The continual evolution of the telecoms market brings a never-ending series of challenges. From the economic through technological to legal structure, the telecoms industry makes constant demands.
But for every challenge the market presents, there are numerous opportunities. However, in my experience, MVNOs sometimes hesitate to seize the day because of the perceived barriers to entry or growth. On the contrary, the challenges are the very things they can capitalise on.
In this blog, I’ll explore the seven most pressing concerns for telecoms and introduce ways MVNOs can gain an advantage. For those attending the webinar ‘The MVNO challenges are real, but so are the opportunities,’ on 24 Oct 2024, it provides an essential pre-read.
Challenge #1 - Telecoms is a utility product.
Avoid being a dumb pipe. It’s one of the most perpetual agenda items for operator boardrooms: how to avoid the commoditisation of telecoms and the limited differentiation that comes with it.
This concern is real. There’s no question that all-you-can-eat tariffs have eroded margin and innovation. However, once you accept that telecoms, particularly data, are a commodity, you can take a different view of the market.
This is especially true for brands for which telecoms are not their only source of revenue. UK MVNO, Utility Warehouse, is a prime example of a firm structuring propositions around bundling and discounts. The more ‘utility’ services you buy — gas, electric, fixed line, broadband and mobile — the ‘cheaper’ it becomes. Not to mention simple.
Revolut has been quick to look at how data roaming can be a revenue stream for its business and a reward for loyal banking customers.
In essence, Revolut has seen data as a commodity and essential for travel today. What’s more, data is something people expect to be able to make a saving on if they are savvy about their purchase decision. As such, Revolut has recognised it’s the perfect vehicle for rewarding loyalty to its core products.
It’s a model that can translate to other industries like retail, where the loyalty card and the perks that come with it are king for many consumers.
Challenge #2 - Changing consumer trends and digitisation.
What constitutes a celebrity today? Today, Gen Z finds its latest sensation on TikTok. Not long ago, it would have been Instagram and, before that, Facebook. Brands must continually evaluate where the heroes will be found and ensure they are keeping pace with the platforms of today and tomorrow. They must repeatedly and consistently innovate in terms of how they deliver offers to customers and the channels they use to deliver them.
For MVNOs, there’s some good news in this new battle for consumers. And it lies in their own relative youth.
In general, mobile network operators have dated systems and large amounts of technical debt, which makes keeping up with changing trends, and the overall digitisation of the customer offer more challenging.
In contrast, MVNOs are often using newer and more cloud-based, agile systems, with the capability to react rapidly to new trends and innovate on proposition and customer experience. It makes it very easy to pick and choose the services and propositions that global providers have developed elsewhere in the world. This lift and shift model gives MVNOs an enviable speed-to-market advantage.
Indeed, it’s this ‘lift and shift’ strategy that has prompted incumbent mobile operators to launch their own sub-brands. By using a different tech stack, they remain relevant and competitive to target segments they could never have reached if they stuck with legacy systems.
Challenge #3 - Roaming revenues are squeezed.
Historically, roaming was a high-margin product for operators. Today, it’s a different story. Margins have been eroded, largely through legislation, but more recently, by the significant number of travel e-SIM solutions.
In effect, hybrid MVNOs are giving travellers, both consumer and business, a much cheaper alternative to roaming. It taps into the consumer behaviours that are more dominant today, by which I mean, our reliance on data and relatively low to no use of voice and SMS. I can use apps like WhatsApp, Facetime, Teams and Slack anywhere, without the need for a GSM number. So why would I want the traditional roaming offer?
For MVNOs, several opportunities arise from this new mentality. The first is to enhance their propositions and include a travel eSIM offer. The second is to embrace eSIM, noting that operators have not fully committed to doing this yet due to concerns about how easy it is for customers to swap.
And finally, the third is to offer up the MVNO IMSI to eSIM providers so that they can capture revenue from inbound visitors that were never a source of value in the past. We’re talking scenarios where they offer their own local SIM on platforms like Airalo.
Challenge #4 - The rise of SIM only.
It’s widely accepted that the model of selling 24-month contracts linked to handsets no longer works. Handset renewal lifecycles have extended significantly, breaking the accepted wisdom of ‘new hardware, new contract.’ Consumers are not afraid to go SIM-only. It’s a market where MVNOs have always played and offered significant value.
When you look at the consumer market, it’s the more widespread change in behaviour to buy second-hand, hand down phones to family members, or simply keep phones for longer that is driving the SIM-only category. And there’s plenty of analysis that shows MVNOs are winning disproportionately from it.
