks and other companies with large customer bases — to enter the market,” he said.
Critical success factors need to be in place, Pienaar said. These include favourable agreements with a network host, access to a specific customer base, branding, marketing and innovation, and the ability to grow the business in the highly competitive market.
Pienaar said newer entrants and those who don’t own the customer relationship will mostly experience consolidation with more established players including mobile network operators.
Takaendesa said most MVNOs will fail and the market will consolidate over the next five to 10 years as “returns on investment continue to come under pressure”.