BT wins Lycamobile and two more MVNOs. Will we see more host operator switching?

It’s fair to say that the UK market is undergoing some change. While the headlines have centred on Vodafone and Three, there are some big developments in the MVNO space too.

It’s usually a stable market in terms of operator /MVNO partnerships, but BT has changed that, announcing new deals with Spusu, an established MVNO in Austria and Italy that’s moving into the UK market, Lycamobile (winning it from O2), and Spitfire a B2B full MVNO.

Spusu is exciting because it’s a new scale MVNO launch. These have been rare of late, but as I’ve said before, there’s room for new entrants with solid propositions that address a key segment of customers.

Spitfire is also a tale of knowing your customer. It will address the business segment and take advantage of the unified communication opportunities that come from being an full MVNO. Spitfire will be able to grow its offer significantly, providing IoT technology and 4G/5G in the enterprise market by integrating its fixed line with a mobile offering. With this deal, it’s now in a position to provide enhanced connectivity and the security assurances data hungry businesses need.

BT is serious about the B2B market, as evidenced by the launch of last year. It makes good strategic sense to continue to pursue B2B MVNO partnerships, especially given it can target its wealth of existing fibre/broadband and fixed business customers.

Lyca Mobile in focus

The Lyca Mobile deal is interesting for different reasons. Firstly, it’s a big boost because it’s such a big global brand and the scale of the deal is going to bring in significant wholesale revenues. In its 2021 accounts, Lycamobile UK reported 1.7m subscribers, revenues of 138m and an operating profit of £9.5m. Given that wholesale charges are one of the greatest costs for an MVNO, the deal must be worth well over a hundred million over the duration of the contract.

In her press statement, BT’s Wholesale MD, Alex Tempest, alludes to the fact that switching host operator can be done quickly: “The deal will see Lyca’s entire customer base move across to EE in what is set to be record time, with BT Wholesale team showing industry-leading capabilities in ensuring a smooth transition of an MVNO between networks.” Could speed be the only reason though?

Service interruptions could be influencing decisions

It’s well known that being a full MVNO, as Lyca is, provides the option to switch operator quickly. I suspect it’s why Spitfire has chosen to take on the great financial investment it takes so it can reap the commercial gain and get flexibility in the future. Even so, switching, certainly in the UK, doesn’t happen as frequently as you might think, and often MVNOs go back.

You can count on one hand the few times it’s happened over the last 15 years – Asda Mobile started with Vodafone, moved to EE and then went back to Vodafone. Virgin moved from EE to Vodafone (briefly as it then merged with O2), and Gamma moved from Three to Vodafone and back again.

I’ve been in the industry a long-time, and in a funny way, Lyca has followed the trend and gone full circle coming back to BT. It originally started on the Orange network, which has come to be EE / BT through the various mergers and acquisitions that have happened.

What’s changed over the last 10 years?

We can assume that Lyca has negotiated a new deal to maximise the commercial benefits of moving. BT’s latest Root Metric scores are also a consideration. BT is coming top, with VMO2 ranking third.

There have also been some relatively high-profile network outages on O2 effecting customers of Sky Mobile and GiffGaff. Though we can’t read too much into this as network outages are a fact of life when running a mobile network, you could speculate that maybe outages, and potentially the proactive support an MVNO needs, have been found wanting as the VMO2 team establishes new ways of working and integrates technology.

It could also be the result of a bold new strategy. Lyca Group’s new CEO Richard Schaeffer, formerly the CFO, is building out his team and with a head for numbers this could be a recurring theme of cost management, not just here but in other markets (<though trouble in France is a large concern>).

BT’s fortunes could now be on an upward trajectory

When you look back over the years, BT has lost some major contracts. Virgin Media created a large hole in wholesale revenue when it moved to Vodafone in 2020. Before the switch it accounted for half of BT’s wholesale revenue.

By March this year the total number of MVNO customers was down to 700,000 from 4million in FY20-21. That’s got to have been a big concern, so striking new deals underpinned by a partnership approach and strong network credentials, has clearly been made a big priority to turn around BT’s wholesale fortunes. The signs are this shift in strategy is working.

But what does this news from BT mean for the market in general?

Most importantly, it demonstrates that the UK market is not just competitive but also open to new competition. That could be an important argument for the Three/ Vodafone merger with the CMA.

For O2, it clearly means there will be a reduction in high margin wholesale revenues. However, it also means there will be fewer customers on its network freeing up capacity for new customer growth or improving customer experience for existing customers. Though this blog mainly reflects the consumer market, the Spitfire deal is a clear indication that enterprise is a growth market that can’t be ignored.

If I was in the VMO2 wholesale team, I would be doubling down on looking after Sky. Sky is a full MVNO with over 3 million customers and could flex its muscles and switch host. This must have gone through the minds of the BT, Vodafone and Three wholesale teams. There’s everything to play for, especially when you consider Sky and VMO2 are such fierce competitors.

What does it mean for the other MVNOs and Lyca’s closest competitor Lebara?

Lebara is on the Vodafone network and is likely to be watching this with real interest while also cheering for a positive result from the Three and Vodafone merger. Go ahead from the CMA would put Lebara on a combined network, which has the potential to go head-to-head with Lyca on BT. The combined spectrum assets will be especially interesting.

However, if Lyca has moved because service has gone down since the VMO2 merger, then what are the chances it will happen when / if Vodafone and Three merge? The leadership team is no doubt playing out the options.

Would they stick or twist? What would other MVNOs do? Who knows, but one thing is sure, the UK wholesale and MVNO market is keeping everyone in business and consumer telecoms on their toes.

If you are pondering how to maximise your business position given all these moving parts why not get in touch? The team at Graystone Strategy have over 50 years of global MVNO experience and would be delighted to help, just drop us a message on WhatsApp +447766244962 or contact us via the website.

James Gray

About James Gray

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.