But when you add eSIM into the equation, another step change is possible. With the better value plans MVNOs tend to offer, the minutes it takes to switch on a new eSIM, plus the neat digital experience MVNOs can deliver, it seems mad to even consider a contract these days.
Challenge #5 - Business customers are waking up.
Nobody ever got sacked for buying IBM, so they say. And the same is true for buying mobile from Vodafone, Telefonica, Orange, Verizon…
Stability and reliability have universal appeal to SOHOs through to multi-national enterprises and public sector organisations. IT managers will go with the established and the known.
But times are changing. Whereas in the past, you might argue that only consumers would take a ‘punt’ on an MVNO, now businesses are willing to add them to the list of considered suppliers.
Why? It comes down to people. All business phone users are also consumers and as such, they expect that the ease of use and digital flexibility they experience at home should apply to their work life.
Once again, operator technical debt makes it challenging to deliver on expectations. It’s opening the door for digital MVNOs, who are starting up specifically to serve this market or expanding their offering to include it. There is, therefore, huge opportunity for growth for any MVNO that invests in the capability to offer not just mobile connectivity but the account hierarchies, enhanced care, assistance with bulk migrations, security, UCaaS and much more that businesses want and expect.
Challenge #6 - Network evolution.
Building and owning a mobile network infrastructure is expensive. We only need to look at the operator consolidation across Europe to see that. The costs of building out infrastructure are often cited as a reason for merger. And as more standards are rolled out (4G, 5G, 6G and so on), the costs rack up.
MVNOs can be clear winners of this onerous overhead. Firstly, by their virtual nature, they don’t have network infrastructure. And though they have wholesale costs to manage, it’s largely driven by customer consumption and so directly linked to revenues. Whereas, network build-out is a long-term investment with a long wait to deliver the business case.
Shortening the ROI cycle is, therefore, a must and brings us to the second point — with all that network cost, operators are keen to fill capacity and monetise the asset they have developed.
And finally, if operators merge, the regulatory solution normally includes MVNOs in some shape or form. Everything from additional MVNOs and a more MVNO-friendly environment to gifting spectrum and allowing national roaming are solutions we’ve seen worldwide. It gives MVNOs routes to abandoning their virtual status and becoming full operators.
But it’s not just the MVNOs that win here. Suppose operators adopt a wholesale-friendly perspective and even implement their own MVNE or MVNO. In that case, there are wholesale margins to support the infrastructure development and allow the MNO to broaden its appeal beyond the customers and verticals they have traditionally targeted.
Challenge #7 - AI for first mover advantage.
It would be unusual for a technology-focused blog not to reference AI. It is becoming a critical part of how operators innovate, automate, and manage costs. For MVNOs, AI offers a significant opportunity, whilst for operators, it is something they must do but may struggle to do quickly.
In general, AI needs well-structured data and integrated digital technology to deliver benefits fast. It brings us back to the legacy systems that hold back operators. It’s difficult to extract data from their complex systems, let alone put it into a structure that AI can easily read.
MVNOs, on the other hand, have fewer tariffs, newer equipment and, in general, have embraced the cloud and digitisation with more enthusiasm than operators. Their technology providers are well-placed to provide off-the-shelf AI solutions that can be pre-integrated into technology stacks.
The result is that MVNOs can deploy AI services faster, learn lessons quicker and monetise the benefits from AI for their customers and themselves at a far faster rate.
Closing comments.
Now you’ve read the seven challenges, what’s your view? Are they opportunities for you to expand and grow? With a different approach to analysing market trends, multiple avenues present themselves, and all can be lucrative with the right strategy.
Our webinar ‘The MVNO challenges are real, but so are the opportunities’ on 24 Oct 2024 will explore these opportunities in more detail.
With Nick Wooten (MVNO Director, BT Wholesale), Mike Mills (Business Director, Gamma) and Salman Tariq (VP EMEA, Optiva), you’ll be able to hear how MVNOs are succeeding in these new markets, and the role a simplified, unified and digital BSS play in making it happen.
You can learn more about the panel and register and reserve your place <here>.
By James Gray, Managing Director, Graystone Strategy
James has over 30 years’ experience working internationally in telecoms. He’s best known for his experience and expertise in the MVNO sector having held C-level roles in operator wholesale teams, MVNOs and MVNEs. During his career he has launched 15 MVNOs and advised many more on their strategy for growth and turnaround.
For the last ten years he has been Managing Director of Graystone Strategy, a global consultancy, advising MVNOs, sub brands, SaaS providers, regulators and mobile operators on business, commercial and go to market strategy.
James is also trustee and chairperson for Frontline Children, a charity providing education in areas of the world disrupted by war or natural disasters.
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