So, what you see here is our global MVNO growth forecast.
Um, overall connection growth
for personal mobile services around the world right now
is about 4.5% per annum.
MVNO connections are growing at about 18% per annum,
four times faster than the average rate for the mobile industry.
So, the MVNO share
of the global mobile industry
is rising.
It's rising steadily
and it's going to continue to do so
over the entire forecast period
out to 2019.
In Australia, MVNO is already big
and the growth rate is starting to settle.
MVNO market accounts for
about 7.9% of total mobile connections right now,
and that's the second-highest in the Asian region after Hong Kong.
The growth rate for connections here is about 2% per annum
and we expect the total share to reach about 9.1% by 2019.
So, the MVNO model, both here and overseas,
is healthy and it's growing.
So, why?
What are the drivers of that success?
Well, let's take a look at this
from the point of view of segments.
Where are these growth prospects?
Ovum surveyed
about 440 MVNO providers
and their underlying network providers around the world
to get a picture of
what the growth pattern is.
And we asked each player
which segments they saw as the leading growth opportunity.
Now, unsurprisingly,
everyone had a different idea about what their growth opportunity was,
but it broke down like this.
Youth, media and entertainment
topped the list.
38% nominated that
as their highest growth prospect.
And unsurprisingly,
the retail brand extenders
were also a strong growth prospect.
A lot of strong responses
around segments around communities,
social movements.
That was also strong.
But of course, they're another youth-dominated segment,
so once again, youth comes out
very strongly for MVNOs.
The ethnic segments
have been and remain
a good prospect.
And we're starting to see
some device management
and M2M specialists emerge
in the MVNO space around the world.
The business segment was nominated less often.
But that, of course, also reflects some of the lower volumes
in that market.
So they're actually MVNOs specialising in enterprise comms.
And finally, there are some rural specialists
doing fixed mobile substitution.
Now, that's a bit less relevant to Australia because of the NBN,
the fixed wireless networks and the satellite networks
which are being put into operation.
We also asked, though,
which MVNOs were sticking to
the unsegmented discount strategy
that we've seen in the past.
Only 13% said they were.
So, in other words,
the vast majority of MVNOs we spoke to
were interested in segmentation
and getting a better marketing outcome from that.
So, that overall positive picture is being driven by factors
both on the demand and the supply side.
On the demand side,
there's been some big changes in consumer spending patterns
that have made them more receptive to MVNOs.
Generally, there's been a shrinking pool of consumer spending
since the GFC,
relative to what we were
seeing beforehand.
That's generated
some margin pressure,
free cash flow restrictions
in the telco industry,
affected investment capacity.
But what's behind it
is the emergence of this generation
of discerning and thrifty customers.
It's not that they're not spending.
They're still spending,
but they're being more discerning
about how they're doing it.
There's still a market there
and there's a lot of work being done
around the world.
refocused on improving ARPU
and segmentation of the market.
And out of that is coming
some new sources of revenue,
particularly on the enterprise side.
A big drive to productivity growth
to digitalisation,
and the internet of things
is the platform that's emerging
to address that.
So, generally, the consumer segment
has become a bit tougher.
A lot of new opportunities arising
in the enterprise segment.
And these trends are pretty much
the same in Australia and globally,
creating new opportunity
for MVNO players.
And on the supply side, there have been a number of developments
which have been helping MVNOs.
The greater availability
of LTE wholesale products.
That's helping usage
and helping ARPUs.
The emergence of
cloud-based platforms
and standardised API
which are operationalising
BSS and OSS functionality,
bringing revenue growth
more in line with cost growth.
And generally,
mobiles moving to the centre
of applications development
and deployment,
and that development
is accelerating.
So, mobile is a good part of the industry
to be in at the moment.
One consequence of all this is that the technical barriers to MVNO entry
are actually falling.
Brand and distribution capability
are increasingly now the difference between success and failure.
And of course there's disruption
in the pipeline as well
and the main one that we see
coming in the mobile
and MVNO industry specifically
are the device
and consumer electronics companies
gradually turning themselves
into global MVNOs.
These are the most threatening disrupters in the mobile sector.
I mean, there are some big brands
involved here -
Apple, Google, Samsung,
Huawei, Dell.
What all these players are trying to move towards
is giving customers the option of out-of-the-box operation
of network devices.
They want to ship devices with mobile connection already operating
and they're increasingly looking at launching
global, multi-domestic MVNO or resale services
in order to do that.
And inevitably, their brand power
is going to raise the level of competition in the MVNO market.
And just to show you
that this doesn't necessarily have to happen at the big end of town -
it can happen at a small scale too -
this is just an example that I'm personally familiar with
because I like to play with microcontrollers.
Particle is the name of a company
that was launched in May 2013
as a Kickstarter project.
They offer a cloud-based
management platform
for prototyping and launch of
IoT products and services.
They market their own hardware.
This photograph here
is of one of their devices.
There's a wi-fi version of this device
but in two months' time,
they're launching a 2G/3G
cellular version of this device.
And what this device will have is,
again, out-of-the-box connectivity.
So, what they've done
is put together a 100-country MVNO
and resale deal
with various operators
around the world.
Telstra, as it happens,
is the local mobile network operator
for Particle.
The only thing I really want you to take out of this
is that even two-year-old Kickstarter companies
are getting into the game
and this, again, just underlines this point
about the lowering barriers to entry in this market.
OK, so what do MVNOs do about it?
How do you get strategic?
Well, MVNOs are increasingly
no longer just focused on
the low end, sub-prime customers.
The variety of value propositions
is growing.
