June 6, 2019 • Business Value Team
MVNOs serve approximately 250 million subscribers with about 1,300 MVNOs in more than 70 markets worldwide. This represents a remarkable CAGR of 6%. It demonstrates that the industry has reached a respectable level of maturity since the debut of the industry’s first MVNO 20 years ago.
Even so, success varies widely among MVNOs as some achieve better results than others. For example, in well-penetrated markets accommodating dozens of MVNOs, there are normally four or five that have about 80% of the market’s MVNO customers.
In our “Driving success for MVNOs: a competitive framework” article, we used Optiva’s MVNO Rosette Framework and assessed the fundamental factors, extrinsic and intrinsic, of the MVNO business and market environment that lead to success. In this article, we elaborate on one of the intrinsic factors — the value proposition. And while MVNO value propositions vary greatly, we classify them into these three main categories.
MVNO Value Propositions
“Audience-driven” MVNOs tend to serve well-defined audiences. Audience definition can be need based, such as immigrants seeking low-cost international calls, frequently roaming travelers or the elderly, or it can be language or lifestyle based. Youth-oriented MVNOs, for example, are one case of a lifestyle- and language-defined audience.
The success path of audience-driven MVNOs starts with a deep understanding of their audiences: prospects’ cycle of influence, content consumption patterns, engagement with brands and purchase decision journey, price elasticity, language and more. Then, such understanding must be used to tune customers’ journeys, user experience, marketing language, and product features to fit the needs and lifestyles of their target audiences. In a way, it must even be used to predict those.
giffgaff, a UK-based virtual operator working on O2’s network, is a great example. This player’s target audience is 18 to 34-year-old consumers. Following a thorough study of its target audience preferences and characteristics, giffgaff leveraged one of today’s key consumer trends — that everyone’s an expert. giffgaff created a unique, customer-powered customer service by building a community for subscribers. Collaborating through online forums, savvy power users support others in return for “payback” points that they can later cash in.
Also, giffgaff didn’t stop at crowdsourcing its customer support. It even based much of its marketing effort on its subscribers with the “Tool hire campaign,” YouTubers and other social network influencers. By studying, knowing, and understanding its target audience, giffgaff managed to tailor a cool, low-cost, and engaging product to the characteristics of its audience. By doing so, it grew to become the third largest MVNO, boasting an estimated 15% of the UK MVNO market, which is crowded with over 100 virtual operators. On top of being very attractive to its target audience, giffgaff’’s unique value proposition allowed it to maintain a lean operation, keeping operating costs low.
“Synergistic diversification-driven” MVNOs are about broadening an existing business into mobile communications while also leveraging synergies with the business’ core assets. Such core assets may be an existing customer base, loyalty club, broad PoS national presence, adjunct and complementing products or services, brand equity or any other meaningful core competency that could be leveraged to gain competitive advantage. The popular instances of this are ventures that are linked to wholesalers, national retailers, ISPs, or TV operators.
Tesco Mobile in the UK represents this category. It is an MVNO initiated by the British multinational grocery retailer, which made an exceptional strategic partnership with O2 UK (Telefonica). On top of being its hosting MNO, O2 also owns a 50% share of the formed MVNO. Tesco Mobile leveraged the extensive, nationwide PoS presence of its parent company, Tesco, and deployed 462 specialized “Pick n Pay” shops located inside Tesco stores.
Further, it benefited from the brand trust and reputation of Tesco, gained for over a century, while approaching its existing customer base with highly convenient and affordable prepaid plans. It’s popular Clubcard loyalty program was yet another tool it used to penetrate the market. With such assets, along with the telco expertise and know how provided by O2, Tesco Mobile achieved remarkable customer growth and gained 5% of the total UK mobile market and approximately 50% of the MVNO market.
Finally, “technology-driven” MVNOs, as the name implies, are founded on the characteristics of specific technology — whether as the enabler of the service or the consumer of the service.
The IoT (Internet of Things), for example, is one of the fastest growing categories with a variety of use cases and subcategories: smart cities, smart homes, industrial, transportation, health, wearables and many more. By 2020, over 20 billion connected devices are projected to exist worldwide, according to GSMA Intelligence.
IoT MVNOs are quickly gaining territory against main incumbents, but their sustainable growth relies on how well they identify market opportunities and secure strategic alliances before main operators do.
Cubic Telecom offers global connectivity for the IoT, M2M, and device manufacturing companies in over 100 countries. While its typical customers and end users are consumers, Cubic Telecom constantly grows its base through OEM deals with car manufacturers, such as VolksWagen, Audi and Skoda, and connected car platform providers, such as Microsoft and other device manufacturers. Offering embedded eSIM and supporting software components, Cubic Telecom managed to obtain an almost captive audience, to which it offers inexpensive, cross-continent connectivity packages.
Delivering value through our Business Value consulting team
The challenges in the telco industry have been vast in recent years for MNOs. The challenge is double, though, for MVNOs trying to penetrate a market without telco and market-specific experience and skills.
In one of Optiva Business Value team’s recent engagements, we consulted a retail chain-founded MVNO that was operating in an extremely competitive environment. We helped it to fully identify its value proposition and developed a go-to-market strategy.
Taking the acquisition strategy of this operator as an example, we have identified that while the MVNO leveraged its retail assets well, its approach to customer acquisition was rooted in retail. SIMs were given similar consideration as the many other goods it offered in its stores. As a result, its customer inflow scheme resembled a revolving door, leading to a low customer lifetime of three months.
Working closely with the operator, we mapped out the various acquisition and onboarding journeys across the different store classes and introduced global benchmarks and best practices. After observing and analyzing the customer enrollment process, our recommendation to apply changes to the process and target lower volume but higher quality acquisitions were implemented. Preliminary results indicate an already longer customer lifetime on recent customer cohorts, 5% higher activity rates, and 12% higher ARPU.