An MVNO is a tough business model that requires a lot of patience and operational discipline to eke out a sustainable margin. For some, it is a nice niche business to serve the needs of the market and derive enough margin to make it worthwhile. For others, it is a means to a larger goal.
The MVNO market has gone through a number of evolutionary transitions in different regions. In Europe, which represents an arguably more competitive marketplace with regulatory “overhang,” MVNOs have flourished to target diverse demographics across numerous countries. In the United States, the intensity of MVNO activities has not been as fervent.
Compared to Europe as a whole, the U.S. mobile market is fairly homogeneous. Most consumers speak one language, and the simple “caller and receiver both pay” tariff system provide a limited number of levers to differentiate.
The last wave of MVNO activities in the U.S. came about 12 years ago when many brand-led MVNOs launched with much fanfare, including Disney Mobile and ESPN Mobile, to attract wireless subscribers based on brand affinity. While many failed, successful ones like Virgin Mobile were later acquired by host mobile operators.
In some sense, mobile operators leveraged the MVNOs to target specific market segments, and later bought those that successfully captured enough subscribers. Outside of the largest U.S. MVNO, Tracfone with about 23 million subscribers spread across multiple MVNO brands including Straight Talk, Walmart Family Mobile and others, most MVNOs are small players with a limited number of subscribers. The last wave of MVNOs were mostly consumed by the host mobile operators.
While the MVNOs serve about 11% of total mobile subscribers in the U.S. today, its growth in subscribers had peaked in 2016 as more subscribers have transitioned from prepaid to postpaid in recent years. Moreover, major operators have been capturing more prepaid share with owned brands (e.g., AT&T’s Cricket and T-Mobile’s MetroPCS).
Amid a seemingly declining pool of market opportunity, it is interesting to note that several cable operators are entering the mobile market, including Comcast, Charter and soon Altice. Unlike in the past, these new players are bigger companies with operating cash flows, making it possible to play the “long” game.
Whether they have the will to continuously fund necessary capex and opex investments to fight for quarterly net adds in a saturated mobile broadband market is up for debate. As noted previously, these “cable-first” MVNOs seem poised to play the long game—i.e., gradually build mobile relationships to buttress core fixed connectivity and video businesses. With the possible winnowing down of the U.S. wireless market from four to three major players, the Cable’s MVNO path may lead to three possible outcomes: “rent to be acquired,” “rent and build,” or “rent to own."
- The “rent to be acquired” path has been the historical track record for many past MVNOs with limited scale to expand beyond core serviceable market. For some cable MVNOs with limited appetite for the “long” game may choose this path.
- The “rent and build” model is likely the path that cable MVNOs have in mind today as they see the 5G transition and unlicensed and shared spectrum like CBRS as possible means to building a mobile network upon their fixed infrastructure.
- Finally, the “rent to own” path may be chosen if the fixed-mobile convergence trends accelerate to the point that owning a nationwide mobile network becomes paramount. This third option depends on the success of 5G broadband access to the home and video bundles.
With mobility, on-demand video, and new consumer and enterprise applications challenging the old paradigm of what and how connectivity services are delivered, MVNO is a foothold for the cable companies. Whether that is enough depends on the time horizon and how the market evolves.
Nobody knows how long the poker game will last before somebody goes bust. For now, the cable companies have “chips” on the table. Who will bet and how much depends on what kind of cards they are dealt.
Wildcards such as CBRS could favor the MVNO players, and the increasing range of customers and applications (from basic phone users and IoT devices to ultra-broadband users) will create new niche markets. As these factors become clear, we could see multiple winners in this poker game.
Kyung Mun is a senior analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provides market analysis on the mobile infrastructure and mobile handset markets. Over the course of his 20+ years in wireless and cable industries in a dynamic range of roles from engineering to product management and technology strategy, Mun has contributed to the advancement of mobile communication while working at leading companies in the mobile value chain including Motorola, Texas Instruments, Alcatel-Lucent and a few startups in between. He holds undergraduate and graduate degrees in electrical engineering from the University of Texas at Austin and Georgia Tech, and studied finance and strategy at Southern Methodist University.
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