We're seeing segmentation
in the general consumer market,
more customised offers
designed to attract
particular segments
and also demand for
integrated business mobility,
driving enterprise segment offers.
In the relationship
between the mobile network operator
underlying the MVNO,
what increasingly we're seeing
is MNOs seeing MVNOs as partners,
filling in solutions
for sub-segments
which mobile network operators
find difficult to reach.
So, successful network operator strategy
is now about facilitating
these MVNO partnerships.
It's not just about selling
excess capacity anymore.
And what they're looking for
are successful MVNOs
that can bring a proposition
to these segments and sub-segments.
Successful MVNOs
increasingly will need
some kind of differentiation
to do that.
And how do you get that differentiation?
Well, there are two kind of main ways.
The two main strategies
we're seeing MVNOs adopting
is either leveraging a distribution network
or leveraging a brand.
The differences are summarised
on this slide.
I won't go through it dot point by dot point.
In between, there are quite a few options.
We see quite a lot of mixed strategies going on.
The distributor leverage some sort of
pre-existing distribution network
and they often co-brand
with the underlying network.
Typically, there'll be some shared branding
and shared advertising.
The distributor often has just a one-time interaction
with the customer
and doesn't develop a strong relationship.
At the other extreme, the branded player
is really striving to own the customer.
They've got complete control
over branding and advertising
and leveraged that brand appeal
into their chosen sub-segments.
They've got...they're all about
ongoing relationship with the customer.
It's harder to do
but the rewards are higher.
Now, between these, of course, there's a spectrum
and you see lots of players in the market
often doing a bit of both,
leveraging both brand and distribution networks, for example.
The retail brand extend has been the classic example of that.
Now, for players without
an advantage in distribution,
branding is indispensable,
and owning the customer
and building that loyalty
requires a more complex
and valued relationships.
Customers are looking for value,
not just low prices,
and they do reward value
with loyalty.
So, some examples of this kind of
deeper relationship can even include
things like understanding location,
behavioural patterns,
leveraging this
to improve direct marketing
and loyalty programs,
all in a completely non-creepy way,
of course.
We don't want to upset people too much.
But there's a data lake building up
underneath telcos
and some of the associated brands
in these markets
that's being used to drive value
for customers.
So, it's therefore no surprise to see grocery chains
like Aldi and Woolworths, Tesco in the UK,
leveraging their existing brand into the mobile network,
along with their distribution advantage,
and using that to build loyalty both to the shopping brand
and to the mobile brand.
But this perception of value has to be built on something real.
There needs to be some real, substantial differentiation
to build and sustain a brand.
So, when we spoke to
our 440 MVNO industry players,
we asked them what strategies
they were finding most important
for differentiation,
and here are the top four responses.
Adding innovative products and services,
particularly through bundling.
Addressing new market segments.
Entering adjacent markets
like travel insurance or advertising
and then, finally, expanding internationally.
Now, what I've plotted here are the ones...nominated these strategies
as most important
and some of them nominated them as somewhat important.
There was also another category about not important,
but I didn't think that was terribly interesting.
The top response
for the most important strategy
was adding new services and bundles.
Not too far behind that,
as you can see on that left-hand graph,
is focusing on new sub-segments,
so that refining brand and pitch.
Less likely to be the most important strategy
were expanding into adjacent service markets
or going international.
But be careful about interpreting these numbers
because what this actually shows
is that for a minority of players,
those less popular strategies
actually were the most important strategy.
What determines the best strategy for any given MVNO?
Well, it really comes down to what assets you have,
where you are in the market
and the opportunities you have to leverage them.
And just quickly, these are some of the things
that were nominated in the survey
as being been important for differentiation,
particularly around product innovation.
Cloud-based applications
to support IP voice messaging
and services like device backup.
That topped the list in Australia and globally,
and that was closely followed by
improving mobile broadband offering,
particularly access to LTE capacity.
Now, there is no getting away from
the cost side of the equation as well.
Cost control matters a lot
and MVNOs are getting sharper and sharper on cost control.
What's happened
in the last few years
is that costs like OSS and BSS,
customer acquisition,
retention and marketing,
might have been as low as 30% five or six years ago
and in some places now
they're climbing up towards 60%.
Typical existing proportions of cost
are on the left-hand side
of that table.
The ways that they're going about
trying to cut these costs
are things like self-service
and using social networking
to support customers.
Operators are creating and hosting
cloud-based self-care systems
in order to support their MVNOs,
And this is more likely to come from
some of the traditional
fixed wholesale business units.
Opex models are also proving
very important.
MVNOs need their costs to scale
along with their revenues.
High capex is anathema.
And the cloud is proving
very important for that purpose.
And then there's
the growing importance
of aggregators.
The majority of aggregators
are still following
the classic sub-wholesaler model
where the MVNA aggregates demand
for multiple MVNOs.
Aggregators are increasingly
hosting BSS and OSS capabilities
in the cloud.
That's helping MVNOs
to reset the cost base
and support a pay-as-you-play model.
There are also some new cost elements there at the bottom
that arise out of
adjacent market strategies.
These use voice minutes,
SMS or data as a reward
for supporting
a company's primary business.
Fixed telcos, cable cos and other pay TV service providers
and the large-scale retailers
are the main people playing in this space.
So just to wrap up.
These are the six factors we think
contribute to MVNO success.
Awareness of new competition
and changes in the market,
having a clear segment strategy,
having a complementary brand
and product offering to the MNO,
to build that strategic relationship.
The strength of the brand
and if you're outside
the mobile market,
whether that translates into mobile.
Differentiation
in product and service
and finally, cost control.