MTN unlocks mobile virtual network operator potential in SA

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Mobile operator MTN has enriched the South African mobile virtual network operator (MVNO) market.

So say analysts, after retailer Pick n Pay this week became the latest company to introduce an MVNO product – PnP Mobile – the first to launch on the MTN network.

The MVNO market in SA had over the years been dominated by Cell C, with MVNOs such as FNB Connect, me&you and Mr P Mobile, among others, piggy-backing on the telco’s network.

However, Cell C is facing deep financial problems, with FNB CEO Jacques Celliers recently telling ITWeb that FNB Connect is waiting for stability at Cell C in order to scale.

In its latest results, the financially-distressed Cell C posted a net loss of R7.5 billion, although it says it remains optimistic and is forging ahead with its restructuring strategy to optimise operations.

When launching its MVNO platform last month, MTN said with its extensive national network that covers rural areas, MTN offers MVNO partners “a high-quality network experience and opportunity to deliver innovative solutions that reach even more South Africans”.

According to MTN, the new service also opens an opportunity for the company to explore specific bespoke projects through strategic approved MVNO partnerships.

Vodacom is also reportedly planning to launch its own MVNO platform.

Strong brand benefits

Commenting on SA’s MVNO market, Christopher Geerdts, director at BMIT, says the launch of PnP Mobile demonstrates the MVNO market has been enriched by the entry of MTN as a wholesale provider.

PnP Mobile uses MTN’s mobile network infrastructure to offer customers prepaid, SIM-based access to services including airtime, data and SMS.

A tiered rewards system for Smart Shopper customers will enable them to earn up to 2.5GB in free data rewards each month. Boxer Superstores is also expected to launch a SIM card soon.

“Pick n Pay has no doubt followed the example of other retail grocery brands, such as Tesco Mobile (in the UK and Eastern Europe). The retailer will benefit from its strong brand, wide retail footprint and established advertising channels,” Geerdts says.

He believes the upcoming spectrum auction will compel telcos to further open their networks in 2021.

However, he says, MVNOs’ entry into the South African market is difficult, given the very strong brands of the large telcos and the data price cuts across all operators earlier this year.

“Pick n Pay’s success depends on how well they can leverage their Smart Shopper base to target shoppers with a unique value proposition and demonstrate compelling savings on groceries,” Geerdts says.

“COVID-19 has squeezed the economy and put pressure on families to save money on groceries. Pick n Pay can also integrate their financial services. If Pick n Pay executes well on this and offers good customer services, then PnP Mobile could soon become a household name."

Dobek Pater, telecoms analyst at Africa Analysis, is of the view that from a retail perspective, the MVNOs do not individually present a significant threat to the large MNOs.

In aggregate, he adds the MVNOs take a certain portion of customers away from the MNOs but in SA, the MVNOs account for only around 2% of the total active SIM card base.

“On the other hand, they contribute to MNO revenues by buying wholesale services from them (eg, using the MNO network infrastructure). In SA, to date, only Cell C has hosted MVNOs and earned wholesale revenue from them. PnP Mobile will be the first MVNO to be hosted on the MTN platform,” says Pater.

Specific targets

Describing the benefits of MVNOs, he points out that in many instances, it concerns the product which may be designed to suit a specific group of customers, users and/or brand affiliation.

For example, he explains, certain members of the Afrikaans community may prefer a MVNO which communicates with them only in Afrikaans.

“In the case of FNB Connect, mobile or telecommunications products sold by FNB may be linked to certain other benefits associated with banking products from FNB. Entities such a Pick n Pay may link PnP Mobile products to other benefits associated with shopping at Pick n Pay stores.”

Nonetheless, Pater says churning existing subscribers away from the service providers they are using currently is the biggest Achilles heel for the MVNOs.

“There is a segment of the user base which is very price-sensitive and willing to keep changing mobile service providers to save a bit of money. However, these are also often subscribers who are either marginally profitable or not profitable at all. The ‘better quality’ subscribers do not change service providers as often and tend to remain more loyal.”

According to Pater, there may also be a level of distrust of MVNOs versus MNOs, as evidenced by the small number of active subscribers (in aggregate) the MVNOs have been able to attract over the years.

“To date, only Cell C hosted MVNOs. Historically, this limited MVNO performance to the Cell C infrastructure which presented constraints once a user moved out of the urban environment – the quality of service may have been poor. This may change with Cell C roaming on the MTN network and with the larger MNOs beginning to host MVNOs.”

Another challenge is lack of attraction presented by MVNOs, Pater notes. “Typically, a MVNO tries to target a niche market to which it can appeal. In SA, many MVNOs have either chosen to target very niche markets which have been unsustainable and/or did not generate sufficient appeal within their target markets to become successful.”

Meanwhile, Arthur Goldstuck, MD of World Wide Worx, comments that MVNOs are complementary to the big telcos, representing an additional revenue stream and efficient use of available infrastructure capacity.

“It is very rare to see an MVNO become a major telco in its own right, as Virgin Mobile did in the US. Even there, however, the brand was eventually subsumed by one of the major telcos,” says Goldstuck.

“An MVNO is typically created to leverage the affinity to a brand of an existing, non-telco customer base, or to arbitrage the wholesale discount it receives from a telco in order to offer lower costs to consumers through minimising its profit margin. This means that it can be used to reward customer loyalty, leverage brand affinity or cut costs for consumers.”

He explains that with the demise of Virgin Mobile here, FNB Connect seems to be the leader, but has taken a knock over the past year.

“Other major players are Mr P Mobile, me&you Mobile, Trace Mobile and Afrihost Mobile. Standard Bank Mobile and PnP Mobile can be expected to compete strongly in this market,” Goldstuck concludes.

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