MVNOs seek to differentiate, but not all will survive: analyst

Competition among telecommunications resellers – known as mobile virtual network operators (MVNOs) – is heating up.

With more than 40 companies now offering access to the networks of Telstra, Optus and Vodafone, MVNOs say that margins are thin as companies focus on competing on price.

With Telstra announcing wholesale access to its 3G in November, analyst firm Telsyte expects more to join the number one telco's network.

Boost Mobile was the first to jump on board Telstra's Next G network, following more than 12 years on the Optus network. The announcement was so popular the MVNO's website server was overwhelmed by a traffic spike.

Aldi and Kogan now also offer services on Telstra's 3G network.

“The MVNOs see that Telstra is a well-engineered network that will provide their end customers with good service,” says independent telco analyst Chris Coughlan.

“Whether that continues largely depends on Telstra’s ability to continue to build capacity to meet the growing demand for mobile services and mobile broadband.”

Rolf Hansen, CEO at MVNO Amaysim, says growth in the market is being driven by MVNOs providing alternatives to lock-in 24-month contracts, with the industry shifting towards bring-your-own mobile offerings.

“[Providers] basically have to give away an iPhone for free and then hope to recoup that money with inflated mobile minute rates over 24 months,” he says.

“It makes a lot of sense for the industry as a whole and over the next couple of years the industry will have to cut out fat and save costs and reinvent itself with regards to how they acquire customers and how they retain customers.”

This increased competition in the market has had an impact on MVNO margins, which are "extremely skinny" according to Roshan Mahanama, founder of Live Connected.

Mahanama says it is becoming harder for MVNOs to differentiate themselves from other telcos, with many competing on price point alone. This is prompting some MVNOs to offer alternatives to standard prepaid offerings.

Live Connected recently announced a trial for 'sliding plans' where customers who exceed their talk or data limits are automatically moved up to a higher tier plan for the rest of the month. At the end of the month, the company restores the customer to their original plan.

“Will we see other MVNOs jump on this straight away? Probably not. They’ll probably wait and see how it works and try to get their head around the economics of this plan,” Mahanama says.

He plans to take a business case back to Optus to gain support for the plan on a permanent basis, citing supplier power restricting what Live Connected can offer.

Yatango, which launched in February, has pushed social media as a way to differentiate, requiring users to sign up through Facebook. The telco also offers a slider-based Web interface that lets customers choose the amount of voice minutes, text messages, data and international call minutes they purchase each month.

“That’s more technology driving offers, so the billing systems are becoming very sophisticated now and so the ability to do that and basically customise plans on an individual basis is now relatively easy to achieve if you have the right billing platform,” Coughlan says.

“Whether that’s good or bad for consumers depends on what happens on the odd month when you go over your plan, which is always the ‘gotcha’.”

Competition? What competition?

Although the MVNOs Computerworld Australia spoke to said there is increased competition in the market, they said they do not view other MVNOs as their primary competitors.

Amaysim’s Hansen says its biggest competitors are the big three: Telstra, Optus and Vodafone, with 95 per cent of its new customers come from those telcos.

Hansen says the market has changed since Amaysim launched in November 2010.

“Some of [the MVNOs] were a bit like 'Mini Me's' reselling more or less the same product that you could get from the big guys," he says.

"That has dramatically changed, specifically in the last six months. We now have about 10-12 players competing in the unlimited space that we created with our $39.90 product and new entrants coming into the market, plus [we] hear other players out there that are interested in potentially becoming MVNOs.”

With 75 per cent of revenue coming through the Internet and apps, Hansen says Amaysim plans to further develop its online and DIY “experience” to differentiate itself from the basic e-commercie sites of some other MVNOs.

The company is also looking at how to manage the consumer shift from 3G to 4G.

Hansen says that because Amaysim doesn't serve the “super-premium end of the market”, the shortage of affordable 4G devices acts as a restraint on offering the next-generation mobile service, with only a handful of 4G-enabled devices currently on the market.

Hansen says Amaysim will also only launch 4G services when coverage is more widespread and the business case is more compelling for itself and Optus.

“We have a certain business model that we need to sell,” he says.

"That’s going to evolve over the next couple of weeks and months and whether we’ll see 4G on the Amaysim brand pre-Christmas or not is not something I can answer right now.”

With so many MVNOs now in the market in Australia, Coughlan says not all of them will survive.

“Most of them are selling sim only type plans, so their business risk is now if they start subsidising handsets and the like, that’s when the business model [gets into] issues where there’s cash outlay in acquiring a customer,” he says.

“I think they run on relatively thin margins and so a slight misstep can mean the difference between succeeding or failing.”

Follow Stephanie McDonald on Twitter: @stephmcdonald0

Follow Computerworld Australia on Twitter: @ComputerworldAU

Copyright © 2013 IDG Communications, Inc.

Download: EMM vendor comparison chart 2019
Shop Tech Products at Amazon