MVNO market

NZ MVNO market 2018

With the Commerce commission currently conducting a review into the status of the mobile virtual network operator (MVNO) market in New Zealand, it seems timely to weigh in to the debate.

Vocus is one of the largest MVNOs in New Zealand, and we would expect that if the market was viable it would be making good money from the effort put in, but that isn’t the case. Mark Callander, Vocus NZ CEO, has been very clear that there is no point in his company putting any further effort into mobile services given the current wholesale market offerings.

There are 2 key indicators that the market isn’t currently performing as it should be:

  • There simply aren’t many network operators other than those with their own network. This clearly means that something, or a number of things, must be keeping interest at bay. In New Zealand MVNOs have less than 1% market share while in Australia they hold around 10%.
  • Where suppliers are operating as MVNOs, there is no money to be made.

If we look across the Tasman at the Australian market there is a relatively, or at least comparatively, vibrant MVNO space occupied by the likes of Kogan, AAPT, and Amaysim (Wikipedia has a detailed list here). It appears that Australia has found a way to enable their wholesale mobile market to operate in a way that actually makes it a viable commercial proposition as opposed to simply a value add, which actually gets back to the key question –  why operate in the mobile space as an MVNO?

When a telco doesn’t own its own network, the prime driver is to not lose out on the ability to bundle all services. Spark, Vodafone and 2degrees can all bundle mobile, landline and Internet services into a single invoice while the other players can’t. For some clients that is a defining factor when making a decision.

The other reason that drives the likes of Lightwire to look for viable MVNO options is to enhance results in measurable KPIs such as items per sale and average revenue per user. Both are key metrics and by adding in a mobile offering they become more impressive. But without any profit to be added through improving these metrics, they lose relevance.

So what is currently going wrong in New Zealand that impacts the ability of smaller players to provide mobile services? Virtually everything. Price points, minimum purchase level commitments, restricted number of plans offered, the sales process and lack of B2B automation, white labelling… you name it and it’s not great.

Why hasn’t there been a bigger focus on this? Because there doesn’t have to be without a regulated framework to abide by. Spark, Vodafone and 2degrees have no reason to enable competition against smaller players when margins are already being squeezed.

In May last year the Commerce Commission reported that New Zealand mobile plans were roughly half the price of the OECD average and 37% cheaper than those offered in Australia. We would have to assume that’s unless network operating costs are significantly lower (which given the size of the country that needs to be covered may be the case) operating margins are also lower than in Australia. In which case, wouldn’t seeking to become the premiere wholesale provider of mobile voice and data services be a smart way of cementing/increasing market share?

For my part, I would like to see regulated wholesale services and price points, not dissimilar to the UFB model, which would give end users more choice, reduce the barriers to entry and help the next generation of telcos thrive, and ensure price points remain low as new technologies such as 5G enter the market.

Brendan Ritchie

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