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A Saturated Retail MVNO Market

MVNO Market Review

In my chosen profession I tend to work on a variety of different projects at any given time that invariably span different industries and operational functions.  As a result, for each project I take some time to review the state of the industry I’m working in to get a current understanding of how my efforts will fit within the larger scope and direction the market is taking.

One of my recent projects was in the mobile industry; specifically the retail MVNO consumer market.  Having worked for an MVNE for many years I already had a good idea of how the MVNO landscape would appear and after speaking with several service providers and personal contacts those assumptions were confirmed.  The market has become even more consolidated and commoditized than the last time I looked.

There are many factors involved of course.  The merger of T-Mobile and Sprint has had/will have an impact on how the major operators consider their wholesale business.  Consumers have become well accustomed to wireless technologies and now consider mobile telecommunications a utility service.  Major carriers are acquiring well established MVNO partners; bringing the niche even closer to their core operations and tightening the reins on the limited service scope within their wholesale channels.

With the exception of emerging markets in economically challenged countries, there is not a lot of room for a new MVNO to play, let alone cause a disruption.  And for an established MVNO, the market continues to shrink as retail service plans from the underlying carriers become cheaper…overshadowing the benefits the majority of MVNOs provide to their consumers.

So for those of us who enjoy a challenge, the question becomes “Can a new MVNO gain traction and thrive within this saturated and well-controlled market?”.

The Wholesale Channel

To better understand the obstacles a new MVNO might face, having a background on how the MNO wholesale business works is necessary.

The wholesale relationship between the MNO and the MVNO is a strange one to be sure.  The MVNO is more like a vendor or third-party service provider than a client of the MNO.  A distributor model might be a closer representation, but in my experience the controls put in place by the MNO are much more restrictive.

Ultimately, the goal of the MNO wholesale channel is to bring additional revenue into the carrier, but not at the expense of the core, retail business.  This is where the conflict begins.  In other models, the distribution channel is the primary mechanism for bringing core products and services to market, but in the mobile world it is intended to cover just the areas of the market the MNO is not interested in pursuing at a retail level.

Each MNO also has a different approach to their wholesale business and willingness to support new endeavors.  Having a solid marketing plan in place is definitely a plus to help convince participation, but in the end, the ability to commit too and deliver upon healthy revenue numbers within a controllable time frame is what the wholesale channel is looking for.

Given the number of established MVNOs in place in the United States (I found over 50 active organizations from just a few simple Google searches), the relationship management and strategic planning overhead to manage the impact of all of these organizations on an MNO’s retail operations is considerable.

Wanting to deal with another MVNO must have a significant upside for the MNO or why would they bother…

The Current MVNO Landscape

The 53 MVNOs I reviewed were a mix of predominantly retail consumer postpaid, prepaid and lifeline (government subsidized) providers; with the majority in the retail postpaid market.  As an aside, for unlimited plans without overage fees there isn’t much difference between postpaid and prepaid operationally.

It became clear very quickly which MVNOs were actively operating/investing in their businesses and which ones were coasting.  Purely speculative on my part, but product catalog depth, current trending prices, an obvious Google Ads presence and current reviews tend to indicate growth and activity. Roughly 20% of the providers I reviewed do not appear to be actively engaged or have very limited interaction online.

The same percentage applies to perceived marketing budget spend for the smaller MVNOs, approximately 57% fall into the mid-range for marketing efforts and the remaining 23% appear to show the largest or most successful marketing programs. 

70% of mobile virtual providers function with only one underlying carrier. 21% have acquired multiple supporting operators with only 9% having obtained support from all the major MNOs.

As expected, the marketing approach for almost all MVNOs is oriented towards the “budget conscious” demographic…to the point some providers are not even bothering to present a “Why Us” message, just a simple “Here’s Our Plans and Rates” statement.  Besides the budget messaging, several providers have implemented additional marketing programs to woo customers.  Some of these schemes include charity and activism initiatives, referral and rewards programs and “pay back” credits.

The number of MVNOs owned directly or indirectly by an MNO was about 15% with some of the recent acquisitions creating a scenario where the MNO ultimately holds wholesale agreements with their competitors.

From a mobile services perspective, 89% provide both mobile telecommunications services and offer mobile phones for sale.  Seven of the operators offer only mobile telecommunication services along with bring your own device (BYOD).  34% offered some form of device beyond smart phones; including tablets, hotspots or wearables.  And roughly 20% sold accessories and/or offered phone warranties.  Only two providers had any form of VAS (value added services) beyond basic mobile telecommunications (at least well advertised).

For monthly or prepaid plans:

  • 70% offer an unlimited talk, text and data plan of some variety.
  • 21% have plans with unlimited talk and text, but metered data.
  • 19% focus on the “pay per use” model.
  • 36% offer a family plan or shared data plan across multiple service lines.
 
