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MVNOs give traditional telcos a run for their money

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 28 Mar 2024
South Africa’s MVNO ecosystem is primarily supported by two host mobile network operators – Cell C and MTN.
South Africa’s MVNO ecosystem is primarily supported by two host mobile network operators – Cell C and MTN.

South Africa is set to witness an uptick in mobile virtual network operator (MVNO) SIM cards in the coming years.

This is according to the 2023 SA MVNO report by local market research firm Africa Analysis, which sheds light on this dynamic landscape.

An MVNO is a telecommunications company that provides mobile phone services but does not own the wireless network infrastructure over which it operates. Instead, MVNOs lease network services from traditional mobile network operators (MNOs) at wholesale rates and then resell those services to customers under their own brand.

Since MVNOs don’t have to invest in building and maintaining network infrastructure, they can often offer competitive pricing and flexible plans without the same level of investment required by traditional MNOs.

They play a significant role in increasing competition in the mobile telecoms market, providing consumers with more choice and often more affordable options for mobile phone services.

The Africa Analysis report reveals significant growth in the MVNO market over the past three years, with nine new MVNO brands launched during this period.

The new players are PnP Mobile, Boxercom, Poket Mobile, Sakeng Mobile, K’nect Mobile, TFG Connect, Capitec Connect, Melon Mobile and Afrihost Mobile.

Additionally, Africa Analysis anticipates the arrival of at least two more MVNOs before June, signalling ongoing expansion and competition.

It points out that currently, there are 17 operational MVNOs in the South African market, each contributing to the industry’s vibrancy and diversity.

Market leaders

According to Africa Analysis, by December 2023, the number of MVNO SIMs surged to 4.3 million, showing an annual growth rate of 51%.

Notably, it states, Capitec Mobile emerges as the largest MVNO, followed by FNB Connect, both with over a million SIMs.

With a strong and positive forecast, the report says the MVNO market is poised for continued expansion.

“By December 2028, analysts project the market to reach 10 million SIMs. Moreover, the potential entry of large retail brands could further propel growth, potentially elevating the market to 13.5 million SIMs,” says Africa Analysis.

Andre Wills, director at Africa Analysis.
Andre Wills, director at Africa Analysis.

It adds that the MVNO retail market achieved a “staggering” R4.3 billion in 2023, underlining the sector’s economic significance.

Africa Analysis points out that SA’s MVNO ecosystem is primarily supported by two host mobile network operators – Cell C and MTN.

According to the firm, Cell C dominates the market, carrying over 95% of the SIMs.

Commenting on the report, Andre Wills, director at Africa Analysis, remarks: “The 2023 SA MVNO report illuminates the dynamic evolution of SA’s telecommunications landscape. The substantial growth observed underscores the industry’s resilience and potential for further expansion.”

Wills tells ITWeb via e-mail that some of the growth drivers of the MVNO market include existing players that have the capability to tap into a large existing customer base, as well as new MVNOs entering the market to tap into large customer bases.

“In addition, we have seen that the success of MVNOs spur the market in other brands, which have not entered as MVNOs, to explore the MVNO opportunity that often leads to the launch of their own MVNO.

“MVNOs have offered attractively-priced mobile services that, when integrated into a loyalty programme, become an attractive value proposition,” he says.

However, Wills notes that new MNVOs face several challenges to crack the market, including investing in providing customer operations (pre and post customer support).

“This challenge is faced by both large and small MVNO brands. It is a critical strategic requirement of all MVNO brands.

“An MVNO customer, like any other mobile customer, still requires support. Therefore, MVNOs that fail to invest in customer operations will see their initial success fade as their MVNO customers leave.”

The other obstacle relates to distribution, he says, as smaller MVNOs need to ensure they offer an app to enable the purchase of mobile services.

Maximising reach

According to Wills, the larger brands in SA (eg, finance or retail brands), have direct access to a large customer base, either through a loyalty programme and/or through their customer base.

“This gives the large brands access to a customer base that can be measured in the millions. Smaller brands don’t have such reach and, therefore, need to invest in building a brand within a target community. This takes time and is generally a longer process.

“Furthermore, the larger MVNO brands integrate the MVNO offering into their loyalty programme and/or data offer rewards that can be used by their MVNO subscriber.

“These challenges do not mean that smaller brands will not succeed. The smaller brand can target a niche community and operate as a profitable business.”

Wills explains that the MVNO market is fundamentally different to the MVNO market in the 1990s or 2000s.

In that era, he says, MVNOs generally targeted niche market segments that were not addressed by the MNOs.

“Today’s MVNO market sees MVNOs focus on the digital enablement of their services that generally target the digital life and spend of customers. Where possible, brands use their MVNO to enable the delivery of the rewards mechanism by integrating the mobile service as rewards in their loyalty programme.

“For example, mobile data is widely used as a rewards payment for customer spend or behaviour within the wider group’s business. For example, using data to reward customers who spend a certain amount with the retailer.”