Competition expected in South Africa's growing MVNO market

A battle is heating up in South Africa's mobile virtual network operator (MVNO) market as MTN brings more MVNOs onto its network and other local mobile network operators (MNOs) promise imminent MVNO launches, challenging a market that has for many years been dominated by Cell C-enabled MVNOs.

The 2023 SA MVNO Report from ICT market research firm, Africa Analysis, showed that by December 2023, the number of MVNO SIMs in the SA market had surged to over 4.3 million, marking an annual growth rate of 51%.

The report forecasts that the SA market is poised for continued expansion. By December 2028, analysts project the market to reach 10 million SIMs while the potential entry of large retail brands could further propel growth, potentially elevating the market to 13.5 million SIMs.

MVNOs are telecoms service providers that piggyback off the infrastructure of MNOs, usually offering their services to niche segments. MVNOs either work directly with MNOs or use a mobile virtual network enabler (MVNE) that helps them integrate into the MNO's infrastructure.

Some of the most successful South African MVNOs have come from banks (like Capitec, FNB and Standard Bank) and retailers (like Pick n Pay, Mr Price and Shoprite) who target their already large customer bases and strong distribution channels to offer mobile services.

The Africa Analysis report revealed significant growth in the MVNO market over the past few years, with nine new MVNO brands launching between the end of 2020 and 2023 and another two in the first half of 2024, signaling ongoing expansion and competition.

Andre Wills, director at Africa Analysis, said South Africa's MVNO ecosystem is primarily supported by two host mobile network operators, Cell C and MTN, and Cell C still dominates the market, carrying over 95% of SIMs.

Wills said in 2024 there are 19 live MVNOs, however, the market is still small compared to traditional MNO users, with only 3.9% of the total mobile retail base coming from MVNOs at the end of 2023, an increase from 2% in 2020.

The MVNO retail market brought in 4.3 billion South African rand (US$236 million) in 2023, underlining the sector's economic significance.

South Africa's MVNO market had over 4.3 million subscribers at the end of 2023, making up 3.9% of the total retail base. (Source: Africa Analysis)

"The market has shown good growth, and we expect that the MVNO market will continue to show good growth [over the next two years]. We expect new MVNOs to launch with new major brands likely entering the market," Wills told Connecting Africa.

Thecla Mbongue, Omdia research manager for the Middle East and Africa, believes South Africa's MVNO market is the most vibrant in Africa.

"The market will continue to grow steadily as more vertical segments are going digital. Providing telecoms and digital services under its own brand will increasingly be part of corporations' digital transformation strategies," Mbongue added.

The trend has been for large customer brands from financial services and retail to launch their own MVNOs and three of South Africa's five largest banks have launched their own MVNO.

Capitec Connect has emerged as SA's largest MVNO, followed by FNB Connect, with both banks boasting over a million SIMs on their MVNO networks.

Wills said that the strategy from retailers and banks is about competition for the digital life of the consumer.

"MVNO services is another digital service layer that can be offered to enhance the overall stickiness to retain customers and to attract customers. The retailer uses the MVNO services, e.g. data, as a form of rewards in that they give data to customers who behavior within their loyalty programs," he said.

"This also serves to strengthen their app in that it can be more strongly integrated into their loyalty programs. Offering such services then strengthens the relationship and engagement between the brand and their customer," Wills added

SA's MVNO history

Cell C became the first network operator in SA to allow MNVOs onto its network in 2006, the first being Virgin Mobile South Africa. However, Virgin Mobile ended up shutting down its operations in 2021.

Cell C remained the only operator allowing MVNOs on its network until 2020 when MVN-X integrated Pick n Pay Mobile and Boxercom into the MTN network.

Cell C confirmed that it currently partners with many MVNOs, including the two biggest – Capitec Connect and FNB Connect – as well as C-Connect, Mr Price Mobile, Me&You Mobile, Shoprite K'nect Mobile and U-Connect. It also partners with two MVNEs - namely MVN-X and FREI One Digital.

Stephen Morony, Cell C's chief officer for wholesale business, said that the operator expects significant growth in the SA MVNO market and "is actively pursuing and driving this growth."

"Over the past year, Cell C's MVNE and MVNO partners have increased their respective market shares resulting in overall market share increase for Cell C," Morony said.

Meanwhile MTN has been adding more MVNO's to its portfolio recently bringing competition to Cell C.

MTN's MVNO list includes Pick n Pay Mobile, TFG Connect, Melon Mobile and Afrihost's AirMobile; along with Standard Bank which in June 2024, announced a new MVNO collaboration with MTN. It also rebranded its offering from Standard Bank Mobile to Standard Bank Connect.

Standard Bank initially launched its MVNO in late 2018 and in 2024 has over 300,000 mobile customers, with bank fees offered back in airtime.

Standard Bank Connect uses enabler MVN-X and its subscribers use both the Cell C and MTN networks.

Quintus de Beer, MTN South Africa's chief wholesale officer, believes that although SA's MVNO market is relatively small compared to other parts of the world it is "poised to grow tremendously in the coming years" as both established and startup brands look to extract value from digital tools.

