Open Market best for MVNOs in South Africa

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The rise

Mobile Virtual Network Operators (MVNOs) in South Africa - i.e. telecommunications service providers without or limited own infrastructure – have been around for some time. Companies with diverse backgrounds have been launching communication services based on the network of a Mobile Network Operator (MNO) with admirable success. Among these are household names such as Virgin (Virgin Mobile), Mr. Price (mrpmobile) and First National Bank (FNB connect), to name just a few. Even Zulu King Goodwill Zwelithini mulled the idea of his own MVNO (Bayede Mobile). All in all, currently, and with a steady growth of 4% p.a., almost 2% of South Africa’s nearly 100 million mobile subscribers are served by MVNOs.

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The lag

However, despite these remarkable market developments, South Africa lags in the number of MVNOs compared to other countries, esp. the US and Western Europe where MVNOs collectively sport market shares of 10% and more. Vodacom and MTN have historically been reluctant to provide platforms for MVNOs, leaving Cell C as the only player offering such services; the company is currently counting about 1.8m MVNO subscribers.

The main reasons for the MVNOs massive presence in many other parts of the world are earlier market saturation and, in many instances, favourable and reliable regulations which promote competition to diminish the dominance of large market players and enforce infrastructure sharing. Moreover, wholesale and interconnect price regulation often helped MVNOs to establish a sustainable market presence.

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Further growth expected

As the South African MVNO market is in an early stage of expansion, more and more companies are expected to enter that market playing their ambitions based on a popular brand, close customer relations or a wide-spread distribution system. They target either their own customer base or market niches that have not been adequately served by the big mobile operators. The benefit for consumers and business are more choice, falling prices and optimized products and services.

Opportunities are found in insurance, financial services and retail, as well as in ethnic and religious groups. Among upcoming entrants is South Africa’s Standard Bank (Standard Bank Mobile) together with local Mobile Virtual Network Enabler (MVNE) MVN-X, which facilitates the technical, commercial and legal relationship between the bank and the MNO.

However, the main driver for MVNO expansion will come from the Internet-of-Things (IoT). Here, the big telco players are often too slow, niches too small, and business models too complex for them to be interesting providers. Especially the latter will constitute a significant deterrent for the traditional MNOs as new offerings are expected to be deeply integrated, bundling an application, hardware, support services, and MVNO-enabled mobility and connectivity – on licensed and unlicensed spectra –  into a unified package. Supported by the emergence of the embedded SIM card (eSIM), which replaces the physical SIM chip with remote connectivity and allows customers to choose their operator dynamically, MVNOs will gain more ground in the telco market.

More regulation needed?

Despite the relatively slow MVNO growth in South Africa compared to more developed markets there are, however, no clear indications of a “market failure”. Hence, the current regulation seems sufficient to encourage the proliferation of alternative players. Recent ideas such as spectrum re-allocation and the separation of MNOs along functional lines – e.g. network and marketing – to spur competition seem, at least from an MVNO market point of view, not useful.

So far, the regulation in place was sufficient to allow for a rather swift expansion of the MVNO business in South Africa. Looming mobile market saturation, the quest for new revenue streams and upcoming technologies (IoT, eSIM) will put enough pressure on the market to force players into adaption. Hence, regulations favouring MVNOs are not needed. However, fair and predictable rules concerning licensed and unlicensed spectra and upcoming technologies, namely 5G, are important.

Outlook

It is expected that not too far in the future, giving in to the above-mentioned market forces, MTN and Vodacom will also open their networks to MVNOs so that there will be competition on the platform level, too. This will help MVNOs to negotiate for better terms and conditions and hence optimise margins.

MVNOs can be successful with a very limited customer base. But only when costs are hammered down and business operations are super-lean. Here, Mobile Virtual Network Enablers (MVNEs), the essential link between the MNOs and the MVNOs, come into play. It Is them that offer aspiring retailers, banks, insurances and the like the flexible, fast and efficient integration into the MNO’s business processes & network, provide market-adequate product development and efficient business operations. Pretoria-based FREI (www.frei.one), a second MVNE to compete with market pioneer MVN-X, provides these services.

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Finally, it is up to the aspiring MVNO to build an attractive business model with appealing products and services, as well as securing the necessary capital to account for the often-underestimated costs for subscriber acquisition and marketing.

South Africa’s telco space is not hampered by unnecessary regulation towards MVNOs. This open market, supported by technological changes and microeconomic necessities, will intensify competition not only for mobile voice and data, but also for IoT and, eventually, bundled services. Let’s watch out: “New players coming soon!”. dotadvisors is convinced that the changes that digital technology changes, value chain reconfiguration, the introduction of 5G and resulting business model disruption driven by non-telco players will bring all will drive leading MNO’s to eventually open their networks to innovative MVNO players in SA and hence create a more competitive market which will benefit end users, consumer and businesses alike.