Research Notes

MVNOs will have a central role on the future UK mobile market- which UK operator has the best MVNO strategy?

After the merger between Orange and T-Mobile was approved, the UK mobile market is facing a paradigm shift, a shift where MVNOs will play a central role in the battle to attract and retain the most number of customers, in the most cost efficient manner.

Up to now, the English mobile market has been divided between the four main operators (Orange, T Mobile, Vodafone and O2) and with a smaller share of the market going to the mobile operator 3. In reality the market has had for players that have battled over having the dominating market share – but without success. Almost everything has been tried including acquiring shops, launching more shops, launching mobile phone models that one operator has had exclusive rights to market and sell etc. However none of the above strategies has resulted in any one of the four operators having a dominating share of the market.

Both Orange and T Mobile have admitted that on a market with decreasing prices and increasing costs of building and running future mobile networks, they need to have a market share of more than 25% to create a business large enough to give shareholders a sensible future return on their investments. The merger between Orange and T-Mobile in the UK, proves that the price development on mobile broadband, combined with the general price development will be one of the driving forces behind the market consolidation we expect will sweep across Europe during the coming years.

Future mobile operators need to focus on two things; reducing acquisition costs and being able to build and run a factory large enough to ensure that they will have the most cost efficient factory for manufacturing voice, SMS and data. Operators that believe that they can charge more for their services based on a premium brand are naive and are playing a dangerous game with their shareholders money. Telephony is becoming increasingly commoditised.

Strand Consult knows that the most successful European operators today are those with the most aggressive MVNO strategy, and we know that a number of mobile operators have used MVNOs in combination with effective cost-reducing programs to increase their profitability. One of the best cases is how Stan Miller from KPN Mobile international together with his team at E-Plus in Germany reduced their mixed SAC by 56% and increased their EBITDA from 22% to 37% in just 12 months. Today, three years later they have passed an EBITDA margin of 40% and Vodafone and T Mobile’s margin in Germany has decreased from +40% to around 30%. You can read all about our E-Plus case from Q2 2006 here:

In the UK there is no doubt that the changes on the market after the merger between Orange and T Mobile, will result in all the other operators needing to examine how they can use MVNOs as an active part of their distribution strategy and as an efficient tool to reduce their SAC. The big question is how each individual operator will implement their MVNO strategy and the significance this will have on the UK market in the short, medium and long term.

In practice we often see operators use one of two strategies; a segmentation strategy where they only sign deals with MVNOs doing business in market areas where the operator is not strongly represented (MVNOs as a supplement), or a strategy like E-Plus, where the operator welcomes everyone on their network and combines their MVNO strategy with a number of MVNEs, as an efficient tool to quickly launch even more MVNOs. You can read more about how operators use MVNEs here:

We believe that the UK will experience an explosion in the number and types of MVNOs on the market and we believe that the market will come under pressure from a combination of the existing large MVNOs (Virgin, Tesco, Lyca, Labara etc) and a number of new market players – a scenario we have already experienced in Denmark, Norway, Germany, Belgium and Holland. Simply put, the UK is the next battlefield and the merger between Orange and T Mobile is the fuse that will ignite competition and fuel the role of MVNOs in the future.

Today, Strand Consult is well known for our comprehensive reports and workshops, and our report ”How to Succeed in the Second-Generation MVNO Market” is no exception. The report gives an in-depth description of the MVNO market and how it is developing. Did you know that we have the world’s largest MVNO research team?Many people are talking and writing about the MVNO market, what it looks like and how it will develop, but very few have analysed and described all the facets of this market. We know that the mobile MVNO market is one of the fastest growing segments in the history of the mobile industry.

These and many other issues are thoroughly discussed in our new mobile report How to Succeed in the Second-Generation MVNO Market The report describes and analyses the changes that the mobile operators are facing, thereby helping them to better prepare and adapt to the challenges of the future mobile market. This new report describes in detail all the changes that are currently taking place on the mobile market and points out that the mobile operators’ adaptation process is by no way over – on the contrary, it has only just begun. 
How to Succeed in the Second-Generation MVNO Market

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