In the UK there is no shortage of network suppliers to choose from, the most popular being O2, Vodafone, EE and Three, otherwise known as the ‘big four’ operators.
While these MNOs (mobile network operator) are often the most talked about, it is the MVNO (mobile virtual network operators) market that is emerging as a popular alternative for consumers.
In terms of quantifying this, CCS Insight statistics reveal there were 11.9 million MVNO customers in 2017, which has grown from 10.1 million in 2014.
In the same period MNO connections have gone down from 75 million in 2014 to 72.8 million last year.While MVNOs make up around 15 per cent of the market, the growth is evident. But is it likely to continue
Awareness
What has allowed the MVNO market to flourish? Customer awareness of other options other than the mainstream is one of the key factors, according to the players in this market.
iD Mobile managing director Adam Dunlop has overseen success at the MVNO that operates under the umbrella of Carphone Warehouse since it was founded in 2015 and believes the market has grown due to a strong emphasis on overcoming customers’ frustrations.
Dunlop said: “Consumers expect great value as standard when they buy any product. This means a competitive price, excellent service and simplicity of offer.
“MVNOs such as iD are able to offer all these things and, as awareness of what we do has grown, customers have increasingly turned to us to meet their needs.”
The success of iD Mobile has been built around customers having control of flexibility and data and this MVNO now has more than 800,000 connections, with ambitions to get to a million within the next 12 months.
SMARTY is the sub-brand MVNO of Three launched in August last year. SMARTY general manager Elin Mclean agrees that MVNOs address the frustrations of consumers.
“We see a significant opportunity to address customer frustrations with our simple and honest proposition.“Often it is the smaller organisations like SMARTY that have the agility to deliver highly targeted and relevant offers to solve specific customer needs.
That is why we are seeing growth.“SMARTY recognised that consumers were seeking simple and honest pricing – it’s one of the reasons why we developed our unique offer that gives customers money off their next phone bill for their unused data.”
According to Virgin Mobile managing director Jeff Dodds, customers now understand the benefits of shopping around and looking at different options to MNOs.
Dodds said: “The growth of MVNO providers in the UK has increased awareness of options beyond the MNOs and as more people experience the service provided by them, advocacy for providers outside of the MNOs increases.”
Success
The landscape in the smartphone world has also influenced the emergence of MVNOs into the market, in the view of analysts. A slowdown in smartphone sales and consumers opting to keep hold of handsets for longer are key reasons for MVNOs enjoying success.
GfK director of technology Imran Choudhary said: “We’ve seen a general stagnation in handsets and people keeping them longer – this is telling us consumers want to save money.”
Counterpoint research director Peter Richardson believes increased prices for smartphones has influenced the growth.
“The very high cost of buying the latest smartphones is also causing people to seek out alternative ways of buying and consumers are increasingly aware that MVNOs offer attractive rates for voice and data.”
On the other hand CCS Insights principle analyst Kester Mann believes MVNOs have “moved on from just selling cheap data and voice data and messages” while uSwitch head of commercial communications Ernest Doku says MVNOs are “niche”.
“The ability of an MVNO to carve out a niche that serves a demographic and enables a consumer to enjoy unique benefits is becoming the reason for switching, rather than a beneficial side effect,” said Doku.
Innovative
To stay relevant and successful in the market, MVNOs need to continue being innovative and keep customers interested in their propositions.
Innovation is a huge part of that and a key reason for a surge in connections, something iD Mobile has done in the past. In 2016, iD Mobile became the first MVNO to provide free data rollover, followed by data cushion – the first ever back-up pot – in 2017. As recently as January, it became the first MVNO to launch WiFi calling.
Dunlop cites increased competition as a reason why iD Mobile is so innovative.
“The brands that have since launched their own MVNOs drive us to be more innovative and keep ahead of the market and offer even better value for money.”
Dodds agrees: “MVNOs are able to focus on identifying unique selling points and on creating innovative propositions, while still offering access to a familiar network.”
Mann also agrees that innovation is essential and cites this as something that has driven customers towards MVNOs. Doku, instead, believes the decoupling of handsets has played a vital role in the growth and in attracting consumers to opt for an MVNO on a SIM-only contract instead.
GfK statistics revealed MVNOs hold almost one in three SIM-only main connections. “The decoupling of device and tariff has been a huge determinant in this move.
“Mobile users reaching the end of traditional contracts and wanting freedom of shorter contracts – or indeed none at all – and significantly reduced bills by switching has really changed the outlook of the UK market,” says Doku.
Richardson agrees: “Consumers are realising they don’t need to buy phones tied with service contracts and that buying a phone separately or even using a refurbished phone offers a better way to manage costs over the longer term.”
Impact
The impact of the MNOs’ role in the emergence of MVNOs shouldn’t be overlooked, however, and one that has been very active in this space is Three.
Three has iD Mobile, SMARTY, Gamma and now Superdrug as its MVNOs, and Three CEO Dave Dyson told Mobile News he believes the MVNOs work well for the network without overlapping.
“The MVNOs complement each other and don’t overlap. What we don’t want is competing brands, but if we do find brands that are complementary then we can really back them and make them as good as we can.”
The latest addition to Three’s MVNO portfolio is high-street health and beauty retailer Superdrug, where only members holding the Superdrug Health and Beautycard will be able to sign up for the service.
