Telkom has announced plans to enter the mobile virtual network operator network (MVNO) race, a niche market that rival Cell C has dominated over the years.
With yesterday’s announcement, telecoms analysts believe Telkom, just like other telcos, will gain market share from Cell C over time.
In 2020, MTN also entered the MVNO race and the analysts believe competitor Vodacom will follow suit.
JSE-listed Huge Group announced last year that it will also make forays into the MVNO market with a new company dubbed Huge Connect.
However, as the MVNO race hots up, the analysts believe Cell C still has an upper hand in the local MVNO market, which is experiencing growth.
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.
Stirring up competition
“Telkom has leveraged its extensive network footprint across South Africa to offer MVNOs the opportunity to provide quality services over its network – thereby enhancing the much-needed competition in the telecoms space,” said the telco in a statement yesterday.
Telkom believes partnering with MVNOs will enable them to deliver their propositions to selected target markets effectively.
“With a best-in-class network, we believe that such partnerships will help create jobs, create a path into the industry for smaller players, and ultimately contribute to the growth of our digital economy,” says Lunga Siyo, CEO of consumer and small business at Telkom.
“Telkom is committed to ensuring that MVNOs providing services over its network are sustainable,” Siyo adds.
According to Telkom, the MVNO partnerships are in line with spectrum licence requirements set by the Independent Communications Authority of South Africa (ICASA) to benefit historically disadvantaged groups.
Telkom says it plans to take a considered approach to support commercially viable MNO-MVNO partnerships.
“We aim to have our first MVNO go live this year,” says Siyo. “Through the launch of MVNO partnerships, we look forward to unlocking greater competition in the sector and helping emerging MVNOs provide value for their customers.”
Obligation turns opportunity
Commenting on Telkom’s strategy, Christopher Geerdts, managing director at local market analyst firm BMIT, says: “Providing services to MVNOs is an obvious move for Telkom at this stage, not least because ICASA is engaging all major winners of the 2022 spectrum auction regarding the provision of wholesale access, so Telkom’s move is really turning an obligation into an opportunity.”
According to Geerdts, BMIT’s research over time has found that in many countries, it was the smaller operators who provided MVNO services early on, as a leverage to gain market share.
“Cell C’s strategy is a typical example of that and Telkom was wise to now do the same,” he says.
“On the other hand, Telkom was an early leader in the fixed-LTE market and deployed a reseller model successfully, building a strong partner base. The MVNO model is important for Telkom to take this business to the next level, especially as fixed-mobile is showing strong growth and just as Telkom introduces fixed-5G into the market.”
He points out that Telkom has enjoyed long-standing partnerships with MVNOs who are Internet service providers (ISPs), such as Afrihost, and the MVNO model allows these partners greater flexibility and scope for innovation.
Dobek Pater, telecoms analyst at Africa Analysis, concurs, saying as a recipient of high-demand spectrum in the 2022 spectrum auction, Telkom is obligated to host MVNOs on its network.
“Telkom probably also sees a commercial opportunity in the MVNO market and an opportunity to monetise its network,” Pater says.
“Apart from Telkom, MTN has also launched MVNO services and Vodacom will. Whenever new players enter a market, the incumbent (Cell C in this case) will lose market share. The question is to what extent? In our view, Cell C will remain the strongest provider of services to MVNO (MVNO host) but the newcomers will secure decent market shares. We also expect the entire MVNO market to grow; therefore, despite market share loss, Cell C is likely to see continued positive growth in this part of its operations.”
Likewise, Geerdts points out that Cell C enjoyed a long lead time over all the mobile operators in the MVNO space and “will no doubt lose market share to Telkom over time; but for Cell C, this is easily offset by the overall market growth”.
He adds that BMIT already forecast in its recent MVNO Market Report, “The Cumulative Effect” that the collective market share of MVNOs will double in the next two to three years, and account for 10-12% of mobile subscribers in five years.
“Telkom has generally gained mobile market share in a very competitive environment and could replicate their success in the MVNO market. Aside from mobile assets, they can leverage their extensive national fibre network to enable provision of complementary broadband services to their MVNO partners, including MVNOs focusing on the business market.
“They also have experience in SME enterprise development, together with the national support structures, to enable emerging MVNOs to grow.”
Thecla Mbongue, senior research analyst at Omdia, is also of the view that the MVNO platform will generate a new stream of revenues for Telkom.
She comments: “Telkom could indeed gain market share against Cell C and more recently involved MTN. Despite being the main MVNO platform in South Africa for a long time, Cell C itself is transitioning to a sort of MVNO since it is transferring its physical network to MTN and Vodacom.”
Geerdts believes the extent to which Telkom can leverage the MVNO model to grow its business relative to Cell C also depends on how successfully Cell C can leverage its own MVNO partnerships and implement its own revitalised business plan, as well as competitive responses from Vodacom, MTN and the other MVNOs in the market.
“Factors like the speed of innovation, above and below the line marketing, and the use of big data analytics or artificial intelligence capability are also likely to increasingly become part of the competitive frontier, focusing on dimensions such as relevance or suitability to the customer, rather than simply competing on price.”
Mature mobile market
Pater notes that the South African mobile market is mature. “It is following an evolutionary trend of more developed markets globally. As markets evolve and become more sophisticated, there is more room for (customised) services to smaller groups of customers.
“There are also developments emerging which will enable the MVNO market growth going forward, for example, the introduction of eSIMs. Therefore, we do expect the market to grow.”
Geerdts agrees: “As BMIT indicated in its recently published MVNO Report, South Africa now has a number of very well-positioned MVNOs across the banking, retail, and ISP sectors, as well as more niche focused MVNOs.”
He explains that these companies have significant distribution leverage capability.
“Without underestimating the entrepreneurial capability of South African business, it will be increasingly difficult for new MVNOs to enter the consumer end of the market except for those few remaining which have a sizable existing customer base or brand.
“So while there may be a number of additional MVNOs entering the consumer space, the barriers to entry created by large existing companies, having launched MVNO business models, are quite substantial.”
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