MVNOs Will Have a Central Role on the Future Mobile Market

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.

The most successful European operators today are those with the most aggressive MVNO strategy, and a number of mobile operators have used MVNOs in combination with effective cost-reducing programs to increase their profitability, Strand Consult says. 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%.

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