Things look pretty good for the Big Four – AT&T, Verizon, T-Mobile and Sprint. They dominate the cellular market in the U.S. According to a Consumer Reports survey, a whopping 80 percent of customers get their service from one of the Big Four carriers. Dig a little deeper into that number, and you’ll find that 81 percent of those subscribers are either AT&T or Verizon customers. Even more impressive is the fact that the Big Four holds a virtual chokehold on postpaid subscribers. These subscribers bring higher ARPUs, lower churn rates and higher growth potential, making them the most valuable subscribers to carriers. For context: each of the Big Four, except for Sprint, saw more than 10 percent growth in postpaid subscribers from 2011 to 2015.
But it’s not quite Game, Set and Match for the Big Four. Recently, an old staple has made an unlikely return. After nearly being routed a decade ago, MVNOs have staged a comeback. Now, one in ten wireless subscribers, roughly 36 million, belongs to an MVNO. Not bad for a band of operators, who were nearly squeezed out of the market, due to their subscribers’ insatiable appetite for data and the high cost of leasing wholesale network capacity.
MVNOs are sprouting up everywhere. Why the resurgence? Well, first off, network capacity has gotten a lot cheaper. Wholesale rates for network capacity have fallen as much as 65 percent in the last five years. And as the market matures, big carriers have fewer routes to market. And therefore, carriers have incorporated MVNOs into their multi-channel distribution strategies. In fact, some of the best-known MVNOs in the U.S. are sub-brands of big carriers: Boost (Sprint) and MetroPCS (T-Mobile).
Moreover, the industry-wide move away from the standard two-year contract has made it easier for subscribers to look for new options. Meanwhile, carriers also stopped locking their phones, which allows subscribers to jump ship without having to buy new phones.
The name of the game is customer service and low prices, integral to the MVNO value proposition. Top MVNOs in the U.S., like Consumer Cellular and Ting, usually sit atop the Consumer Reports ranking for consumer satisfaction. The big carriers? Not so much.
But MVNO growth might be at its peak, and industry consolidation might follow. For instance, TracFone Wireless boasts 26 million of the 36 million MVNO subscribers, and more than 5 billion in revenues. Only 50 to 60 MVNOs will be launched in 2016, including Comcast’s recently announced MVNO. Customers might prefer smaller outfits that offer better customer service and lower prices, but big carriers can afford to pay a lot more to acquire new customers. The key for MVNOs, competing in a very crowded market, is to make their offers stand out. And we know adding global Wi-Fi to their value proposition can help peel away Wi-Fi-mad subscribers from competitors.