The MVNO elephant in the room

A mobile virtual network operator or MVNO is a wireless communications service provider. Unlike traditional mobile network operators (MNOs), MVNOs do not own the infrastructure they use. Instead, they lease it from MNOs and use the infrastructure to deliver a unique set of services to their markets. MVNOs acquire bulk access to an MNO’s services at discounted or wholesale rates and set retail prices for sale to consumers.

Many leading South African brands have launched as Mobile Virtual Network Operators to offer their captive client bases access to an extended range of value-adding communication services. These include FNB, Standard Bank and Mr. Price. The local media in South Africa has recently covered the performance of these MNVO and overall, it seems business is booming:

·???????Mr Price Cellular,?the mobile virtual network operator (MVNO) launched by Mr Price Group in 2017, has shown stunning growth in the past year, topping R1-billion in revenue for the first time. The Durban-headquartered retail group’s telecommunications segment grew revenue by 34.4% in the past year, to R1.2-billion, far outstripping the growth of the country’s established mobile operators. Click here to read more.

·???????FNB Connect: First National Bank has been offering its own mobile virtual network operator (MVNO) called FNB Connect?since June 2015. The MVNO?amassed 100,000 SIM activations?only five months after its launch, which grew to 832,700 by the end of FNB’s 2020/2021 financial year. Click here to read more.

·???????Standard Bank Mobile: The bank launched its mobile offerings in November 2018 and has grown its base to over 350?000 customers. According to this article, the bank continues to add new subscribers.

The elephant in the MVNO room in South Africa must be Cell C which was belatedly awarded South Africa’s third MNO license. As such it had to break into a market dominated and largely saturated by the incumbent mobile network operators Vodacom and MTN. Cell C’s hunger for market share compelled it to host MNVOs on its network to gain access to the captive client bases these brands had.

Today Cell C can no longer be considered a Mobile Network Operator since it no longer has its own mobile network. Instead, it has entered into roaming agreements with Vodacom and MTN according to which Cell C's prepaid customers roam on MTN's network and their postpaid contract customers roam on Vodacom's network. This essentially means Cell C has evolved from an MNO to MVNO under debt duress – it simply could no longer afford to run its own network.

This means Cell C is playing a dual role: In the first instance Cell C has become an MVNO and whilst it still issues Cell C branded SIM cards, those subscribers make use of either MTN’s (prepaid) or Vodacom’s (postpaid) network. In the second instance Cell C acts as a Mobile Virtual Network Aggregator (MVNA) that aggregates the traffic of its MNVOs through its roaming agreement with MTN. Therefore, regardless of whether you have a Mr. Price, FNB or Standard Bank branded SIM card, you are in fact using MTN’s network to call and to connect.

This makes for interesting product offerings as demonstrated in the case of a prepaid mobile data user that wishes to buy 1 GB of prepaid data valid for 30 days. Since all Cell C’s subscribers and those on Mr. Price, FNB Connect and Standard Bank are essentially serviced as prepaid users on MTN’s network, one might be tempted to think there will be some form of price parity, but that is not the case:

·???????FNB Connect 1GB prepaid (30 days): R59,00

·???????Cell C 1 GB prepaid (30 days): R65,00

·???????Standard Bank Mobile 1GB prepaid (30 days): R79,00

·???????MTN 1GB prepaid (30 days): R85,00

Two questions come to mind:

1.?????It is common cause that Cell C has not been able to pay its debts and should its recapitalization not succeed, it is not expected to survive. The company must restructure R7.3 billion (about US$456.7 million) in debt. Cell C’s priority creditors were due to vote on whether they will consent to the offer of 20c for every rand of debt – an 80 percent loss – during the meeting of noteholders on June 20. This vote was postponed because, apparently, it did not meet the quorum requirements. The adjourned meeting, now due to take place on 5 July. What will happen to Cell C, FNB Connect, Mr Price and Standard Bank mobile subscribers if Cell C cannot overcome its debt burden?

2.?????Considering that MTN’s is a wholesale supplier to both Cell C and the MVNOs contracted with Cell C, for how long will MTN allow these MVNO’s to undercut their pricing?

At 4C Group we pride ourselves on our in-depth knowledge of the Africa telecoms landscape. Our iNSight MVNO technology stack enables leading brand to launch successful MVNO operations. Contact us today if you have a captive client base and want to leverage the benefits and profits such a strategy can offer.?