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The MVNO balancing act An increasing number of MVNOs are falling by the wayside, and operators are pulling away from the sector. So how stable is the market? Kate O’Flaherty

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he MVNO market is suffering multiple casualties. Five have fallen by the wayside over the past year, including the Sainsbury’s MVNO and the Post Office’s mobile offering. Because they are dependent on the networks, MVNOs often struggle to maintain the margins needed to survive in the competitive mobile market. At the same time, the operators do not always make it easy for new entrants, who in reality are their competitors and useful to serve only a minority of low-

spending customers. It is therefore no surprise that the networks are seemingly starting to pull away from this market. Vodafone has voiced concerns over the quality of offerings from MVNOs, while O2 is focusing on big brands such as the recent deal with Sky, its joint venture with Tesco Mobile, and its own MVNO, GiffGaff. Meanwhile, for EE, larger MVNOs such as Virgin Mobile and a bolstered offering from BT are a priority. This leaves Three as the only mobile operator actively looking to add MVNOs as part of its strategy to grow its customer base.

Yet just 10 years ago, the market looked very different. Multiple new entrants were emerging, and it seemed there was space for just about any brand to grab a share of the industry. So what happened? Partly, there was an expected consolidation as the market began to mature. Therefore, MVNOs are not necessarily an ‘unstable’ industry. In fact, MVNOs make up around 13% of the mobile market, comprising ‘a decent chunk’, says Kester Mann, analyst at CCS Insight. ‘A large amount of that is Tesco and Virgin – but overall it is still a big representation of the market.

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MVNO stability Taking this into account, it is difficult to see how the MVNO market will change dramatically in the coming years. According to Declan Lonergan, analyst at 451 Research: ‘It’s hard to see operators having a commercial interest in handing off more spectrum to MVNOs.’ He explains: ‘If you go back, the model was the shake up of the industry; the market was growing strongly. But over the past few years, the share of the market doesn’t feel like it’s moving. The host networks have had a gatekeeper position and, despite the best efforts of regulators and end users, it feels like the operators are in control.’ This is because operators tend to look at MVNOs as a distribution outlet, Lonergan says. ‘It makes sense to hand over to the MVNO to manage some of the low ARPU customers; then the operator still gets the wholesale revenue. Operators see there is 5% or so of their base that can be well served in this way.’ Operators do not release the commercial deals, but the classic model sees the MVNO buy wholesale minutes, texts and data at an agreed rate. ‘Then the MVNO hopes they can build a customer base to build a margin – and margins aren’t great so it December 2016

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Mobile December 2016