What Makes a Great MVNO? | MVNO Trends, Opportunities & Strategy

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Adrian Williams, Service Provider Channel Director: Hello. My name is Adrian Williams. I’m the Channel Director for the Service Provider channel here at Gamma. This is the latest episode from the Service Provider team, and we’re gonna be talking today about MVNOs. We’ll be talking about what makes a good MVNO, some of the market dynamics, and other topics related to MVNOs. And today, I’m joined by James, and I’ll let James introduce himself.

James Gray, MD of Graystone Strategy: Hello. My name is James Gray. I am the Managing Director of Graystone Strategy, which is a boutique consultancy focused largely on telecoms, but very specifically on MVNOs, MVNAs, and the MVNx ecosystem, all of which I’m sure we’ll explain in a bit more detail as we go through the podcast.

Adrian: Great. So welcome, James, and thank you for coming along today. I guess that’s a good segue into my first question, which is the terminology. The acronyms that we use so much, I don’t think we can expect everyone to know the difference between the different acronyms. So maybe we could kind of start with that. If you could just explain the differences between the MVNE, MVNA, MVNO, etcetera, if you don’t mind.

James: Yeah. No. Of course. So MVNO, which stands for mobile virtual network operator. There’s lots and lots of definitions if you look online. But broadly, what makes an MVNO a virtual network operator is they don’t use their own infrastructure. So it’s a mobile provider that uses somebody else’s infrastructure to provide the masts and so on. Typically, the one that everyone knows about is Tesco Mobile because it’s one of the biggest. They use O2’s infrastructure. So although Tesco provides the services to their customers, Tesco owns the customer relationship, but sitting behind that is O2’s masts and infrastructure. And that’s really all it is. And I think one of the most important things to realise is nobody goes out and buys from an MVNO. They go out and buy an offer that suits them, and it’s almost coincidental how it’s all set up. But in order to enable that setup, you’ll also hear people talk about two other things. MVNEs, mobile virtual network enablers, that’s typically a technology company. Someone that provides the billing layer, someone provides the CRM, and all the tools that are required. But importantly, they don’t sell the wholesale element to the end customer. And then there’s the MVNA, mobile virtual network aggregator, and they often provide the technology, but they also resell onto the end customer. So I always think you can look at an MVNA, and it’s a bit like a multi plug. They got one lead plugged into the network and multiple MVNAs… MVNOs plugged into them. And that’s simplistically how to do it. To confuse matters, MVNEs are MVNAs, MVNOs are MVNEs. So it’s all quite ill defined. But at the end of the day, all people really need to understand is there’s some people doing some technology, and there’s some people selling some wholesale, and there’s a bunch of customers using a mobile network at the end of it.

Adrian: Excellent. And thank you for the very simple explanation of it. It really does help. So, the market is changing, you know, in all industries, but particularly in this industry. And it would be good to kind of get your perspective on UK and Europe, how things are developing, what are some of the key trends that you’re seeing, that are changing the dynamics in that space, please.

