What's driving growth in the North American MVNO market?

In the commissioned report ‘Shaping the North American MVNO Market’, the MVNOs Series team explores how the winds of change have been blowing through North America’s mobile markets over the past 12 months and the impact that is having on MVNOs.

The North American MVNO market is one of the most mature and developed in the world. It is also one of the most diverse, complex and competitive, with three major markets in three huge countries demonstrating very different characteristics and very different opportunities for MVNOs.

In terms of total number of MVNOs, North America sits third out of all global regions behind Europe and Asia, but in terms of MVNO subscriptions, it is second only to Europe. The region accounts for a significant proportion of new MVNO entrants globally, cementing its reputation for being intensely competitive yet still filled with opportunity.

A closer look at USA, Canada and Mexico

Perhaps it is a matter of perception. The three big North American mobile markets – USA, Canada and Mexico – all pose different challenges to MVNOs. In the US, it is intense competition, in Canada a lack of regulatory support, in Mexico exceptionally low ARPUs and carrier dominance. But that is not to say opportunities do not exist across the region.

In fact, growth prospects for MVNOs in North America are better than average. According to Research & Markets, the North American market will grow at a CAGR of 8.1% to 2022, above the global forecast of 7.4%.

In the US, the world’s biggest consumer of mobile data and by far and away the region’s biggest mobile market, consolidation in the carrier sector is changing the wholesale landscape.

Without a doubt the biggest stories of 2018 in the US mobile industry have been those concerning the Big Four carriers on the merger and acquisition trail. The yet-to-be-ratified merger of T-Mobile and Sprint, the third and fourth biggest operators in the US, represent what many analysts see as a necessary piece of consolidation in an increasingly cramped and crowded market.

AT&T, meanwhile, has already had its $85bn takeover of giant media conglomerate Time-Warner approved. The acquisition puts AT&T in pole position to control the burgeoning market for ‘added extra’ OTT media services such as TV subscriptions, live sports streaming and even movie access being bundled in with mobile contracts, especially as it already owns online TV subscription service DirecTV.

Gregory Gundelfinger, co-founder and CEO of MVNA Telna, shared his insights. “In Canada, the MVNO market is still heavily regulated and controlled by the incumbent carriers,” he said. “The MVNOs are sub-brands of the carriers that offer cheap or no-frills pricing. Virgin Mobile is owned by Bell, Fido is owned by Rogers, Koodo is owned by Telus. The regional carriers have MVNO characteristics such as disruptive pricing, these include networks such as such as Freedom Mobile, Eastlink and Videotron. There are limited growth and disruption opportunities for MVNOs and regional carriers in Canada.

“The US MVNO market has faced unparalleled challenges including uncertainty around government subsidies for the Lifeline program as well significant competition from the MNOs. T-Mobile’s “uncarrier” value propositions and aggressive pricing have caused Sprint, AT&T and Verizon to respond, thereby making it less compelling for customers to utilize MVNOs.

“ARPUs in Mexico are among the lowest in the world, with many MVNOs requiring massive scale to be sustainable. Altan Redes, one of the first mobile operators to launch exclusively as a wholesale network or MVNE, means that barriers for becoming an MVNO have been lowered. This presents new opportunities for entrants into the market,” he concludes.

The Road Ahead

Competition on pricing continues to be a dominant theme in the US MVNO market. This is viewed as both inevitable and a little surprising, depending on who you ask. On the one hand, it is a basic principle of market economics that a crowded supply side will push prices down. On the other, such is the maturity of the US MVNO sector that you might expect intense competition on pricing to have given way to service differentiation a little more than it has so far.

The triple threat of intense pricing competition and the continued incursions of big carriers and big cables into traditional MVNO markets is certainly putting pressure on virtual operators in the US. But how concerned should the sector really be?

We asked Boost’s Peter Adderton to talk us through the challenges and opportunities that lie ahead.

On the entrance of big cable into the mobile market, Peter said: “What it means for the MVNO space is another deep pocketed company looking to grow in a highly saturated wireless market, making it even harder for smaller MVNO’s to compete.”

However, he also warned against pressing the panic button too early, stating that so far it “means very little.”

The bigger picture, however, is that the top of the US mobile ecosystem is seeing a lot of consolidation around the big players, both incumbent carriers and new entrants. Consolidation comes as growth slows and enterprises seek to find new revenue streams. As that trend continues, it is likely that operators and big digital companies entering the market will increasingly target traditional MVNO territory.

Peter argues that the competitive pressure will reach a critical point where MVNO numbers simply have to fall, whether through natural wastage or through their own cycle of consolidation. “My concern is and has always been that MVNOs have never truly been able to operate independently of the host carrier unless they have large enough scale – think Tracfone, and that’s it,” he adds.

For all its complexity and high levels of competition, North America remains a land of opportunity for MVNOs. While a market as mature as the US does not offer the same scope for attention-grabbing levels of growth as some emerging MVNO markets elsewhere in the world, it remains a great place for MVNOs to set up and do business. A well-established wholesale market, regulatory support and a market of 300 million-plus smartphone owners sees to that.

In the full version of the report, you’ll find an in-depth analysis of the North American MVNO market performance – particularly in the US and Mexico. Discover what the opportunities and challenges are, as we look up close at the significant growth in IoT connections, the role technology is playing across the region and the changes in the wholesale and regulatory landscape. The report also examines the potential impact of the US government plans to significantly reduce the Lifeline programme.

Download the report ‘Shaping the North American MVNO Market’ and discover why automation and self-serve are tied to MVNOs’ financial growth.