New MNOs must displace incumbents to drive the greatest innovation

Some of the telcos are new entrants, which are helping to redefine the rules and push the incumbents to rethink their models. Others, like AT&T and KDDI, are old-timers which are starting to go through that process of identifying new markets, and the platforms they will need to capture them.

In all cases, the most MNO innovation is being seen in countries where there is a combination of consolidation and new entrants. Although it seems counter-intuitive, some of the most interesting markets are those where old, slow-moving operators are merging, but rather than reducing competition, that is enabling a new and more creative company to enter the game. This has happened in India, now reduced to three large operators (plus the state-owned BSNL and MTNL) – but with one of them being the disruptive Reliance Jio.

Over time, it has also happened in the USA, which went through a significant period of consolidation, when AT&T and Verizon swallowed up many regional operators, and AT&T in its current form was created from the merger of several former Bell companies. This process may continue with the acquisition of Sprint by T-Mobile, if that is approved by regulators, and even if it is not, we can envisage further marriages in future – one or more cablecos acquiring either Sprint or TMO, or Dish Network, would be obvious bets. However, there is considerable innovation in the US mobile market now too. Some is coming from the cablecos themselves, as they launch wireless services based on WiFi and heavy MVNO deals, and consider buying spectrum themselves for 5G. And the CBRS scheme for the 3.5 GHz band, with its combination of short term licences, accessible to non-MNOs, and unlicensed usage, will drive further disruption, opening the doors to new service providers.

Some European regulators have allowed for the merger of two existing MNOs, provided spectrum is made available for a new entrant, either a ‘heavy MVNO’ or a full MNO. These countries include Italy, Ireland and Germany – where consumers are likely to get a better choice of prices and services by substituting a new provider for two old-style ones.

In these cases, the newcomers are mainly transitioning from the fixed-line space. Germany’s new MVNO was acquired by broadband provider Drillisch, which has applied to bid for its own spectrum in the upcoming 3.5 GHz auction. That could see it investing in an economical combination of a 4G MVNO to achieve overnight coverage, and then targeted build-out of 5G in areas of high demand. The midband spectrum, if Drillisch succeeds in buying some, will lend itself to dense small cell networks, which could be backhauled by its fixed lines in homes, enterprises and cities, reducing its total cost of ownership (TCO) and enabling it to provide fixed/mobile and quad play services.

That was the model which enabled French cable group Iliad to wreak havoc in its home market with the launch of Free Mobile. It has now extended its reach to Italy, where it won spectrum that was divested by the newly merged Wind and Three Italia, to form Wind Tre. Iliad has also taken a controlling stake in Ireland’s incumbent telco, Eir.

Also in Ireland, as in Austria, Hutchison – owner of the Three group – agreed to set aside spectrum for new MVNOs, as a condition of acquiring rivals (O2 in Ireland, Tele2 in Austria). Irish regulator ComReg made Hutchison make 30% of its combined spectrum available for new MVNOs, with the expectation these would adopt a ‘heavy’ model – building out their own infrastructure in certain areas, perhaps to support an underserved or over-congested neighbourhood, or a particular industrial sector. However, one of those MVNOs, id Mobile, collapsed, and Three regained the airwaves, while the other, Virgin Mobile, is operating conventionally and showing no signs of building a RAN.