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WHERE NEXT FOR MVNOS?FIELD FISHER: TELECOMS INTENSIVE
ERICK O’CONNOR
MANAGING PARTNER
4th March 2015
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ABOUT US
Providing clear, practical and straightforward commercial advice to our clients in the TMT & payments sectors since 2005
© Piran Partners 2015
THE GROWTH OF MOBILE WORLDWIDE…
6.9bn 11.9% CAGR 2008 - 2013mobile connections
2.9bninternet users
Source: ITU 2014 mobile connections & region definitions
1.1bn telephone main lines
2014
Number of connections (SIMs)
611m
448m
629m
397m
3.6bn
780m
410m
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THE GROWTH OF MVNOS WORLDWIDE…
0.7%
6.9%
0.3%
0.7%
0.7%
8.9%
1%
Source: Piran Partners, Ovum & Wireless Intelligence, May 2012
2014
% of MVNO connections(138 million, 2014)
CAGR% 2014 - 2019
5%
44%
34%
35%
7%
8%
9%
Discount, 280
Telecoms, 197
Media, 135
Retail, 114
Migrant, 114
Business, 104
Roaming, 62 M2M, 31
1,000+ MVNOs
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SUCCESSFUL MVNOS HAVE BEEN GOOD AT…
Unlocking underserved market segments
Offering choice & innovation
Retail pricing & bundling
Customer service & relationship management
Driving wholesale revenues
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INTER-RELATED CHALLENGES…
Brand Affinity
ARPU Costs Churn Growth Technology
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INTER-RELATED CHALLENGES…
Who is more important to consumer?Relevance of MVNOs’ brands & consumer perceptions in an all data worldRise of the new media companies: disintermediationDownstream integration by Google & Amazon into devicesUpstream content & media delivery, mobile payments, cloud services
Brand Affinity
ARPU Costs Churn Growth Technology
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INTER-RELATED CHALLENGES…
Pressures on Average Revenue per UserDeclining in most markets & likely to continueSignificant competition, especially in mature markets (& from MVNOs)Voice & text substitutionNet neutrality rules: can’t charge more for Facebook access
Customers used to carrying multiple SIMsDepending on market these may be secondary data-only SIMs, or for different uses (e.g. domestic calls vs international calls)
1.7
2.0
connections (SIMs) per customerEurope
Africa
1.4N.America
1.9Asia-Pacific
2.0S.America
Brand Affinity
ARPU Costs Churn Growth Technology
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INTER-RELATED CHALLENGES…
Wholesale & cost models under pressureRetail bundling putting pressure on ‘traditional’ modelsForecast growth in data consumption vs per MByte chargingInvestment in Billing & CRM systems, new technologyRegulation: Reduction in MTRs, mandated MVNOs, taxation
Brand Affinity
ARPU Costs Churn Growth Technology
© Piran Partners 2015
INTER-RELATED CHALLENGES…
Managing churn Driven by quality of service, devices, pricing & competitionPay-as-you-go customers less loyal (= most MVNOs)Effectiveness of retention strategiesRise of soft SIMs
1 in 7 customers churn annuallyN.America: 37% PAYG
3 in 7 customers churn annuallyS.America: 78% PAYG
Pre-paid vs contract churn
Brand Affinity
ARPU Costs Churn Growth Technology
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INTER-RELATED CHALLENGES…
Where will growth come from?Pay-As-You-Go to Contract migration: (limited by MVNOs’ sales channels & maturity of domestic banking sectors)Organic growth versus M&A? (no real history of MVNO-driven M&A)Product innovationSmart-devices, Internet of Things & new M2M apps
Brand Affinity
ARPU Costs Churn Growth Technology
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INTER-RELATED CHALLENGES…
Technology choicesMigration to 4G / LTE (& 3G UMTS in emerging markets) How to manage forecast growth in data consumptionCapital investment needs: GGSN & Policy Control functionalityNeed for convergence: fixed, mobile, broadband, media
Global connections by technology
source: GSMA
Brand Affinity
ARPU Costs Churn Growth Technology
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IMPACT OF GROWTH IN DATA
Costs Cellular data consumption predicted to grow 6.8x CAGR 47% 2013 through 2018*
Just a 2x increase in data = 30% fall in GM%And unconstrained – Facebook videos now play by default
*source: CISCO VNI to 2018 for forecast data growthPiran Partners for example wholesale calculations
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EVOLUTION OF WHOLESALE MODELS
+ve: traditionally offered closest link to underlying economics, allowing retail pricing independent of actual consumption, MVNO manages breakage
-ve: early day rates may be high until volume grows, less clarity on known costs
Element (Today)
• Pricing for voice, SMS, data • Share of MTR•Discounts for volume / fees
Peak• Erlang & Mbps models based on capped
busy hour throughput• Tiered banding depending on throughput
achieved (e.g. Band price x Mbps)
Bundles• Individual minutes, text & data
bundles with ‘Pick & mix’ approach•MVNO pre-selects bundles for each
subscriber at beginning of cycle• Potential for high OOB charges
+ve: offers certainty on profitability, helps simplify defining retail packages
-ve: bundles may not be good fit to actual customer usage driving sensitivity, operator benefits from breakage
+ve: actual cost of voice & data is marginal what matters is throughput & quality of service at peak times, sets a known monthly wholesale cost
-ve: management & technical complexity, breaks traditional link between retail pricing & wholesale costs
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WHAT DOES THIS MEAN FOR THE FUTURE?
ARPURetail estate or online offers chance to drive PAYG to contract migration
But offset by need for staff, and/or building online brand awareness
GrowthCheaper smartphones & tablets offer MVNOs new growth opportunities
But with impact on wholesale data costs
Techn
Rise of dual & triple play providers adding mobile will squeeze single-play MVNOsAble to cross-sell & drive retention with different profit expectations
Traditional ‘Lite’ MVNO models will need to evolve for service innovationAdvent of LTE means having control over data will be key (& mobility management too)
Brand Affinity
Churn
Costs Wholesale & commercial models must evolveMobile operators have to be willing to meet MVNOs’ needs