This year has not been kind to a number of the mobile virtual network operators (MVNOs) doing business in Australia, with several closing down, selling up or raising their prices in an effort to stay afloat. And, just when it seemed like these tiny telcos were really shaking up the industry and offering customers unprecedented value for money. So what went wrong?
The change came quickly. Less than a year ago, the competition seemed healthy, with several service providers offering extremely generous plans to customers. The most high profile of these plans offered unlimited calls and messages, plus generous data inclusions.
Customers were finally paying attention too, with the combined market share for the Australian MVNO sector hitting 13.5% at the end of 2012. Several months later, two of the biggest name MVNOs, Kogan and Aldi Mobile, would hit the market, and the industry would show signs of strain.
Communication breakdown
Kogan Mobile entered the market, two weeks before Christmas last year, in true Kogan fashion. Guns-blazing, hyperbole-filled press releases and impossibly cheap pricing. Not only did Kogan offer unlimited national calls and messages and several gigabytes more data each month, but it came in $10 cheaper per month than anyone else in town.
Customers clamoured for SIM cards -- 115,000 subscribers in under nine-months -- while industry pundits scratched their heads and wondered how Kogan could make its plans so generous for the price.
Ultimately, it boiled down to a gamble on how much Kogan customers would actually use. Kogan offered more than the plan could afford, especially in regards to data, and gambled that the vast majority of the customers would never use what they believe they were paying for.
"Recent MVNO failures have arisen from the MVNO taking silly risks on average utilisation and getting burnt.," confirmed one industry source, who wished to remain unnamed. "There was a race to the bottom on price that was really just unrealistic and not sustainable long term."
This became evident early on when some Kogan customers complained about being booted off the network for exceeding the fair use policy. Even though these customers were using the service within the boundaries of what they had paid for, they were at risk of blowing the stakes for Kogan and wholesale partner ISPOne.
As we know now, the gamble was lost. At the start of August, Telstra threatened to cancel its service contract with ISPOne for $12-million in unpaid bills. ISPOne sued Telstra to block them from terminating the service, saying that they were being charged incorrectly for data. A fortnight later ISPOne entered administration and Kogan customers are left with dead SIM cards and looking for a new service provider.
Not alone
Though Kogan is the name on everyone's lips, it is not alone in falling down in 2013. Red Bull Mobile announced in July that it would not be accepting new customer recharges after September 1, Live Connected was sold in its entirety to Vaya in June and Savvytel plans to shut down in "the coming weeks".
Even where MVNOs are sticking around, many are adjusting plans for the worse, notably TPG who scrapped all plans bar one and Virgin Mobile who halved the data across its various plans.
"It's not easy operating as an MVNO. Margins are tight so an MVNO needs to operate at low cost, target a niche audience and offer something the big telco's can't match, such as excellent service," said our source.
Waving, not drowning
Despite these horror stories, there are still many MVNO businesses operating, some flourishing. Amaysim is coming up to its third birthday and is showing no signs of slowing down, with an unwavering plan structure and a new partnership with Mobicity to sell handsets through its e-commerce site.
Amaysim is not a business startup in the traditional sense, with its executive team having created a similar MVNO business called 'simyo' in Europe years before the Amaysim launch. The company's CEO Rolf Hansen says that a successful MVNO needs to look passed price alone.
"While attractive prices are one important part of our successful recipe, there are other ingredients that turn our approach into a sustainable business, "said Hansen.
"It’s all about overall value and user experience across the board. The easier you make it for people to do business with you, without trying to be everything to everyone and without trying to lock people in, the better a position you’ll be in. This is a basic rule of thumb that applies to any business, not just to MVNOs."
A focus on customer service and 'value' is also the business goal for Jamie Coleman, Managing Director of one of the country's newest MVNOs, C Mobile.
"My goal with C Mobile is to build a long term sustainable business that provides great value for our customers and excellent service," said Coleman, who used to work behind the scenes in the wholesale team for Vodafone.
"Having worked in the mobile industry for many years, I understand the economics of mobile plans and we won't [make decisions] that could potentially harm the business."
Do the recent MVNO collapses give the C Mobile team cause for concern?
"I don't believe so. There are many successful MVNO's who have been operating long term in Australia. MVNO's give customers more choice, competitive offers and differentiated service which is a good thing for the industry as a whole."
Joseph Hanlon
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