US market key stats

The MVNO market in North America is a contrast between the frozen inhospitable wasteland that is Canada, and the fertile plains of the US that offer a lot of promise but have been stonier to farm than many realised. What’s the current situation and what’s on the horizon?

While Europeans have galloped ahead with the MVNO model, the North American market has been challenging for virtually all who have attempted to enter it.

After years of trying to grow in what turned out to be much  stonier ground than it first appeared, the US MVNO market is littered with bodies. Historically we can count names such as ESPN Mobile, Disney Mobile, Amp’d and Helio. More recently we can add PTel Mobile, Giv Mobile, Denfense, RingPlus and Envie Mobile to the list. The market has continued to expand though, despite the earlier and continued rout, and now 1/10 mobile subscriptions are supported by MVNOs, amounting to more than 36 million accounts.

In fact, as is typical of the US wireless market, the story is one of the have’s and the have-nots. The biggest MVNO player in the US – TracFone – accounts for around 3/4 of MVNO connections in the US and boasts over USD5 billion in revenues. The substantial number of remaining MVNOs – Sprint alone has more than 100 hosted on its network – support the remaining 9 million MVNO customers.

This market concentration is unsurprising as it is a reflection of the MNO position. Around 80% of mobile subscribers in the US belong to the big 4 MNOs – AT&T, Verizon, T-Mobile and Sprint. But 80% of that 80% belong to either AT&T or Verizon (or 64% of the total market).

To break the duopoly, T-Mobile and Sprint are predisposed to use a multi-channel methodology: direct services, sub-brands and indirect MVNO channels.

And they’re getting better at the MVNO part of this strategy. Rather than just offering capacity, these MNOs now offer a range of support to their MVNO customers – from billing and charging capabilities, to helping them negotiate handset deals. This is a very sensible strategy, since the more successful their MVNO partners are, the more capacity they will need and the more data the MNO ends up selling. A failed MVNO is, on the other hand, bad news for all concerned.

The critical question is how does an MVNO succeed in this type of market? Too many of them simply copy the MNO model and then discount data and calls. While the cost of wholesale has decreased over the last 4-5 years – by up to 65% in some cases – and new  approaches such as WiFi provided additional cost benefits, this pure play discounting strategy makes for  a tough business and is hard to sustain.

Competing purely on price means MVNOs fail to leverage other advantages they possess, they don’t optimise value and they may not be fully engaging customers. It is critical to pay attention to this latter point. Churn is a huge cost to both MVNOs and MNOs. Retaining customers is essential to keeping them profitable. As an illustration, depending on the infrastructure, market and strategy of the carrier, the cost of attracting and onboarding new customers can range from $50 to $200. But even at the lower part of the range that’s a high cost to absorb if the customer doesn’t stay with the MVNO for more than year, or if they only spend $20 per month.

The bright spot is that MVNOs are getting savvier in terms of providing market-leading customer care. In the US, brands like Consumer Cellular and Ting are frequently ranked above the big carriers in terms of customer satisfaction. They’re also focusing better on the niches they serve and beginning to innovate in terms of pricing and bundling. An approach that has been used and encouraged by T-Mobile and its Uncarrier strategy.

Counterintuitively, MVNOs have not always had the marketing-led, dynamic, customer focus that we have been led to believe is the essence of a successful MVNO. This is usually not due to a lack of ideas, but because the infrastructure from carriers, MVNE and BSS providers has not been agile enough. The good news is that this has changed. There are a far wider range of vendors to choose from, and existing vendors have transformed both the range and agility of their technology platforms. Plus the cost of this infrastructure is much keener and can be purchased on a SaaS basis.

But just as the market seems to be becoming more hospitable, other problems loom. In the US, one such challenge is the mercurial nature of Trumponomics which in some parts encourages, and in others discourages, the market for MVNOs.

Meanwhile in Canada the main challenge is the indifferent or even hostile position of the carriers and the focus of the regulator. The outlook remains consistently frosty since Rogers effectively got the CTRC to close the door on Sugar Mobile’s use of roaming agreements to create a nationwide offer. The government has provided a glimpse of hope by ordering an investigation as to whether WiFi constitutes a ‘home network’. This opens the possibility of WiFi-first MVNOs in the Canadian market. But don’t hold your breath. The investigation is not scheduled to be closed until March 2018. This means Canadians will have to wait until late 2018 at the earliest to benefit from anyone brave enough to take on the Canadian frost giants.