New players take on Cell C in SA’s MVNO race

As more players enter the space, the scene is being set for a race to determine the dominant operator in South Africa’s burgeoning mobile virtual network operator (MVNO) market.

This is one of the key takeaways from local market research firm BMIT’s 2022 MVNO Report, sub-titled “The Cumulative Effect”.

An MVNO is a wireless communications services provider that does not own the wireless network infrastructure over which it provides services to its customers.

Typically, an MVNO enters into a business agreement with a mobile network operator to obtain bulk access to network services at wholesale rates, then sets retail prices independently.

In SA, Cell C has historically led the MVNO market, with players such as FNB Connect and Mr Price Mobile, among others, piggybacking on its network.

In its report, BMIT points out that more players are entering the MVNO space, enticed by the opportunities it provides.

This week, JSE-listed Huge Group announced it will make forays into the MVNO market. It will next year launch a company called Huge Connect, which will work closely with mobile network operators in offering branded mobile services to MVNOs.

Johan Nel, primary author of the BMIT report, believes the combination of rapid, fundamental shifts in the mobile, retail, banking, IT and media sectors, means the MVNO market is at an inflection point. It will be an integral part of new, digitally-driven, competitive frontiers across the traditional mobile industry boundaries, he notes.

“We are seeing next-generation business models and strategic partnerships kicking into full gear, underscored by the rapid uptake of fintech by the mobile operators, banks and retailers.

“It is clear that several of the existing and new MVNOs are in a strong position to grow market share, and make communications and devices more affordable.”

BMIT explains this is due to their respective market sizes and ability to attract share of customer spending, meaning MVNO business models can, in turn, play a strategic role for big brand companies.

It notes Cell C, which for many years was the only operator to service MVNOs, currently has around 75% of the MVNO subscriber share, while MTN, which only recently opened its network to MVNOs, has already gained 25%.

One of the reasons for this is that MTN has dominated the “fixed-mobile” data market, partnering with Afrihost, Axxess, DSTV Mobile and other large ISPs, leveraging fixed mobile as a gap-closing technology to complement fibre network rollouts, says the report.

This fast-growing market is expected to gain further momentum as 5G coverage expands, it adds.

MTN has also partnered with Pick n Pay and TFG, as big brands with strong distribution leverage.

According to the market research firm, the imminent entry of Vodacom will result in a race between the mobile operators to cement long-term focused strategic partnerships, which will also extend into the enterprise and SMME market segments, as well as ICT partners.

In the early days, it notes, MVNOs relied heavily on MVNO enablers (known as MVNEs) to provide the technical platform and commercial services – notably MVN-X and Frei.

However, as mobile operators start to offer these services directly and large MVNOs rely on in-house capability, these enablers will have to innovate to stay relevant. One way they are doing this is by offering fintech and other digital services to MVNOs, says BMIT.

While Cell C is still leading the local market, the mobile operator has been facing operational challenges, which led to the company recently securing capital to stay afloat.

Responding to ITWeb on whether Cell C still has what it takes in the market, BMIT analysts Chris Geerdts and Nel say Vodacom is entering the market and sees the MVNOs as strategic partners, so they will establish market share.

“MTN will continue leveraging its strong position in the market, so is likely to grow market share. Cell C will remain a significant player – not as dominant, but growing in absolute numbers. Telkom may well enter the market as well and they are strong in the fixed-mobile space.”

On Huge Group’s MVNO overtures, they add: “Huge has the leadership, funding and tools to make a difference, and its impact depends on which brands they can sign up. There are a few significant consumer brands still to enter the MVNO market. If Huge also focuses on the business market, they could leverage existing relationships effectively.

“There will also be other mobile enablers entering the market soon and an important differentiator will be their ability to unlock additional revenue from innovative digital services outside the normal mobile space, such as financial services.”

Geerdts, BMIT’s CEO, believes the timing is now right for MVNOs, even as the economy falters, because a range of growth drivers have come together.

He says large banks and retailers, with their big subscriber bases and strong brand pull, have entered the market and introduced exciting crossover products to add greater value for customers.

“We live in exciting times, when financial operators are becoming lifestyle companies, retailers are becoming banks and mobile operators are becoming digital technology companies,” he says.

According to BMIT, MVNOs still only represent a relatively thin slice of the market, but the entry of large, mass-market players is significant.

Based on industry-wide consultation, Geerdts believes MVNOs will double their mobile services market share within the next two to three years, with industry participants expecting around 10% to 12% of mobile subscribers, if not more, going forward.

Most of the big brand MVNOs are currently focused on below-the-line promotion initiatives. However, Nel regards these early approaches as learning curves that will rapidly evolve towards more integrated value propositions and closer alignment with their own brands, segments, distribution footprints and loyalty programmes.

“Mobile operators have realised this and made a fundamental shift to viewing MVNOs as strategic partners rather than as a disruptive element in the market,” he says.

BMIT points out it has studied several countries where the mobile market has evolved towards excessive numbers of MVNO players, as well as countries where the number of MVNOs have been low.

It explains that a few countries have stabilised around 10 to 15 strong players, and Nel believes this is the most likely scenario for the MVNO market in SA.

“There are currently a few dozen MVNOs registered in our market, with more launches imminent, but the consolidation has already started, with the acquisition of a few of the smaller players.

Ultimately, BMIT believes the mobile operators and MVNOs will be working together more closely in strategic partnerships. This will create leverage to unlock more value more rapidly and more sustainably, than what would have been achievable by individual players.

The combined impact of these partnerships will be substantial and MVNOs will become embedded in the distribution of mobile services, it concludes.