James: Yeah. Happily. So I think the first thing is MVNO is a growing market. So in Europe, it’s expected to grow to about thirty five billion of revenue to about sixty five billion of revenue by 2030. That’s some stats from PSI. I guess the question is why is it growing? Because the number of people having mobile phones probably isn’t. Right? You know, we’ve probably in the European markets, we’ve largely reached saturation point. Pretty much everyone’s got at least one mobile device. So it’s growing for a number of reasons. I think, firstly, people are just more comfortable with buying from a brand that maybe wasn’t a standard communications brand. So back in the day, you know, let’s use the UK as an example. You had your four network operators. Everyone probably had a favourite. Everyone probably had one they didn’t like so much as well. But then, you know, you just bought from those. But as the MVNOs came in, people started to see that other brands can bring their own unique focus on it, and that started to grow. And, again, I mentioned Tesco’s earlier. We have to thank Tesco’s because they are the example that everyone understands, the one that everybody uses. And it almost legitimised MVNO, people could then buy and, you know, they didn’t have to worry about it too much. So that’s certainly driving some of the growth. I think the other thing is, typically, MVNOs are much more digital, and they offer a much better digital experience. And that is appealing to younger demographics, people who are more maybe savvy, more likely to go online and check and see where the best deal is and what the best opportunity is. And that’s causing a growth in acquisition. So at the moment, MVNOs in the UK probably account for about 32% of all the subscriptions acquired in a year. But, yeah, that’s a significant amount of growth. From a base perspective, so the actual amount of people who use an MVNO in totality, it’s probably between 18 and 20%. So we can see that, actually, it’s growing at a much faster rate than it has previously. So why is it growing? So I think there’s a number of reasons. Firstly, consumer attitudes. I think consumers no longer care where they buy a service from and whether or not it’s an established incumbent. They’re much more interested in, “does that service work for me? Is it interesting?” We’ve seen MVNOs move to a much more subscription-based model. So maybe away from the traditional prepaid, where you buy your vouchers or postpaid, where you get a bill into a subscription-based model. And that’s really comfortable for Gen Z and Gen Alpha. You know, that’s how they do Netflix, and it’s how they do Spotify. And actually, probably their parents pay for it, to be fair. But that’s kind of… that’s a model that they get, and they understand, and they’re quite comfortable with. And I guess the other thing that’s been quite significant in enabling all of this is changing technologies. So, many years ago, I worked for the Vodafone wholesale team. I was the head of wholesale marketing back in 2006. And when we were launching MVNOs, it was a very expensive thing to do. You know, we’d expect someone to come with fairly significant amount of CapEx, a big amount of time and effort to get launched. But things have moved on. Things have moved to the cloud. There are lots of enablers. There are a lot of aggregators that can get you to market very, very quickly. So the risk of launching an MVNO has come down significantly. Some more brands are quite interested in doing that. And we’re seeing a lot of really interesting plays where brands are now taking their core business and using the utility of mobile, the facts that every single person has got a mobile, and every single person consumes data on their mobile, and almost using that as a way to complement their existing brand. And I’ll give you example. Revolut, so financial services, banking and financial services ultimately, integrated a travel eSIM, which is a kind of flavor of MVNO that gets much better rates when you’re traveling as a benefit for their VIP customers. And that appears to have been very, very successful for them. And I think we’re gonna see more and more people looking at that and kind of going, “have a core business. Previously, I always did an MVNO as additional margin to my core business from the telecoms part, but maybe there’s a more blended approach. Maybe I can make a bit more money from my core business by incentivising the mobile and so on.” So it’s really, really interesting world. Throw into that things like ‘everything is connected now’. So machine to machine, as it used to be called, probably, IoT now. So the Internet of Things. And that’s experiencing massive growth. And you’ve got kind of a recipe for a lot of exciting things to happen and for, I suspect, more MVNOs to come to market and existing MVNOs to continue to grow.

Adrian: Excellent. And thank you for that, James. So actually, that does lead very nicely and maybe coincidentally into my next question. And you were talking about complementary products and services. And I think, personally, some of the most successful MVNOs, it is a complementary service to other core services, which makes a huge amount of sense in terms of customer retention and value, lifetime value, etcetera. But in your mind, what makes a good MVNO today? Because yesterday, Dynamics market for Tesco’s mobile, as an example, was very different. But today, what would you believe are the sort of three or four key ingredients that an organization would need to have to be most successful?

