New App-Based MVNOs Herald a Fresh Challenge for Operators

One of the most keenly watched trends in the telecom industry is the entry of new brands in the mobile market.

The charge is being led by companies in financial services, notably well-known “neobanks” like Monzo and Revolut. However, organizations in a range of other sectors, such as utilities and retail, are also taking the plunge. In the UK, this is likely to include Octopus Energy and Lidl, among others.

This flood of entrants is being supported by a new breed of enablers; companies such as Gigs and 1Global can help brands launch much more quickly and cost-effectively than before. Significantly, it means companies can use their own branded apps to offer mobile services, usually underpinned by eSIM.

The UK is seeing lots of activity in this area, and it’s an important topic in FDM CCS Insight’s latest Spotlight report, which reviews the country’s dynamic and fast-moving MVNO landscape in detail. Find out more about the report here.

The Spotlight forecasts solid growth for these new app-based providers, which we expect to reach 3 million customers by 2031. At this point, they’ll account for just over 10% of the UK MVNO market and 3% of the mobile market overall.

The new providers prefer to closely link their mobile service to an established loyalty programme and use targeted promotions to cross-sell low-cost tariffs to millions of existing customers. Most offer a small number of simple plans, usually centred on unlimited data. The overall aims are to boost loyalty, improve customer engagement and drive incremental revenue.

My conversations with telecom operators detect a level apprehension over the potential for app-based MVNOs to disrupt. This is understandable, particularly if they aren’t entirely driven by the same benchmarks for success as a traditional telco.

For example, if an MVNO’s primary aim is an ecosystem play, designed to use mobile to improve retention for its core services, it may be prepared to run it at breakeven, or even a loss. This could set alarm bells ringing for incumbent providers, particularly pure-play mobile operators that don’t have other services to bundle or support.

It’s very interesting to note, for example, that Klarna offers a free mobile service to customers of its premium membership plan, Klarna Max (see below). This is priced at £44.99 per month and includes a range of other benefits such as 1% cashback on debit card purchases, unlimited access to 1,800 airport lounges and several subscription services, including The Times newspaper and the Headspace meditation and mindfulness app.

However, we shouldn’t get ahead of ourselves when considering the potential impact of this new wave of providers. On the one hand, today’s entrants have an advantage of offering a natively digital service that can harness the growing momentum for eSIM. But the UK mobile market is also saturated, highly competitive and has low levels of switching.

Another factor to remember is that most customers are likely to only take mobile from one provider, regardless of how many brands they engage with. This could make it easy to overstate the cross-sell opportunity. For example, someone that banks with Revolut, takes energy from Octopus and shops at Lidl could become inundated with many more offers than they need.

For the UK network operators, the rise of MVNOs — both existing providers and new entrants — is bittersweet. Greater retail competition from low-cost providers threatens to stymie elusive industry efforts to grow but it also offers a path to higher wholesale revenue by connecting new customers to their networks.

Telecom operators are clearly feeling the heat from MVNOs, but it’s important to remember they also hold the crucial network access keys to any provider wishing to offer a mobile service. This element of control places a ceiling on the long-term growth potential of the segment.

Our Spotlight report suggests that, although MVNOs will continue to take share, their gains will finally plateau toward the end of the decade and into the 2030s. At this point, however, the UK mobile landscape could look a lot different than it does today.

For more information about FDM CCS Insight’s new Spotlight report on the UK MVNO segment, get in touch.