He said that MTN aims to be the number one provider in the wholesale market by 2025 and believes that the adoption of its virtual network operator model "is a sign of the South African market's growing maturity and appetite for digital services that add value."

Mbongue said that Vodacom and Telkom SA, and even MTN in the past, have been less open to MVNO-type wholesale agreements.

"Cell C had to differentiate itself as a smaller telco. In the early days, the segment's profitability might have been questioned but at a later stage, the MVNO segment enabled Cell C to grow its subscriber base a diversify its subscriptions without supporting the customer acquisition costs," Mbongue said.

"Cell C has now restructured and is no longer running its own network and has become itself an MVNO-type network. The company has secured agreements with Vodacom and MTN. Since 2023, Cell C's postpaid subscribers were transferred to Vodacom's network and prepaid users to MTN's. As a result, MVNO clients are transferred to MTN's network," she explained.

Africa Analysis forecasts that the MVNO market in South Africa could reach 10 million SIMs by December 2028, up from 4.3 million in December 2023. (Source: Image by andreas on Freepik)

On MTN's growth in the market Wills said competition was bound to happen and it speaks to the competitiveness between host MNOs to successfully attract MVNOs to their network.

"This is good for the MVNOs to have upstream competition as it leads to better deals for the MVNOs from host MNOs. Once Telkom and Vodacom launch their MVNO hosting offerings, then we expect to see this competition intensify," he added.

"Generally, MVNOs choose to be hosted on one MNO, but we do see a few MVNOs hosted on more than one MNO," he continued.

When it comes to strategy from host MNOs, Wills believes there is very little difference between them but said the major difference will come in pricing and support for services such as customer operations.

Vodacom, Telkom & Rain to become host networks

For now, only MTN and Cell C are offering partnerships with MVNOs but competition in the market is set to grow with a number of other SA operators planning to throw their hats in the ring.

"Vodacom has made significant investments in its mobile virtual network enablement platform and expects to start supporting partners soon. While we are currently in talks with potential partners, we cannot divulge any details at this stage due to the sensitive nature of our business. Launch details will be communicated in the not-too-distant future," a Vodacom spokesperson told Connecting Africa.

In January 2023, Telkom SA announced plans to enable MVNO partnerships on its network, but by July 2024 no official launch had so far come to fruition.

"Telkom is on track to roll out its MVNO strategy. We are currently at the final stages of concluding the roll-out plans and we are engaging with potential partners in this regard. An announcement will be made in due course," a Telkom spokesperson explained.

SA's smallest network, Rain, told Connecting Africa that it was open to any MVNOs interested in using its network.

"Currently, two MVNOs have been onboarded, and their details will be shared once they launch their commercial services," a Rain spokesperson said.

Wills points out that Vodacom, Rain and Telkom cannot remain outside the MVNO market for much longer because high demand spectrum licensing issued in January 2024 now requires that each licensee hosts a minimum of three MVNOs on its network.

"Thus, both Telkom and Vodacom will need to develop an MVNO strategy, and Rain is also subject to this license requirement," he said.

Market challenges and regulation

Despite the success of some MVNOs, the SA market comes with its challenges and many MVNOs have not survived.

As mentioned, Virgin Mobile shuttered in 2021 after 15 years in South Africa and Lyca Mobile also shut down its services in January 2024 after six years.

"It has been difficult for MVNOs to be successful in South Africa for a long time. Challenges include lack of dedicated regulation, leaving the MVNO at the mercy of large MNOs when it comes to negotiating contracts' terms and conditions," Mbongue said.

"Other challenges include difficulty penetrating the market whether as a niche or a mass market service provider. This is because the market is already very competitive and covers a wide range of segments, from the bottom to the top of the pyramid. MVNOs, which are still successful, running or launching nowadays already have an established customer base and use telecoms services as a customer loyalty tool," she explained.

In fact, Africa Analysis data shows that all of the MVNOs that launched in SA between 2006 and 2013 have now shut down.

From 2014 onwards Wills heralded "the restart of the MVNO market" with both MVNOs and MVNEs launching.

"The major change was the introduction of MVNEs to the market in 2014. MVNEs reduce the barrier to entry and since then we have seen some 33 MVNOs enter the market," Wills said.

Going forward he also expects more mergers, acquisitions and closures as seen in other developed MVNO markets.

When it comes to MVNO regulation in SA, Wills said there is no legal framework that defines an MVNO and historically the market has developed under the willingness of MNOs to host MVNOs.

Want to know more? Sign up to get the weekly Connecting Africa newsletter direct to your inbox.

"Regulations offer market certainty and provides a set of license rights and associated obligations. An MVNO legal framework will offer protection to entering MVNOs to the market," Wills said.

"A proper MVNO regulation framework would favor more investments in the segment and better protect MVNOs when entering a partnership with a host network," Mbongue added.

*Top image source: Image by freepik.

— Paula Gilbert, Editor, Connecting Africa