James: Okay. Yeah. It’s a really good question. It’s a question that all MVNOs get asked when they’re setting up a deal. Well, have you got this sort of key ingredient that’s to make you successful? I think the first most important aspect is access to customers. You know, ultimately, MVNOs are marketing businesses. They’re acquisition businesses, particularly if you’re just starting out. So having access to customers. Now back in the day, that would have been… you’re at Tesco, and you’ve got whatever it is, twenty million people coming into your shops every week. Now it’s about access to customers through content, through online, through distribution, or through unique and existing relationships. Using my Revolut example, Revolut got access to lots and lots and lots of customers in the banking sphere. They haven’t got any branches or anything like that, but they definitely got access to customers. And so it made sense to then have an add on. So I think that’s number one. I think number two, and it’s a very close number two, is differentiated proposition. So making certain that you are offering something different to what’s available in the market, making certain that those customers that you have access to, you’ve built a proposition which is absolutely perfect for them. “Me too” doesn’t really work in the MVNO market. Years and years ago, slashing prices was quite an effective route, but that doesn’t really grow a sustainable business. It’s great for initial acquisition. So a differentiator proposition and as we’ve talked about before, if you have a core business, a proposition that dovetails beautifully into that is great. So again, going back to our Revolut example, you know, they had a need to give a benefit to some VIP customers. They also had a product that they could see would be valued by those customers, and I’m sure they’re making a margin on it as well. But they’ve got something quite good going on there. I think when we look at how you then deploy that, so, you know, whether or not it is a standalone offer and there’s nothing to say that startups can’t do this, by the way. There’s still a very vibrant startup market, but they still need to be very clear about how they’re gonna access customers. But I think when you look at how you deploy it, then making certain that it works within your business, making certain that it’s been a strategic decision in order to do this rather than just a kind of flight of fancy someone’s little side project is important. And then, and only then, do you start talking about technology and plumbing. Right? So, yes, the technology is important, but only insofar as it needs to be able to deliver the proposition you want to deliver these to your customers. And then the plumbing or the wholesale access is important because you need to have a good enough wholesale deal that allows you to give your proposition to your customers, compete in what is still quite a sort of a competitive market in the UK and still make a margin. So kind of, those are probably, I think that was probably four or five things.

Adrian: It was. And I really like… and one of the things that you’ve mentioned there hasn’t really changed. And that’s the commitment strategic commitment at a senior level within the organisation that’s got the desire to do that. And I think fundamentally, particularly as you were talking about, the barrier to entry is much lower, than it was previously, and the cost is potentially lower also. The danger is that you lose that senior level commitment. It’s strategic you know, truly strategic importance of an MVNO for their business. So I think that’s a really good point to highlight. I have one last question. And this was really around, you know, what are the verticals that you see or the sectors that you see that may start to show more interest in this opportunity? I’m particularly interested in, you know, altnets, how they might start to look at this opportunity. There are similar organisations, you know, maybe on the utility side that have started to bring mobile and connectivity into a bigger sort of offering. And then also retail, because retail, i.e. Tesco’s, you know, that’s been one of the major obvious points because at a point of sale, they can service that with large numbers of customers. So, yes, your perspective on verticals and sectors, including some of those areas.

James: Yeah. No. Absolutely. So I think verticalisation and centralisation is really important because, you know, back to our point earlier, nobody goes out and says, “I’d like to buy an MVNO today”. They say, “I’d like to buy a service that suits my particular needs.” And often that is quite linked to a vertical sector or a particular customer segment. There’s probably a bunch of different growth areas. So I’m just gonna touch very briefly on something that’s an enabler for all of that, which is MVNO in a box, which is basically an MVNA in a slightly different skirt. But effectively, what that means is the thing that enables all those things to grow. And MVNO in a box is really interesting because it’s been forecast to grow two hundred and twenty six percent in six years. That’s like a compound annualised growth rate of twenty percent. And how is it doing that? Well, it’s doing that through enabling MVNOs easily for all these sectors that we’re about to talk about. So just kind of bear that in mind. There’s already… people are saying the plumbing’s gonna grow, which means that the brand’s gonna grow. And in terms of the verticals, where the big growth is, we touched on retail. It’s an obvious one. You know, these are brands with huge customer, distribution, with huge customer relationships. I’m always surprised that less of the big supermarkets have done, you know, done an MVNO. So, obviously, we’ve got Tesco. We talked about that a lot. Asda, as well. Sainsbury’s did for a while. I was the Chief Marketing Officer of that, and then they didn’t so much. But Aldi and Lidl would seem like a really interesting area. You know, Morrisons, Marks and Spencer’s, you know, you name them. They’ve all got access to those customers.

Adrian: And what stops them? Sorry. Just whilst we’re there.

James: That’s a really good question.

Adrian: Because Tesco’s mobile has been there for a long time.

