Why Are MNOs Launching IoT MVNOs?

Mobile Virtual Network Operators (MVNOs) do not sell connectivity, they sell a business solution. MVNOs fill a gap in the communication services market that is inadequately served by spectrum-owning Mobile Network Operators (MNOs). MVNOs make an otherwise needlessly expensive service affordable by wholesaling, combining, and repackaging the connectivity services of other MNOs. MVNOs simplify a specific point of complexity, creating a niche product for a dedicated audience that has discrete value. MNOs sell access to their mobile infrastructure and ordinarily, the two would be in direct competition with each other if it were not for the fact that an MVNO’s wholesale suppliers cannot offer precisely the same wireless service for the same price—at least not at the beginning. An MVNO’s customers may be buying wireless voice and data, but what the MVNO is selling is a practical solution to a business problem.

Traditionally, MVNOs served private consumer needs, but they have also been set up to serve corporate liable devices and have nearly always existed for the sake of overcoming roaming issues. Namely, they remove the unpredictability of the expense of communicating between multiple countries on networks run by different cellular companies. Unsurprisingly, the Machine-to-Machine (M2M)/IoT market with its business-critical national and international roaming requirements has been targeted by MVNOs for years. MVNO fortunes have come and gone as lucrative holes in the global connectivity map have been identified by them and then plugged by MNOs. But there is a new spate of MNO-owned MVNOs and dedicated MNO sub-brands being established just to offer global machine-type connectivity.

JT IoT/M2M was launched by Jersey Telecom in February 2016, BICS IoT was launched by Proximus (formerly Belgacom) in January 2018, and 1NCE was commercially launched by Deutsche Telekom in August 2018. They are all standalone networks with their own Core Networks (CNs) and virtual Radio Access Networks (RANs). They all have their own Mobile Network Codes (MNCs), issue their own SIM cards, and operate their own International Mobile Subscriber Identity (IMSI) blocks. All use global SIM cards and global connectivity management platforms, all emphasize basic connectivity and are application-lite, and all have transparent costs and web-based customer engagement; with an increasing trend toward branding that distances themselves from their MNO owners. Simplification is the operative word, the grandfather of all the above being Telenor Connexion, launched back in 2008.

While MNOs own and maintain all of their assets, an MVNO uses an existing MNO network to deliver services – which makes it cheaper to operate. IoT MVNOs have a simple business model designed to reduce operating costs and to keep them as predictable as possible. Just take 1NCE for example, who calls itself “Europe’s first data flat rate for the Internet of Things.” Technically, a similar deal could be (and already is) arranged on a case-by-case basis by large carriers, so why do IoT MVNOs seem to be proliferating and do they have a viable opportunity? Most enterprises still do not yet know how to approach the IoT and this is not their fault. Enterprises need to have a proven Return on Investment (ROI) to proceed, and although IoT MVNOs do not provide this per se, they do offer a managed, fundamental building block that has historically been an enterprise bottleneck. This should allow enterprises, who should not have to become experts in mobile network connectivity, to experiment with the IoT on their own terms, without the concern of not knowing about long-term expenses to which they are unwittingly committing.

What IoT MVNOs are doing with their flat rate pricing is not new, as Off-the-Shelf (OTS) telemetry plans have been available since the early days of M2M services. Yet, OTS telemetry was more like a consumer tariff plan: with overage, a less favorable allowance than offered, at a greater cost, and without any dedicated connectivity platform management support. Telemetry plans were corporate-liable plans, suited to machine-like rules-based communication, rather than mobile phones, and were typically only available from individual national operating companies. As they were not for international service provision, they did not have built-in considerations for anytime-anywhere usage within a cross-border footprint for a guaranteed single price point.

Some may see JT Iot/M2M, BICS IoT, and 1NCE as not being true MVNOs, and that their creation is instead a rebranding exercise by established MNOs that want to present a friendlier face to the IoT market, especially to the longtail SME market, through simplified terms and easier interaction. It is a way to counter through emulation the likes of independent IoT MVNO Cubic Telecom, which has garnered significant attention in recent years, and to present a fresh challenge to established global M2M connectivity heavyweight Vodafone. Small is being perceived as innovative and flexible, while large MNOs are traditionally thought of as slow and out of tune with innovation. Establishing separate businesses under sub-brands protects the budgets for the development of niche opportunities, creating a neatly-packaged rebooted version of international carrier services, but for the IoT only.

Should other MNOs take heed of the IoT MVNOs and should enterprises choose them over the services of other operators? MNOs that are heavily invested in global M2M and IoT connectivity provision will not worry unless IoT MVNOs win large international contracts. But this does not seem to be the immediate goal; for the time being, IoT MVNOs market themselves as facilitating the easy on-boarding of enterprises that require a small number of connections, have simple IoT connectivity needs, or that are just trying to understand how to get started with the IoT and wish to experiment. Enterprises with substantial connectivity needs, for custom projects that require professional services and deep integration, are still likely to go directly to large parent MNOs. But the IoT MVNOs can be their savvy little brothers.

Enterprises that need to implement operational efficiencies might not be attracted to an IoT MVNO, unless they are specifically searching for a provider that can cater to minimal connections. But the suppliers of those enterprises’ connected/connectable equipment will deal with MVNOs—and already have. When Original Equipment Manufacturers (OEMs) need a connectivity partner to enable a new product line, simplicity, flexibility, and control is vital. They do not want to be locked into crippling long-term commitments for product lines that may not prove to be successful. It may be less the ability of MVNOs to sell directly to the eventual enterprise that should worry MNOs, but their attractiveness as a go-to-market partner for vendors, as their easy-to-use connectivity boosts the usability and salability of that vendor’s products.

MVNO revenue traditionally comes from the margins in reselling wholesale capacity from network-owning carrier partners, so as the MVNO’s business grows, so does that of the partner. But this also means that despite being small and agile, and able to economically scale downward to serve myriad individual companies with low-end needs, MVNOs will always aspire to maximize volume by targeting the largest possible customers. MNOs would be wrong to assume that disruptive MVNOs are only looking to pick up the scraps that fall from their plates. The IoT MVNO opportunity lies in the fact the telco industry is still looking for the right way to embed the service (as opposed to the technology) of connectivity into IoT products, traditional MNOs having failed to make it simple and easy enough for many enterprises to use.