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Macquarie Group enters the MVNO market

Updated: Jun 15, 2019

Is the mobile telecommunications market improving for consumers? MVNO optionality is increasing

Macquarie Group is entering the mobile telecommunications business with its new brand “Nu Mobile”. Whilst the company may only be a "website" currently, it represents an interesting potential new challenger to the traditional mobile market - and this may have positive implications for consumers. A well funded new mobile virtual network owner (MVNO) player in the market could reduce prices and create new options for users. With new handsets costing over $2,000 (e.g. iPhone latest) this will be a welcomed product for a segment of the market

Significantly, ‘Nu Mobile’ will operate off the Telstra network

Macquarie Group has traditionally been a provider of financial services including a substantial leasing business. The Group’s leasing business has been a significant force in the mobile phone segment which has set the scene for its new business endeavour. Macquarie is launching “Nu Mobile” an MVNO which will be operating on Telstra’s significant infrastructure using its own ex-leased phones. Currently Nu Mobile is only available to Macquarie Group employees.

Telstra’s infrastructure already houses a series of MVNOs including Aldi Mobile, Belong, Boost Mobile, Lycamobile, Pennytel, Southern Phone, Tangerine Telecom, TeleChoice, Think Mobile, and Woolworths Mobile.

What is an MVNO?

Let’s look at MVNOs in Australia. MVNOs are licensed mobile phone service providers that do not own their own wireless network infrastructure over which they provide services to their customers.

Venture Insights estimated that the Australian MVNO market had grown from 1.5m subscribers in 2010 to 3.2m subscribers in 2017. In Australia, MVNO have as much as 10% of total mobile subscribers, and up to a potential 22% of subscribers within metro areas. The increasing MVNO market share in Metro areas has led to significant price declines. This can be seen by the decline in ARPUs for listed Telcos which has been in steady down trend in recent times. Therefore, making an argument that MVNOs are positive for the consumer.

So, what differentiates Nu Mobile’s service from MVNOs on the same network?

Nu Mobile will utilise Macquarie’s significant leasing business to use the previously leased phones to create a bundled MVNO mobile offering. The ability to utilise these second-hand mobile devices presents an interesting value proposition for the consumer to get a smartphone for less.

However, this is not a new concept for the mobile telecommunications industry. In the US, Verizon is already selling “certified pre-owned devices” to its customers at a significant discount to new products.

Mainstream utilisation of second-hand devices is a new concept in Australia. However, Telstra and Vodafone have both stated that each business would consider launching a business model that utilised post-leased devices. However, Macquarie Group is at a significant advantage to Telcos looking to enter the space as it leases more than a million phones. This implies the company would have a significant number of second-hand phones available for its MVNO offering, compared to existing Telcos who lease stock from Macquarie.

Nu Mobile looks to have an edge in the existing MVNO market and could challenge MNOs with a superior value proposition to consumers. Leasing new devices leaves the consumer at a disadvantage relative to owning the phone outright as at the end of the lease term. The savings from leasing are negligible and the consumer does not get to own it at the end of the term. Moreover, the declining improvement of mobile phone hardware between generations of smartphones lowers the desire or need to replace old phones, which removes the benefit of the replacement value attributed to leasing. Overall, the addition of Nu Mobile appears to be positive for consumers by challenging existing business models to deliver value for consumers. There will be wider ranging implications for the Australian Telco market, which is undergoing rapid transformation.

But what are the drawbacks?

Drawbacks to the second-hand devices could be that data and security concerns will be raised by consumers. Nu Mobile will have to have systems in place to quell any issues that may arise from the leasing of these devices. Overall, there seems to be an increasing number of providers of MVNO services and the potential for a stronger competitor in the MNO market. Nu Mobile’s business model may further improve competition as consumers who want a mobile plan and a phone will be able to participate at a cheaper price point. The Australian mobile market appears to be improving to the betterment of the consumer.

Conclusion: Greater competition at the retail end

The ultimate success of Macquarie's new MVNO plans is yet to be tested. However, we do know that Macquarie has access to a large number of fully depreciated handsets and as always Macquarie will be well organised. From a consumer perspective this has to be good news - more competition in the retail space will be good and can only apply downward pressure on prices.

PS - so what does this mean for the TPG / Vodafone merger

Contact Nigel Pugh from Venture Insights should you want to discuss this further - click here.

Sources: Australian Financial Review, ITNews, Verizon, Nu Mobile, Venture Insights, Roy Morgan, ITwire

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