Dyson said Three chose Superdrug as a way of building on the loyalty scheme which already exists.“The opportunity we saw in Superdrug was to create a proposition that was differentiated and not just a standard MVNO offer and it contributes to the loyalty scheme that is already in place.”
Three director of wholesale Lynda Burton believes the loyalty aspect of the offer makes Superdrug Mobile a unique MVNO in that sense.“Superdrug Mobile has partnered with Three to deliver a proposition built around rewarding its most loyal customers.
Delivering this compelling customer proposition is a unique partnership between Three wholesale and Superdrug.” While a relatively new player in the MVNO market after joining in June, Superdrug Mobile has the potential to build a sizeable amount of connections, with an estimated 13 million Health and Beautycard members.
Superdrug commercial director Simon Comins doesn’t give an exact total but refers to the membership figures and expects it to be a “popular” service with customers.
“We anticipate the service will be popular with our customers, especially those that are at the end of their contracts and are shopping around for the best deals.“We have more than 13 million Health and Beautycard members and envisage many of these – especially our most loyal customers – will see the benefits of moving to Superdrug Mobile.”
Influenced
It is not just the MNOs that have influenced he rise of MVNOs however, as the quad- play market has also heavily contributed. The converged offering of broadband and mobile in particular has proved a convenient proposition for consumers.
Virgin Mobile and Sky Mobile are two of the biggest MVNOs in the UK, with Virgin becoming the first MVNO in 1999.Dodds believes the role these players will have is key to the future of MVNOs. Virgin currently has 3.1 million mobile customers in the UK – about a quarter of the entire MVNO market.
“Quadplay and convergence will definitely be a key factor for MVNOs as the lines between fixed and mobile connectivity are blurring; for example, consumers now expect to be able to consume content in and out of the home without disruption,” says Dodds.
The customer experience is particularly important according to Dodds, who says this can generate customers to expand their relationship with providers such as Virgin.
“MVNOs in the UK and the reason for their appeal will differ from one customer to another. In some cases it will be linked to customer experience with the brand – such as the case with Virgin Mobile where a great experience with Virgin Media, we believe, will encourage a customer to expand their relationship and try more products.”
Doku also believes the MVNO market has benefited from the quadplay focus into mobile. “The eagerness for broadband providers to expand into quadplay has seen all of the key players offer a mobile solution. BT, Sky and Virgin have all seen their products evolve and diverge over time from rudimentary to complimentary products for their respective bases.”
Choudhary agrees the opportunities for the converged players is ample and with high customer numbers gives these businesses a wide net.
He said: “There has been a trend where we’re seeing traditional home service providers moving into the mobile market. There is a huge pool of consumers that are provided with TV and internet and now there is an immediate opportunity to leverage a mobile offer to them.”
Mann, on the other hand, is waiting to see more from Sky Mobile in this space and believes Sky can make a “big noise” in this market but doesn’t see a huge focus currently.
Regulation
The role regulation has played in allowing MVNOs to flourish has also contributed to the rise in numbers. Dodds believes the regulation in place currently is good for consumers and for the UK mobile market as it is fair and has consumers’ best interests at heart.
Dodds said: “The upcoming changes to capping contract spend means customers will soon have greater clarity on their monthly bill spend and the planned changes to switching will remove some of the perceived barriers to changing provider, meaning more consumers can get a better deal.”
According to Choudhary the regulation has been positive for the MVNOs and helped them to grow into the market. “There has been good regulation and governance by the regulatory body to ensure MVNOs can enter quite easily. Regulators are fair for consumers, but innovation had driven the growth from the providers offering MVNO and they are the ones responsible for the uptake.”
Richardson agrees: “The regulations has set the conditions for the MVNOs to emerge by mandating wholesale tariffs.”
Saturated
With an ever-emerging MVNO presence there could be an argument that perhaps it is becoming too saturated. According to 2017 statistics from Grant Thornton, there are currently more than 100 MVNOs in the UK, although it’s fair to say some are more well-known than others.
Dunlop believes it’s “all to play for” in this space and Richardson also agrees the market isn’t saturated – not yet at least.
Richardson said: “The market will find its own level. If any MVNO doesn’t succeed, it will either withdraw or merge, but other, more innovative MVNOs will emerge instead.”
Mann expects more players to make a move into this market but also expects there could be some more potential casualties in the same way Sainsbury’s Mobile failed.
“It wouldn’t surprise me to see more players as brands look to get into mobile as a means of connecting with customers and for some niche opportunities.
“However, there have been some casualties in the MVNO market in the past, such as Sainsbury’s, and as this market becomes more congested with more input from operators I wouldn’t be shocked to see more potential casualties.”
While the future looks good for MVNOs, according to Doku, he also feels the innovation needs to continue in order to engage consumers to avoid failure.
“It’s an exciting future, and one in which MVNOs can still thrive and offer genuine competition to their MNO counterparts.
“But with the road littered with numerous failed MVNOs from huge brands – Sainsbury’s, IKEA, the Post Office – the need for genuinely compelling propositions, novel reasons to keep consumers engaged, exemplary service or customer care and keen pricing are all still essential for these alternatives to remain relevant long-term.”
Choudhary, however, argues that the MVNO market is heading for optimum uptake, but does see good signs in the smaller MVNOs showing an interest.
“There is an argument to be had that you can have a sizeable MVNO market because there is a dynamic market and a lot of its focus is on SIM only. These smaller MVNOs coming and showing appetite is a good sign, however we are probably arriving at the number where it is optimum.”