James: It has been there for a long time. I think there’s a number of potential barriers. I think, firstly, there’s a question of that. Is this a deviation from our core business? So we’ve seen a lot of the supermarkets refocus onto core business, particularly after COVID when things got tough and so on. They’re like, yeah, maybe we’ll reduce our ranges. Maybe we’ll be very specific. So I think there’s probably that. I think the second thing is there’s an element of investment still required. Maybe not as high, but still some investment required. And it’s always difficult to, you know, to prove an unknown business case. If I’m the CFO of Sainsbury’s as an example, I know that if I’ve got a million pounds and I invest that in stores, I’ll know probably within a few days how quickly I get my return investment because I’ve done it so many times. If I put it into telecoms activity, probably it’s a bit more difficult to do that. Requires a bit of a leap of faith. Although there’s plenty of… you look at there’s plenty of case studies worldwide. Walmart did an MVNO in Mexico. It’s got something like nineteen million customers. I mean, it’s huge. So there’s lots of good case studies, but if you are a bit more traditional with that, it might be, yeah, that might be a challenge for you. And then I think it is about actually managing and running the service and not being comfortable that you can get the people or get the organisation behind that. Again, not impossible, but requires some thinking, some planning, some strategic intent, as we talked earlier, and someone actually buying into that. But the upside is significant. And the other thing we shouldn’t sort of forget is having a direct relationship with a customer through their phone has a huge amount of value as well. Right? Because at that point, you can target the customer more offers through their phone. At that point, that customer is probably going on to an app to check how much data they’ve got left every single day. So you really reinforce your relationship with them. So whereas they might just go to your retail stores once a week, they might be on your app checking how much data they’ve got left every day, and there might be some prime advertising estate, right, makes for that particular data check. So there’s all that sort of stuff going on. So retail, definitely big area. You mentioned the altnets. That’s an incredible area of opportunity, I think. If we look at organisations like Utility Warehouse, so they do gas, electricity, broadband, mobile, and some financial services as well, and they’ve experienced significant growth. And, actually, when electricity prices were going the wrong way for most companies, they were able to continue to sustain growth because they’ve diversified their portfolio. So there’s a strong argument there. You think about the altnets, obviously, they are now really competing with larger organisations that have price broadband and mobile in their portfolio. And in some cases, TV and goodness knows what else. So having a mobile option that that you can put into a multiplay, obviously, means you can continue to put compete with multiplays. It probably reduces your churn because the more products a customer takes from you, the lower your churn profile. It adds some new and exciting revenues to you. And it stops your offering being a premises offering. Right? So at the moment, if I’m out there, I provide services to a house effectively or a business. Whereas now I’m providing a service individually and a subscription individually to all the members of the house. So that can exponentially increase your amount of revenues as well. So definitely a really interesting area. And as I said, utility warehouse have done a stellar job in building their business with that sort of multi pay offer. So there’s no reason why other utilities couldn’t consider that as well. So you say, you know, I’m in my head, I’m kind of, altnets and utilities are quite similar. They have an existing billing relationship with the customer. They’re trusted to do those sort of things, and they can just add on new activities. I think the more, new interesting ones are those focused on communities. So we’re seeing a lot of focus on different communities, whether that is the online community where, you know, influencers and people like that have significant sway and ability to launch products and get people queuing around the block to buy effectively a drink. And so, you know, that’s definitely something that you can tap into coming back to our access to customers. But there’s other communities as well. There’s sports communities, and there’s charitable communities. And all of those sort of areas where there is a shared set of values or a shared interest are pretty much right from you now. And then I think the final one that I would mention would be machine to machine or IoT. It’s quite different because now we’re talking about SIMs in things rather than SIMs for people, but it’s seen huge growth. And if you had more of a B2B organisation and you have access to customers, your customers will be thinking how IoT can save them money, how they can make certain they don’t have to send out an engineer. They only send an engineer when they’re told to send an engineer by the piece of equipment, Or they don’t need to go and check the bag drop because no one dropped a bag yet, whatever it might be. So all of that’s about driving efficiency. And if you can build strong verticalised MVNO propositions into those areas, you’ve got a really interesting recipe.

Adrian: Yeah. And that’s interesting. Because one of the core elements of a good proposition from any organisation is how compelling that proposition is. And if you think about the IoT element that can be supported from an MVNO perspective, there are additional services or opportunities to provide better services through that type of technology. You were talking about some of these other sort of upcoming sort of brands and opportunities and, you know, influences as one example or sports organisations. How, when I go back to one of the earlier questions, which was, you know, the elements of success for an MVNO, what are the key sort of ingredients? How does that then play into some of those newcomers into the market? Because a few of those things that you sort of highlighted, they maybe don’t have, to a significant extent. So how do you see them approaching an MVNO maybe slightly differently to other organisations like a retailer?

