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© Piran Partners 2015

WHERE NEXT FOR MVNOS?FIELD FISHER: TELECOMS INTENSIVE

ERICK O’CONNOR

MANAGING PARTNER

4th March 2015


ABOUT US

Providing clear, practical and straightforward commercial advice to our clients in the TMT & payments sectors since 2005


THE GROWTH OF MOBILE WORLDWIDE…

6.9bn 11.9% CAGR 2008 - 2013mobile connections

2.9bninternet users

Source: ITU 2014 mobile connections & region definitions

1.1bn telephone main lines

2014

Number of connections (SIMs)

611m

448m

629m

397m

3.6bn

780m

410m


THE GROWTH OF MVNOS WORLDWIDE…

0.7%

6.9%

0.3%

0.7%

0.7%

8.9%

1%

Source: Piran Partners, Ovum & Wireless Intelligence, May 2012

2014

% of MVNO connections(138 million, 2014)

CAGR% 2014 - 2019

5%

44%

34%

35%

7%

8%

9%

Discount, 280

Telecoms, 197

Media, 135

Retail, 114

Migrant, 114

Business, 104

Roaming, 62 M2M, 31

1,000+ MVNOs


SUCCESSFUL MVNOS HAVE BEEN GOOD AT…

Unlocking underserved market segments

Offering choice & innovation

Retail pricing & bundling

Customer service & relationship management

Driving wholesale revenues


INTER-RELATED CHALLENGES…

Brand Affinity

ARPU Costs Churn Growth Technology



Who is more important to consumer?Relevance of MVNOs’ brands & consumer perceptions in an all data worldRise of the new media companies: disintermediationDownstream integration by Google & Amazon into devicesUpstream content & media delivery, mobile payments, cloud services

Brand Affinity




Pressures on Average Revenue per UserDeclining in most markets & likely to continueSignificant competition, especially in mature markets (& from MVNOs)Voice & text substitutionNet neutrality rules: can’t charge more for Facebook access

Customers used to carrying multiple SIMsDepending on market these may be secondary data-only SIMs, or for different uses (e.g. domestic calls vs international calls)

1.7

2.0

connections (SIMs) per customerEurope

Africa

1.4N.America

1.9Asia-Pacific

2.0S.America

Brand Affinity




Wholesale & cost models under pressureRetail bundling putting pressure on ‘traditional’ modelsForecast growth in data consumption vs per MByte chargingInvestment in Billing & CRM systems, new technologyRegulation: Reduction in MTRs, mandated MVNOs, taxation

Brand Affinity




Managing churn Driven by quality of service, devices, pricing & competitionPay-as-you-go customers less loyal (= most MVNOs)Effectiveness of retention strategiesRise of soft SIMs

1 in 7 customers churn annuallyN.America: 37% PAYG

3 in 7 customers churn annuallyS.America: 78% PAYG

Pre-paid vs contract churn

Brand Affinity




Where will growth come from?Pay-As-You-Go to Contract migration: (limited by MVNOs’ sales channels & maturity of domestic banking sectors)Organic growth versus M&A? (no real history of MVNO-driven M&A)Product innovationSmart-devices, Internet of Things & new M2M apps

Brand Affinity




Technology choicesMigration to 4G / LTE (& 3G UMTS in emerging markets) How to manage forecast growth in data consumptionCapital investment needs: GGSN & Policy Control functionalityNeed for convergence: fixed, mobile, broadband, media

Global connections by technology

source: GSMA

Brand Affinity



IMPACT OF GROWTH IN DATA

Costs Cellular data consumption predicted to grow 6.8x CAGR 47% 2013 through 2018*

Just a 2x increase in data = 30% fall in GM%And unconstrained – Facebook videos now play by default

*source: CISCO VNI to 2018 for forecast data growthPiran Partners for example wholesale calculations


EVOLUTION OF WHOLESALE MODELS

+ve: traditionally offered closest link to underlying economics, allowing retail pricing independent of actual consumption, MVNO manages breakage

-ve: early day rates may be high until volume grows, less clarity on known costs

Element (Today)

• Pricing for voice, SMS, data • Share of MTR•Discounts for volume / fees

Peak• Erlang & Mbps models based on capped

busy hour throughput• Tiered banding depending on throughput

achieved (e.g. Band price x Mbps)

Bundles• Individual minutes, text & data

bundles with ‘Pick & mix’ approach•MVNO pre-selects bundles for each

subscriber at beginning of cycle• Potential for high OOB charges

+ve: offers certainty on profitability, helps simplify defining retail packages

-ve: bundles may not be good fit to actual customer usage driving sensitivity, operator benefits from breakage

+ve: actual cost of voice & data is marginal what matters is throughput & quality of service at peak times, sets a known monthly wholesale cost

-ve: management & technical complexity, breaks traditional link between retail pricing & wholesale costs


WHAT DOES THIS MEAN FOR THE FUTURE?

ARPURetail estate or online offers chance to drive PAYG to contract migration

But offset by need for staff, and/or building online brand awareness

GrowthCheaper smartphones & tablets offer MVNOs new growth opportunities

But with impact on wholesale data costs

Techn

Rise of dual & triple play providers adding mobile will squeeze single-play MVNOsAble to cross-sell & drive retention with different profit expectations

Traditional ‘Lite’ MVNO models will need to evolve for service innovationAdvent of LTE means having control over data will be key (& mobility management too)

Brand Affinity

Churn

Costs Wholesale & commercial models must evolveMobile operators have to be willing to meet MVNOs’ needs


THANK YOU

www.piranpartners.com

[email protected]

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