Rates are across the board in a myriad of feature and service bundle combinations oriented towards the targeted demographics of each provider.  Concepts range from simple one or two plan options that work for both individual and family plans to complex solutions that get better with higher usage and commitments, but are also more difficult for consumers to understand.
 

Being Heard Over All The Noise

Starting a new retail MVNO with all of the competition and noise gravitating around “Our service is better and cheaper” is next to impossible, in my opinion, if the targeted demographic will simply be the budget conscious consumer.

There must be a compelling reason for a consumer to switch service providers and with wholesale rates driven primarily by volume these days it is very difficult to obtain competitive rates without either a very large, existing consumer base for affinity marketing or the confidence to commit contractually to significant revenue terms in order to try something new.

Regardless, to rise above the din and stand apart from the others will require a message and value proposal that probably doesn’t include mobile services as the lead story.

Is A New Retail MVNO Still Possible?

After digging through all of these different retail MVNO providers it is apparent the mainstream players have all concluded the wholesale market is strictly a budget business and there is no longer a need to differentiate by much more than a gimmick here and there…mainly it’s all about price and how to finagle service plans to give the best appearance of value to the various consumer demographics within the MVNO market.

Does this mean the traditional mobile telecommunication services market for retail consumers is stagnated?  Perhaps, given the size and marketing clout of these MVNOs they certainly warrant respect and a clear understanding of their market, but there are several areas that might still have some potential.

Since mobile voice, messaging and data services are considered or will soon be perceived by consumers in the same space as land line and fiber data utilities, it makes sense that these services are bundled together to form a general communications package…think Charter Communications and Spectrum Mobile.  LECs and local ISPs might find traction in retail mobile with a properly sized and motivated consumer base.

Another consideration is the boring nature of the MVNO market today.  All of these mobile providers could be perceived as the same company…the websites all look about the same, the services are the same, the message is the same, and the value proposition is basically the same.  For the right kind of marketer, this could be a favorable time to try something fun or outside the mainstream approach.

And finally, it seems logical for the MVNOs to mimic the retail carriers as much as possible, so why are there so few offering value added services like Netflix, Disney or other streaming subscriptions?  Margins in this business are thin to be sure, but offering this type of adjunct value not only gives the perception of being in the same league as the major carriers, it also helps reduce acquisition costs and strengthens consumer loyalty in a well-established, budget conscious market.

So You Want To Give It A Try

If you have done your research and feel this is a market in which you will make an impact, one of the first places to start is with your marketing plan and expected forecasting model.  Once that is in place you will want to devise a high level P&L to determine the kind of wholesale rates you will need in order to achieve your marketing goals.

One exercise that I do when considering a new venture is to create a business plan using a competitor’s retail rates and project what the competitor must have negotiated at wholesale given what I believe their variable, fixed and capitalized costs will be to run the business.

This approach requires having some understanding of the industry and operational processes of the business you are modeling (along with at least general business administration knowledge and vendor costs) and of course the scale of the endeavor will influence the complexity, but given the information available on the Internet, within a reasonable amount of time most operations can at least be roughed in for budgeting and negotiation purposes.

Using my MVNO business plan, I plug in the retail plan prices and what I believe other variable costs will be and then adjust the wholesale rates to reach 20-30% gross profit by month 12.  After plugging in staff resources, setup fees and other capitalized costs you will get a sense of how the business will perform if you are able to negotiate similar wholesale rates.  This exercise will at least give you a place to start with an MVNE or MNO.

The summarized example below is a simple retail MVNO offering one unlimited plan at a retail $65 MRR with a conservative ramp of new subscribers per month, an expected churn of 20% and a per subscriber acquisition cost of $30.  

There are many different wholesale rate plans, but for this example we will use a simple direct plan agreement…essentially unlimited talk, text and data are included in our wholesale plan so we will not need to worry about breakage or calculating overages for subscriber billing.  To achieve a 10% net profit return by month 12, for this model, required a wholesale plan rate of $39 MRC.

Other variable costs to consider include customer care, OSS/BSS systems, taxation solutions, carrier commitments, hosting fees, order provisioning/fulfillment/shipping fees and SIM card packaging.

MVNO Business Plan Summary

I highly recommend working on a detailed P&L projection before starting negotiations with an MVNE or MNO.  Not only will this effort help frame in the initial work and capital requirements for the project, it defines a defensible position to argue your case for better rates.

Final Thoughts and Perspective

Even though the retail consumer MVNO market is saturated with many competitors, there may still be opportunities for existing providers to expand their reach and for new ventures to carve out a piece of the “still quite large” wholesale consumer market.

Given these challenges though, it is clear why the majority of new MVNO startups are focused on data only, Internet of Things initiatives rather than traditional mobile telecommunication services.

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