James: Yeah. I think if you’re an influencer, you’re quite a unique business, I think. And you’re probably a very small business, you know, focused about driving your content and driving your profile. I mean, you look at some of the big influencers. They’ve launched chicken chains, and they’ve launched, as you say, drinks and all that sort of stuff. Probably, what you need is a differentiated proposition still. So, you know, my influencer brand injected into a telecoms proposition. Potentially, I want to wrap in if I’ve got any subscription services. Often, there’s premium services for influencers, so maybe I want to put that in. But probably, I don’t really want to get involved with all the other stuff. So I almost need an MVNA sitting behind me doing all the other stuff for me. Because it’s all about my brand, basically. And I’d need to make something to protect my brand because my brand is frankly everything. So I need a trusted provider behind me, and I need to know that they’re gonna deliver what I need to present my brand. So that in that area. In the sort of sports area, that’s really interesting. We’ve seen across Europe, many of the big European football clubs, and I won’t name them because I know absolutely nothing about football. But many of the big European football clubs have got behind an MVNO proposition. And, again, I think what makes it successful is when you tie into the fans’ passions. Right? So, just sticking the club badge on an MVNO probably isn’t enough. You’ll get some success because you there’ll be some passionate people that will do it. But actually tying it into the football, the experience in the football grounds, you know, getting the inside track, maybe you get, you know, more information on what’s going on in the dressing room, whatever it might be, driving it into that whole football fan experience and building up around the community is really, really important. I’ve used football as an example. It could just equally be Formula One or rugby or netball or hockey. Anything where there is a strong firm base behind it where you can sort of integrate it in. The one final place I’d like to sort of talk about is actually B2B, which is a relatively comfortable place for Gamma, I think. I talk a lot at MVNO conferences, and one of the consistent themes that comes through is that the B2B space is ripe for innovation and challenge. Typically, across all European countries, there’s probably mobile network operators are seeing the majority of the B2B value. And probably, those B2B customers are not enjoying as good a digital experience as they do as consumers. And that’s driving a sort of mindset, which is, well, hold on. I’m a consumer, and, you know, could I jump into B2B? So I think there’s gonna be a lot of interesting stuff going on there. And it’s all gonna be about customer experience. B2B is more difficult because you’ve got multiple customers and you need to have different checks and balances. And am I actually gonna give that person more data, or am I gonna allow them to self serve themselves more data? So there’s a lot more technology involved. But the basic premise is business customers are feeling that they are less able to get the quality of service they experience as a consumer in terms of self serve from their B2B provider, and that’s gonna open up.

Adrian: That’s a really interesting point because you look at BYOD, so bring your own device. You know, that’s where the consumer, who’s an employee of the business, has really pushed back and said, “look, I don’t want that. I want to be able to bring my device because my experience is, you know, this much better than maybe what you can provide.” So I think that’s a really interesting, really interesting point.

James: And I think just final, probably, point is how eSIM is going to change all of this as well. So eSIM is ultimately just a technology. Right? Lots of people get excited about eSIM. It’s just a technology that allows you not to slot a piece of plastic into your mobile phone. But why it is exciting is because if you’ve got a purely digital experience, you can join a mobile network provider by watching an ad on the television screen, scanning a QR code, getting the SIM card in your phone. You could be probably using that service before the ads are finished. And that’s really exciting from a consumer perspective, but it’s just as exciting from a B2B perspective. Because now, managing swaps of SIM cards, all that sort of thing, it sort of melts away. And although not everyone has got an eSIM compatible device, probably about fifty percent of the people in the UK have. So it’s a very, very interesting, area and the area where I, again, expect to see a lot of growth, and I see that as another critical enabler as well.

Adrian: And particularly as you look at IoT. Right? So, yeah, it’s expensive to deploy a device with a SIM because it may not be so accessible. And if you need to change for whatever reason, an eSIM can make that extremely, extremely easy for that to happen.

James: Hundred percent.

Adrian: James, it is a real pleasure, meeting you today, and thank you for your time. And yes, I hope to see you again very soon.

James: Thank you very much. Thank you for the opportunity.

Adrian: No problem. Thank you.

What Makes a Great MVNO? | MVNO Trends, Opportunities & Strategy

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