SA's MVNOs fail to significantly disrupt

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 23 Oct 2018
Standard Bank will soon launch an MVNO, the second in SA to be launched by a bank.
Standard Bank will soon launch an MVNO, the second in SA to be launched by a bank.

South Africa's mobile virtual network operators (MVNOs) have not managed to disrupt the telecoms market as much as they had hoped, and yet new players keep trying.

This is according to Ofentse Dazela, director of pricing research at Africa Analysis.

"Although we are seeing a lot of activity in this space, with a number of players entering this market, the reality is that the SA MVNOs have thus far failed to significantly shake up the mobile market, despite competitive offerings that were announced by operators such as me&you mobile when they entered this space," Dazela told ITWeb.

"Also, most of these operators, if not all of them, are using online platforms to render services, which means a large portion of society is excluded as they do not have credit cards, which is often a preferred method of payment."

Independent ICT analyst Charley Lewis agrees. "With the continuing growth in uptake of over-the-top calling services, and with ongoing 'cost to communicate' interventions eating into margins, MNVOs are unlikely, in my view, to make any substantial inroads into the mobile market in SA, except in specific niche areas where there exists a value proposition, or as extensions of company positions in other markets such as retail and banking."

Despite this, more players keep joining the market. Standard Bank recently confirmed it is getting into the MVNO game, but remains coy about the details.

"Yes, Standard Bank is launching an MVNO which we are working on and should be making an official announcement soon," the bank confirmed with ITWeb via e-mail, but would not provide further details.

When former Virgin Mobile and MVN-X CEO Steve Bailey joined Standard Bank as an executive in November 2017, rumours began to circulate that the bank was gearing up to launch an MVNO. MVN-X was the mobile network enabler behind me&you mobile, Mr Price Mobile, iSmart, BokSel and PSB Network, which all run on Cell C infrastructure. Now it seems a launch is imminent, but it comes over three years after rival First National Bank (FNB) launched its mobile offering.

"Standard Bank is a little late to the revolution started by FNB, but given their customer base and the fact that they in effect manage both the payments platform and customers' accounts, additional areas of financial activity are inevitable," says Arthur Goldstuck, MD of World Wide Worx.

However, Dazela doesn't think Standard Bank missed out on anything significant due to its delayed entry in the space "considering the current limited role played by MVNOs".

"I am not convinced at this stage that there are significant benefits for banks moving into this space, given the level of competition that is currently taking place among operators versus offerings that have been introduced by MVNOs thus far. Perhaps banks are looking to create some stickiness to traditional offerings that may interest their high-end consumers."

FNB was the first South African bank to introduce a mobile offering when it launched FNB Connect in June 2015. By November 2015, it had racked up 100 000 customers, and by March 2018 this had grown to over 600 000 active users.

Goldstuck, however, believes there are many attractions for banks to get into the telecoms market: "Not least the opportunity to manage an additional massive money flow. The primary benefit, though, is that it offers customers a broader service, helps them to manage financial activity in one place, and integrates their lives more closely with the bank.

"Most financial services companies and even the mobile operators themselves don't realise airtime is a financial service as much as a communications service. It is a comfortable fit, if the ecosystem is geared to it."

Competition or collaboration?

Goldstuck says Standard Bank's new offering will unquestioningly provide competition for FNB Connect, but ultimately the banks are really competing with the major operators.

"They will also have different purposes and strategic intentions, as well as different product sets. FNB's offering is built around a very effective electronics store, for example."

Goldstuck points out that the size of MVNOs is still minuscule compared to that of mobile network operators (MNOs).

"Rather than posing a threat, they represent more effective utilisation of network capacity. The MVNOs combined probably have a million subscribers. That's a couple of percent of the market," he explains.

Lewis agrees that although it's a growing segment, it is still a comparatively small one.

"Towards the end of last year, one count listed 11 MVNOs in SA. According to Cell C, SA's MVNO market comprises 1.5 million active SIMs, The largest of these, Hello Mobile, with 60% of the SA market in 2016, (according to TeleGeography), focuses on providing cut-price international calling rates to foreigners working in South Africa," he says.

"Aside from that particular niche, some of the more successful MVNOs are either aligned to established international brands (Virgin Mobile, with 15% of the SA MVNO market in 2016) or leveraged on existing consumer markets, such as MRP Mobile or FNB mobile."

"For now, and probably even in the distant future, MNOs have no real reason to be threatened by MVNOs; these entities are often set-up to operate as niche players. Even in a global context, their subscriber numbers and revenue share is relatively small to unsettle the MNOs," according to Dazela.

However, he says that should Absa, Nedbank or even Capitec also decide to set up their own MVNO operations to offset the stickiness that FNB and Standard Bank are seeking to achieve, then this market will fragment further.

"The result of this is that we could see MNOs becoming even more aggressive in terms of price-based competition, to curtail any real traction by MVNOs, particularly if spectrum is released soon as promised by the government," he adds.

Roaming around

It is still unclear which mobile operator will allow Standard Bank to roam on its network. Cell C has so far been the dominant player in letting MVNOs piggyback on its network. However, in 2016, MTN told ITWeb it was in discussions with a few MVNOs about possible partnerships. MTN has also allowed Afrihost to offer mobile services through its network.

"Hosting MVNOs is attractive to smaller market players, since they offer an easy path to grow subscriber numbers at someone else's marketing expense. It is therefore no accident that the overwhelming majority of MVNOs are hosted by Cell C, making up 25% of Cell C's revenue by the end of last year," Lewis adds.

"Cell C embraced the model because it had such low penetration compared to the big two. Any growth in MVNOs is growth for Cell C, so it works for them. The big two would also benefit, but they have enough growth of their own to see the model as a low priority," Goldstuck adds.

MTN, Vodacom, Cell C and Telkom did not reply to queries from ITWeb about their intentions to partner with MVNOs like the Standard Bank offering.