07. September 2020 - Report

Five Simple Margin Growth Strategies for MVNOs

MVNO picture

There comes a point in any business lifecycle where margin growth achieved through customer growth slows or is no longer sustainable. This is especially true in telecoms and specifically the mobile virtual network operator (MVNO) market where the margins are thin and the cost to acquire customers are relatively high. We had a discussion on this with our Advisor James Gray from Graystone Strategy who has more than 20 years of experience in the area. According to James, there are things that can be done to boost the numbers and improve the margins in the most challenging areas.

Optimize your channels

In the beginning, the key performance indicator is always customer numbers. In pushing the business there will be different ways from volume discounts to intensive calling from sales agents. However, over time it will be easier to identify best ways to grow the business and to only focus on those channels. Once data on lifetime value of customers becomes available, it might become apparent that the highest volume channel with the reasonable cost per acquisition is actually driving cost and not margin. Best practice is to segment customers in order to understand which customers to go after. Thereby, it can be avoided to sink resources into unwanted and unprofitable volume.

What’s happening in customer care?

It is important to understand the customers. Some customers value personal interactions, while others do not.

If most of them are not interested in personal interaction when it comes to complaints or refunds, then there is no need for investment in call centers. The money is much better spent on self-care apps and on designing a better user experience. An example is the UK MVNO giffgaff that does not have a call center yet serves over 2m customers.

Innovate your cost model

The vast majority of cost in any MVNO business case is in the wholesale part. However, there is always an opportunity to increase your margins through better traffic management.

Moving traffic away from traditional GSM channels and onto an alternative bearer can help to realize significant savings. US MVNO Scratch Wireless follows a WiFi first model, where they seek to carry calls and data over paid for WIFI before they utilize the more expensive macro GSM network, which allows them to post 70% gross margin.

Similarly, technology provider Audio Codes, who works with UPC (amongst others), claims that an MVNO can save €300k per month for every 50k customers simply by running voice over a data solution.

Build targeted Add-Ons

The more you understand your customers, the better you can tailor your offers. The simplest offer to have in the armory is ‘add-ons’. This could be anything from a targeted international calling bundle to something entirely complimentary like micro loans, payments or money transfer solutions.

It is very important to build this around the needs of specific groups of customers and then use your touch points and customer relationship to sell the add-on. Spanish MVNO Simyo states that its add-on strategy increased ARPU by 5% or €5m per annum.

Assure your revenue

Telecoms is a fast moving and extraordinarily complex business. With so many different call classes and entries on the charging manual, still there has not been found a telecoms business that has not “found some money” when undertaking a revenue assurance exercise. The opportunity in wholesale charges is usually going to yield some upside, as typically wholesale contracts are 3-5-year agreements and seldom reviewed after the initial signature.

The same can often be said for the wholesale charging manual. Although the rates are regulated, they will change on a monthly basis and can become a black hole if not monitored.

The above five areas are relatively easy to examine and assess to find some extra margin. At the core of many of these strategies is an understanding of the needs of the customers and a strategy to build the appropriate offers, channels and customer experience.