South Africa’s mobile virtual network operator (MVNO) market growth will continue to outpace that of mobile operators for some time to come.
So says Johan Nel, senior management consultant for BMIT and lead author of the market analyst firm’s latest MVNO report, titled: “Sum of the parts”.
The study comes as MVNOs are seeing renewed interest from across the industry and are emerging as the primary engines of market growth, says BMIT.
The report is based on research and interaction with industry players and outlines the key role MVNOs are playing in shaping the future of mobile in SA.
In September, Vodacom became the latest MVNO enablement platform, noting it had signed up retail giant Mr Price as its first client.
Vodacom was the third local MVNO to enter SA’s intensely contested MVNO market, after Cell C and MTN launched their enablement platforms in 2006 and 2020, respectively.
FNB Connect, Capitec Connect, PnP Mobile, Boxercom, Poket Mobile, Sakeng Mobile, K’nect Mobile, TFG Connect, Capitec Connect, Melon Mobile and Afrihost Mobile are some of the MVNO players in SA.
Christopher Geerdts, MD of BMIT, notes the local MVNO market has almost doubled in size in the last two years, well in line with 2022 predictions, which were considered bold at the time.
BMIT’s subscriber estimates show the market passing its inflection point and now set for ongoing growth, while evolving into a healthy, vibrant, multi-dimensional, value-adding contributor to mobile operators, as well as big brand companies and, ultimately, to customers.
Nel expects the market to grow from around 4.8 million active subscribers at the end of this year, to 11 million to 12 million by 2029.
According to the market research firm, this represents a compound annual growth rate of 18%.
Longer term, it’s quite possible the MVNO market will go beyond 10% of market share, but depends on a number of factors, it adds.
Nel expects the MVNO market to continue to be dominated by Cell C as the leading mobile operator for the hosting of MVNOs, while from a segment perspective, the banks and financial institutions will continue to dominate, with Old Mutual recently announcing its MVNO ambitions.
BMIT notes 23 MVNOs are active in the country, with new announcements set to continue.
It says many MVNOs have switched to using a different mobile operator, or are using multiple operators, with Cell C bolstering its network service via its multi-operator core network initiative.
“This suggests the MVNO business model has been proven and has now started to attract the necessary level of venture capital and institutional investment needed to drive sustainable growth and competition needed for the market to remain healthy.”
It points out the emerging enablement of embedded SIMs is an important additional development.
However, it says the MVNO market is not simply about subscriber numbers, as the value-add of mobile virtual network enablers and MVNOs is significantly more than that.
Moreover, it states, MVNOs are no longer just opportunistic entrepreneurs with price arbitrage-driven business models. Traditional MVNOs that tried to attract customers with lower prices simply did not survive, or had to adapt, it notes.
“Rather, the MVNO market in SA has evolved to an embedded level of sustainability, mainly because the focus now has become building sustainable businesses from existing customer bases that inherently enable better value for the customers of big brand companies.
“In turn, this drives retention for its core business, with banking being a good example. Digital enablement, customer engagement and brand loyalty are increasingly becoming key drivers for big brand companies to add MVNO capability.”
Underlying forces
Adds Nel: “Banking MVNOs are, therefore, effectively competing among themselves, as well as competing with mobile operators, but in a new way and with value propositions that are inherently different than, for example, an ISP-centric MVNO such as Afrihost.
“These are wholly new market dynamics and it is quite exciting to see this evolving within the market structure. Measuring customer value now goes way beyond merely comparing price per gigabyte. It also has segment-specific context.”
The firm believes average revenue per user (ARPU) levels are set to gradually increase due to increasing focus on what BMIT categorises as bank-centric, ISP-centric and retail-centric MVNOs, to attract higher ARPU customers switching from traditional mobile operator retail channels.
It says ARPU growth will also be supported by an increasing focus from several MVNOs on SME business segments, including from new players like Huge Connect and Melon Mobile, which understand SME market needs well.
The evolution of more integrated, customer value-enabling products, will also drive better retention for MVNOs, further underpinning and supporting ARPU growth, BMIT states.
It points out the total customer value generated by MVNOs goes beyond mobile ARPU and subscriber numbers, and extends into the enablement of additional value for core business and customers, as well as MVNOs, becoming key drivers for value propositions and attractiveness to customers.
Good examples of this are packages that include DSTV Stream subscriptions, multi-SIM family packages and competitive prices on fibre connectivity.
“Critically, many MVNOs, particularly the bank-centric MVNOs, have become key catalysts for driving usage on the networks, beyond subscriber numbers, due to a shared (added value) approach they are taking.
“We are seeing this trend among the mobile operators as well, which now also sell insurance, Lotto, mobile money and other value-added services,” says Nel.
Beyond disruption
Ultimately, however, Nel believes the key focus will be on improving the usage of data and internet connectivity across all customer segments, particularly the lower end.
“This will be enabled by shared-value business models delivered by the MVNOs in a way that extends their core business value to the customer, as well as its digital engagement capability, at the same time.”
Capitec’s MVNO success is a good example of this, says Nel, who expects Old Mutual to follow a similar approach for the lower-end market segments.
While mobile data and internet penetration in SA is relatively good, actual usage and meaningful participation in the digital economy among lower-end customers is still limited, he notes.
“People tend to think MVNOs are merely disruptive competitors to the mobile operators. While they do compete, and quite aggressively at that, one must also think of MVNOs as strategic partnerships, intended to better leverage the spectrum and network infrastructure that the operators have built. And ultimately, it makes for a more colourful mobile industry, providing customers with better service, more value and more choice,” concludes Geerdts.
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