Following a series of high profile blows to the consumer indirect channel in recent years, including the demise of Phones4U and Carphone Warehouse, it’s safe to say that mobile network operators (MNOs) are shifting their focus toward more profitable direct sales, says Kushal Shah, business development director at BT Wholesale.
But will we see the B2B market move in the same direction? In a mature industry like mobile, any CFO will find it hard to ignore the opportunity to reduce costs by shifting from indirect sales to direct. It’s now a matter of when channel partners will adapt, rather than if. So it’s perhaps little surprise that an increasing number of channel partners are considering adopting MVNO as their long term business model.
Filling the gap
The closure of Phones4U’s stores in 2017 was the first real indication that the market was changing. Since then, MNOs have increasingly focused on more profitable direct sales, while consumers have more widely embraced the convenience of online purchasing. Life under lockdown only accelerated these trends, forever changing people’s purchase behaviour. Indeed, during (and since) the pandemic, six in ten people expressed a preference for shopping online.
More recently, Carphone Warehouse was recently forced to adapt to these changing market dynamics. With fewer customers visiting physical stores, preferring to purchase online, Carphone Warehouse – now subsumed into the Currys brand – has evolved its business model to meet the market’s new demands. In 2020, it announced the closure of 531 stores with the loss of 2,900 jobs, effectively removing costs that were no longer considered necessary. At the same time, the company developed its own MVNO brand, iD Mobile, ensuring it had a mobile proposition to fill the gap left by MNOs scaling back their demand for indirect connections.
Initially focused on low ARPU customers, Carphone Warehouse developed iD Mobile so that it could serve all parts of the market – both retail and digital – including more ARPU customers on unlimited data packages.
Similar trends are now appearing in the enterprise market, with a growing number of channel partners considering MVNO as a long term business model. Gamma and Abzorb, for example, already have their own MVNO propositions in place, while BT Wholesale recently announced an agreement with plan.com to launch an MVNO on its EE network.
Significant benefits
As Carphone Warehouse was quick to realise, an MVNO proposition offers some significant benefits over the traditional indirect model, not least the much needed stability it can provide in comparison to the volatility of indirect sales.
It’s not unusual, for instance, for indirect businesses to fluctuate from quarter to quarter, in terms of volume and the share of value, as MNOs vacillate between needing and not needing indirect volumes. An MVNO partnership, on the other hand, should provide long term certainty on profitability over a period of between three and five years. Doing so will allow the MVNO to focus on sales and marketing without having to worry about its share of margin disappearing overnight.
The MVNO business model also allows businesses to acquire, serve, and retain customers under their own brand. If they do this job well, customers will become loyal to the MVNO’s brand, rather than the MNO’s, as is typically the case in indirect sales. This has additional advantages, too, as going to market under its own brand also allows a business to demonstrate its innovation, differentiating it from its competition.
It’s also worth considering that true customer ownership, as afforded by an MVNO model, has significant shareholder value for any business. After all, no matter what its long-term exit strategy might be, a reseller’s business will always be worth more if it owns its relationships with its end customers, and isn’t just a reseller or sales agency for another party.
Everything connected through MVNO
There’s no doubt mobile will continue to be essential to UK businesses. Indeed, mobile infrastructure is what allowed us to communicate and collaborate at the height of the pandemic, so our reliance on it isn’t going to diminish as the world finds its new normality. But it’s important for enterprise MVNOs to be aware that other opportunities exist.
Global network rollouts and increased investment in 5G technology have led to a growing appetite for the adoption of IoT technologies, for instance. A shift from hypothetical to real use cases means businesses can clearly see the benefits of implementing IoT, such as streamlining operations, cutting costs, providing valuable insight, and delivering enhanced customer experiences.
At the same time, this rise in adoption has prompted a change in strategy by IoT service providers (SPs) and resellers: many have changed their business model and are seeking independence from operators, with the ultimate goal of becoming MVNOs in their own right. Wireless Logic, an IoT market unicorn recently announced their MVNO partnership on EE.
Getting it right
It will be interesting to see how the MVNO model develops in the enterprise market over the coming years. Whichever direction they take, the success of MVNOs will be dependent on a number of factors.
A successful MVNO needs a sales channel, meaning indirect partners are in a strong position to start. They can build on this advantage by developing their digital sales and service capabilities, and take control of their own mobile brand and propositions.
An MVNO also needs to establish brand credibility. In the enterprise space, the host network operator is key, with business customers putting an increasing level of importance on network leadership when purchasing a mobile proposition.
A network partner that continues to invest in network capacity, speed, reliability, and quality of service is essential in building a mobile market for the future. And as is often the case with IoT, coverage and service availability especially are critical and could mean the difference between life and death.
If resellers choose to purse the MVNO model, they need a partner that recognises the importance of getting it right and good partners will give resellers the freedom to do what they do best, and continue giving their customers the experience they expect.
The market is changing. Those resellers that act now, and take steps to adapt, will most likely be the winners.
The author is Kushal Shah, business development director at BT Wholesale.
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