MVNOs can turn the tide of margin squeeze, provided they look in the right places.

Revenue is vanity, margin is sanity. It’s an old adage, but one that holds true for the MVNO market.

When we speak to MVNOs, they can often think the garden looks rosy. They are growing customer numbers, share and the total revenue metrics are good. But look a little closer and it soon becomes apparent that margins are under acute pressure. Just about every established MVNO I talk to are trying to overcome the squeeze and it’s moving higher up the priority list.

To playback the conversations and reflect what we see in our own market analysis, ARPUs in general are declining. It’s not a new phenomenon, but it is a more pressing concern as the macro-economic landscape shifts more erratically.

Some organisations, normally MNOs, try to arrest the decline with annual, inflationary based increases. But this is wildly unpopular with consumers, which is why MVNOs try to avoid it.

Secondly, the amount of data consumed by customers is growing very rapidly, between 16%-23% globally depending on which analyst you subscribe to. This is a real problem and puts a squeeze on margins in several ways.

For instance, if you’re on a wholesale model where you pay for the data that customers use and make margin from breakage (the difference between what they buy and what they use) then your breakage level is decreasing. To put it another way, your wholesale price per customer is increasing, whilst the money you take from the customer is not. That’s a problem that needs a fast remedy.

You might, understandably, think you are insulated from this if you have opted for a lower risk model, where you buy your data in bundles from the network and they take the breakage upside and margin.

But, as we cover in our Masterclass Margin Under Pressure, I think it would be foolish to assume that this good fortune will last forever. Wholesale teams will be monitoring this dynamic as closely as you and won’t hesitate to reverse their breakage margin decline by putting up their wholesale rates.

So how can MVNOs sustain margin, or even grow margin in this context?

It’s too complex a problem for there to be a simple, single silver bullet. Instead, you need to approach the task by making calculated, incremental improvements, which we run through in our masterclass. There are a lot of rocks MVNOs can turn over, provided you know where to look.

Take your wholesale bill. The biggest outlay you’ll have. Renegotiating the terms, seeking extra support, such as marketing support to drive growth or tiered growth incentives, is an obvious place to start.

However, this is just moving the problem to the MNO, and it won’t come for free either. They are going to want something back. Expect to commit to a guarantee on growth, a contract extension or some other commercially bound incentive.

Bear in mind when you broach a renegotiation prompted by margin, that the challenges you face also hold true for the MNO. Possibly even more so as their cost base for running a mobile network will have almost certainly gone up and their retail business will have the same margin squeeze issues. There are few opportunities to play this card, so it must be played carefully and timed well.

Where’s the power in the relationship?

It can’t be overstated how important it is to game plan your levers before going down this road.

Threats to take your wholesale business elsewhere are only worth it if you successfully manage the delicate balance of the base and churn dynamics.

Think about it this way, it’s better for an MNO to get 90% of the value than 0% but if they call your bluff, and force you to move, it will impact your customer base and churn will go up.

Carefully consider whether playing the ‘Trump card’ is of any benefit. The revenue and customer loss that a move will trigger could have far reaching consequences.

Your MNO knows this trick and pushing to see how far you will go is a good way for them to test how much power is in the relationship. Do you have the courage of your convictions?

Acquisition cost and quality

Acquisition is the next cost control to look at, or more importantly acquisition quality. To do this effectively in terms of channel commissions and incentives, you need a solid grasp of the customer segments that you want to serve, the best channels to acquire them through and the overall customer lifetime value.

Over time this will change, so it’s important you review which channels still deliver a good ROI. This is where managing your channel mix and your blend of customers allows you to stay on top of the quality and hence manage the margins.

A high volume of customers that use a lot of data, and are very cost sensitive, are probably less valuable in the long-term compared to a lower volume of stable customers.

Cost levers like this are a great place to start as largely you can influence the outcomes making them easier to deliver.

Other levers to pull

There are other things you can do in tandem with these tactics above. For example, in our masterclass, we look at the value you give to your customers. It’s one of the most influential levers you have at your disposal after cost.

There are lots of directions you can go in when you start to explore the options, such as increasing revenues in return for significantly more data, effectively resetting the breakage.

But you could look at selling additional incremental and value-added services, like cyber protection, handset insurance, family safety controls, leasing handsets, or introducing streaming and good old fashioned multi-play.

Multiple studies have also shown that introducing value-add services does more than grow the margin. They’re also proven to deliver the double whammy of increased customer loyalty and customer lifetime.

Masterclasses cover all these levers and more giving you a fast start to improvements

These are just a few of the levers we dive into in the masterclass. Delegates will leave with a whole menu of approaches that deliver results - ones you can implement quickly and sustainably.

Our classes are free to MVNOs World attendees, developed using years of experience of doing this for brands all around the world. We guarantee that coming along will equip you with the levers to pull for a fast start to turnaround.

Book you ticket here and start the journey to healthier margins today.