Mobile virtual network operators (MVNOs), which piggyback off the infrastructure provided by mobile network operators to provide services to niche customer segments, are “emerging as the primary engines of market growth” in South Africa’s telecommunications industry.

This is according to a new report by tech industry research and advisory firm BMIT.

“The MVNO market has almost doubled in size in the last two years,” said Christopher Geerdts, MD at BMIT, in a statement on Thursday.

“BMIT’s subscriber estimates show the market is passing its inflection point and is now set for ongoing growth, while evolving into a healthy, vibrant, multi-dimensional, value-adding contributor to mobile operators, big brand companies and, ultimately, to customers.”

According to Johan Nel, senior management consultant at BMIT and lead author of the report, the MVNO market is expected to outpace mobile operator market growth in years to come. BMIT estimates put active MVNO subscribers at 4.8 million at the end of 2024, with the expectation of a surge to around 11 or 12 million by 2029, representing an annual compound growth rate of 18%.

“Whether the MVNO market will go beyond 10% market share over the longer term is quite possible, but depends on a number of factors considered in the report,” said Nel.

Healthy competition

BMIT said Telkom’s recently launched wholesale MVNO services, along with Vodacom’s entry into the wholesale market – Vodacom onboarded Mr Price Mobile in September – has added healthy competition at the wholesale level that will drive market growth.

The market’s evolution suggests the MVNO business model has been proven and is now attracting the “necessary level” of venture capital and institutional investment needed to drive sustainable growth and to deliver the competition needed to keep the market healthy, BMIT said.

Read: Afrihost AirMobile wins in MVNO data pricing showdown

The report also highlights the importance of embedded Sims or eSims to the growth of MVNOs.

“South Africans are used to using multiple Sims to take advantage of different offers and services, so the ability to subscribe to a new service provider and to start using new services instantly and seamlessly, is a compelling alternative to the hurdle of using a physical Sim card, particularly for digitally savvy customers. From a device point of view, this reduces the cost and environmental impact of traditional Sim card distribution,” said BMIT.

The company’s research shows that the nature of MVNOs has also changed as these businesses become more sustainable. Unlike the “price arbitrage” MVNOs of the past that competed by offering lower prices – and simply “did not survive” – modern MVNOs are leverage existing brands as a base for growth and using mobile services to provide added value that improves stickiness in their core business. BMIT identified digital enablement, customer engagement and brand loyalty as some of the key drivers.

These additional value-driving elements introduced by branded MVNOs such as those run by the banks are altering market dynamics by competing “in a new way and with value propositions that are inherently different”.

“These are wholly new market dynamics and it is quite exciting to see this evolving within the market structure. Measuring customer value now goes way beyond merely comparing price per gigabyte. It also has segment specific context,” said Nel.

According to the report, MVNO average revenue per user – Arpu is a closely watched industry metric – will continue to rise as “bank-centric”, “ISP-centric” and “retail-centric” MVNOs lure higher-Arpu customers away from traditional operators. Arpus are also going to be driven by MVNOs choosing to focus on the SME segment where players like Huge Connect and Melon Mobile have shown an understanding of market needs.

But there are other ways to compete, by providing more value to MVNO customers like including DStv Stream subscriptions, multi-Sim family packages and reduced pricing for fibre connectivity in the case of ISPs.

Read: Why Capitec launched an MVNO – and what comes next

“People tend to think that MVNOs are merely disruptive competitors to the mobile operators. While they do compete, and quite aggressively at that, one must also think of MVNOs as strategic partnerships, intended to better leverage the spectrum and network infrastructure that the operators have built,” said Geerdts. – © 2024 NewsCentral Media

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