The Australian mobile telco space is apparently a sea of churn, with mobile subscribers willing to ditch service providers the first chance they get, according to the latest research from Telsyte.
The behaviour is emblematic of consumers' deep-seated discontent and it looks like they are increasingly headed into the welcoming arms of mobile virtual network operators (MVNOs).
Sounds like a win-win for customers and the virtual network operators, right?
Not quite, because the MVNO market has been feeling the pinch of late – and things are only getting tighter.
Ruslan Kogan’s efforts in the space crashed and burned last year and the margins for the operators are thinner than ever, especially as the wholesale carriers (Telstra, Optus, Vodafone) look to turn the screws.
The MVNO market has seen a cycle of consolidation and the number of operators is only going to shrink further.
Telsyte analyst Alvin Lee says that product differentiation, whether it’s price, performance or service, is the key to success or failure.
But while price has been the key selling point for many MVNOs, simply competing on price is pretty much a race to oblivion.
“What we are seeing is that as carriers tighten up their wholesale agreements, MVNOs are going to feel the squeeze and will be forced to raise their prices,” Lee says.
“If you are only competing on price then you are not sustainable in the long run.”
Making it work: Amaysim
One MVNO that has benefited from rising customer discontent is Amaysim, which along with Telstra has topped Telsyte’s customer rating survey.
Launched in 2010, Amaysim signed on to Optus’ network and leveraged a lot of what it had learnt from its experience as Simyo in Europe.
Amaysim founder and chief executive officer Rolf Hansen told Business Spectator that customers are increasingly fed up with not getting bang for their buck.
“We have no lock-in contracts, we have one price point and no hidden footnotes,” Hansen says.
Hansen adds that while unlocking value for customers is at the heart of what makes or breaks a virtual network operator, the relationship it has with its carrier is equally important.
“Being a good MVNO is about building connections both with the customers and the carriers,” he says.
“Your carrier has to have a carrier that has a real strategic interest in making you successful.”
Forging these relationships isn’t simple because sooner or later the retail units of the carrier partners start getting nervous. There’s cannibalisation on the network, and while partnerships with MVNOs still deliver an overall net gain for the likes of Optus, the dynamic is starting to shift.
The likes of Telstra, Optus and Vodafone are raising their game with regards to customer service and are keen to make amends for their past indiscretions. It’s a sign of the new reality in a saturated market where customers are unwilling to put up with onerous restrictions and where growing market share requires major operators to become more customer-oriented.
For MVNOs the room to differentiate purely on price is running out as the arbitrage potential in a market where prices are levelling out starts to diminish.
“As the big brands start copying some of the service plays of the smaller operators it simply washes out the smaller MVNOs that are sub-scale, have an unsustainable margin structure or have relatively sub-standard service,” Hansen says.
The first big wave of consolidation in the MVNO market has already seen a number of virtual operators disappear.
No room for newbies
Product differentiation is the name of the game and MVNOs like Amaysim and Yatango mobile are pushing hard with new initiatives.
Amaysim has teamed up with MobiCity to provide a range of unlocked phones and tablets, while Yantango – also on Optus’ network – provides flexible customisation of plans and usage options.
Meanwhile, the carrier operators are pursuing their differentiation through network advantage, especially in the 4G LTE space.
For now the existing MVNOs are safe but Telsyte’s Lee says that 4G LTE will enable the provision of better services and applications – and that’s when things might get even tougher for MVNOs.
As for new entrants, there’s simply no room for them unless they can convince the carriers that they are bringing something special to the table.
Lee adds that network operators will not be interested unless there’s a compelling strategic advantage.
“It will have to be a strategic play, like an MVNO that focuses on a very specific niche – areas that a carrier can’t service properly, or new market segments.”
The demolition of Kogan Mobile last year was an illustration of just how much power the carriers already have with regards to pricing wholesale access. Once their respective 4G networks are up and running the game is only going to get harder for MVNOs.
Australian customers may have no qualms about ditching a bad service provider but they are running out of choices.