The concept of a Mobile Virtual Network Operator (MVNO) is simple: A Mobile Network Operator (MNO) such as Telstra, Optus or Vodafone, sells its unused network capacity (e.g. voice or data) to a smaller company under a wholesale arrangement.

This company subsequently sells such capacity to its own customers under its own brand.

MNOs are able to benefit from this model by selling unused capacity to customers that are more difficult to capture under existing marketing and pricing plans.

The benefit to the MVNO is that they don’t have to invest in large mobile networks.

However, their margins tend to be slim and their operating models need to be efficient in order to generate sufficient operating cash flows.

In order to minimise costs, MVNOs tend to sell their offering primarily through online models or existing distribution channels and outsource their customer service overseas or to more cost effective locations.

In 2015 the Bring Your Own Device (BYOD) trend in Australia helped to further decrease operating expenses for most MVNOs due to lower customer acquisition costs, whilst the increased popularity of non-contract prepaid plans added to the top line.

It is not surprising therefore that the Australian MVNO market did relatively well in 2015 and further increased its overall market share compared to 2014.

In particular Amaysim and Aldi Mobile (Medion) showed an uplift in ‘net adds,’ adding to their overall respective market shares by 0.3 percent and 0.8 percent respectively, according to a recent Kantar Worldpanel ComTech Carrier Barometer. 

New players also entered the market: Kogan Mobile relaunched its services on the Vodafone network and Coles and Woolworths both decided to increase their share of wallet and basket size by leveraging the mobile networks of Optus and Telstra respectively.

Unfortunately not all news was positive in 2015. Brisbane based Vaya was acquired by Amaysim after “racking up” $50 million of debt to Optus and less than two months after an unsuccessful attempt at a reverse listing of its parent company, Yatango went into administration.

Whilst the MVNO market overall gained more traction in 2015, the question is, will this trend continue in the near future?

The majority of Australian MVNOs are ‘discount MVNOs and developed markets outside Australia have seen many of those struggling with unlimited data, SMS and voice being provided in the market and pricing, as a result of that, becoming less of a competitive advantage.

The MNOs themselves might ultimately respond to the change in market dynamics as well.

In November 2015 market research company Kantar reported that the rise of MVNOs in the non-contract market led to a drop in overall market share for incumbent telco Telstra, caused by a decrease in its number of post-paid customers.

Such factors are expected to further bring down margins and increase competition between operators which might, in turn, add to market consolidation in the MVNO space.

In order to counter competitive forces, some MVNOs might be looking to scale their business operations in an attempt to further reduce operating costs and increase their ability to negotiate better wholesale deals with their MNO.

With this in mind, the positive response of Amaysim’s shareholders immediately following the acquisition of Vaya is not a surprise.

We should also expect an increased focus on (online) customer experience, greater data allowances and further diversification.

In this context it is interesting to track the trajectory of the newly launched MVNO, ‘My Mobile Data / OVO,’ that focuses on customers with a demand for data hungry content such as Streaming Video On Demand (SVOD) and audio.

The MVNO that we think will be most successful in the (near) future, is the one that complements the MNO and has the ability to re-invent the traditional telecom model altogether.

We should think about niche MVNOs such as pure Machine to Machine operators and MVNOs that are able to leverage the Internet of Things (IoT).

And although (full) availability of 5G is still a few years away, various IoT models / applications are exciting and will provide new opportunities for MVNOs to differentiate themselves from their peers.

All in all, 2016 and beyond, will be an interesting period for Australian MNOs and MVNOs alike.

Philip Takken is an Audit and Assurance Senior Director in Deloitte’s Technology, Media and Telecommunications (“TMT”) practice in Sydney. The views in this article are those of the Author and do not represent the views of Deloitte Touche Tohmatsu or any of its affiliates.