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Brexit: The impact on the MVNO market

Net neutrality and roaming rates could be the first causalities of the UK’s decision to leave the European Union

It has been over a year since the UK voted to leave the European Union and much of the impact remains uncertain. However, experts point to several areas that could specifically affect mobile virtual network operators (MVNOs) as control over regulation is handed from Brussels to UK regulator Ofcom.

One possible change following Brexit which could prove beneficial to both MVNOs and the operators that host their networks is the demise of the ‘roam like at home’ concept. The move, which has seen the European Commission (EC) cut mobile roaming rates for customers traveling across Europe, has left operators and MVNOs having to recoup revenue elsewhere.

If the UK decides not to keep this regulation in place, MVNOs will be able to reintroduce charges for roaming. But this is not as good as it sounds: the result could be very unhappy consumers. “It would lead to a higher unit revenue, but a likely decline in traffic – just as subscribers were starting to become more relaxed and less fearful about switching on their phones while abroad,” says Openet marketing consultant, Bob Machin.

Taking this into account, James Gray, managing director and founder of Graystone Strategy says the chances of reversing away from zero roaming rates “are quite slim”.

But another area that might see adjustments is net neutrality – the principle that internet service providers and regulators should treat all content and applications equally. Mobile operators including Vodafone and BT have protested against this concept, arguing that the rules stifle innovation in areas such as 5G.

Indeed, the rules are already starting to be pressure tested, says Gray, with Virgin offering free messaging services, for example. “The core of net neutrality sits in the EU and as we move away from that, we will see Ofcom taking more charge of it.”

Matthew Howett, an independent analyst, agrees changes could be made to net neutrality following Brexit. “Arguably, the European commission went further than Ofcom did in the past. Ofcom has always been of the view that service providers don’t need anything too prescriptive. So, the UK regulator might want to water it down a bit.”

Ethnic MVNOs

By their very nature, MVNOs are well placed to cover niche markets. But the UK’s decision to leave the EU could impact ethnic MVNOs such as Lebara Mobile and Lycamobile which have differentiated themselves by offering cheap overseas calls.

Indeed, MVNOs that target migrants could be under particular threat from the Brexit vote, says Gray. “Conversations around board tables might be about relocating to Europe as it could be a better market for them there. This is especially true for MVNOs like Lyca and Lebara whose customer service advisors speak multiple languages and offer products around their communities: Their staff are their customers – so they will be thinking about how to expand out of their niche.”

Adding to this, another area that could impact UK MVNOs after Brexit is a lack of skills, says Gray. He explains: “Europe is a big place and there is a lot of cross fertilisation in telecoms. The UK isn’t as developed in MVNO as others and there has always been that transfer of skills across markets.

“So, we will have less access to those skills and less ability to bring people in from other markets.”

Machin says this is “concerning when there is already a recognised IT skills gap in the UK”. It could see MVNOs that are part of multinationals relocate functions into the EU, he agrees.

At the same time, more broadly, it is possible operator strategies could change after Brexit, seeing them focus less on MVNOs. Some are already reviewing their MVNO strategies – for example, although unrelated to Brexit, Vodafone has lately pulled back from the area.

If there are any changes to operators’ approach, Gray thinks the focus will be on how they manage their portfolios following Brexit, which could result in consolidation in the MVNO market: “Do they only take bigger players? I wonder if increased cost might force some of the smaller MVNO players out, or more consolidation in the market.”

Changing regulatory landscape

Another consideration that could impact the entire telecoms industry is the wider regulatory landscape. And overall, without a seat at the EU table, the UK could have less influence on telecoms regulations, Mike Conradi, partner at DLA Piper points out. “The issue will be when the European Commission comes to revise its rules on telecoms or when BEREC issues new guidelines. Companies that want to do business in the EU will have to comply.”

MVNOs Europe 2017

However, whatever Brexit throws at telecoms firms, MVNOs are in many ways at an advantage in the mobile industry. Indeed, because they are nimble, MVNOs are probably better placed than operators to deal with the possible impact of Brexit, says Gray.

For example, he says, they are not hit as hard by the falling pound against the euro and the dollar. This is because, unlike their operator counterparts, MVNOs do not tend to buy hardware: They usually offer Sim only deals rather than subsidising handsets and have no need for network infrastructure spending.

But as Kester Mann, an analyst at CCS Insight, points out the increased infrastructure cost for telecoms operators could be passed onto MVNOs. “If it’s costing operators more to deploy the network, those costs could well get passed onto the MVNOs,” he suggests.

Although at the same time, Mann says, as the downturn in the economy puts pressure on household spending, there could be a bigger market for MVNOs offering cheaper tariffs.

The end result of the UK’s exit from the EU is still very much unknown. But experts do agree on one thing: Amid this uncertain landscape, it will be the MVNOs able to differentiate that thrive.

“MVNOs are well placed to deal with this; they have the DNA to help them react well,” says Gray. “As long as they hold on to what they are great at – understanding their customer – they will be able to change direction quickly and respond to new scenarios.”

Brexit timeline - MVNOs Series article


If you would like to find out more about how Brexit will affect the UK telco market, take part in a discussion with Mike Conradi, Partner, DLA Piper, on 'How to prepare for the unknown that is Brexit'.

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MVNOs Europe 2017

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