Are MNVOs a positive disruption to Singapore's telecoms industry?

For Singaporeans, there’s never been a better time to own a smartphone. Over the last three years, the cost of mobile data has plummeted, whilst the speed of Singapore’s mobile networks has continued to be the envy of operators across Asia. But despite the success, change hasn’t been easy for telcos and consumers alike.

Back in 2015, shopping for a mobile data plan in Singapore was a very different proposition. The cheapest SIM-only plan with 3GB of data cost $20 from Singtel, whilst power users on M1’s network had to pay $125 for 13GB

Fast forward to 2019, and those prices have fallen. That same $20 will buy you 20GB of data on Singtel’s network, with similar deals available from the other operators. However, operating a wireless network hasn’t suddenly got cheaper; in fact, with the deployment of LTE-Advanced technology and new spectrum requiring more equipment and cell sites, capital expenditure has been up for Singtel and M1 since 2015.

Instead, downwards price pressure has been led by the emergence of mobile virtual network operators (MVNOs), which buy wholesale capacity from the network operators and resell the service to consumers. Through aggressive price points and novel rate plans, MVNOs have been able to target particular niches, and have carved out a small but significant market share – the biggest, Circles.Life, claims a three to five percent market share.

Whilst consumers are benefiting from lower prices and wider plan options, shopping for cellular service has also become more confusing. Whilst the MVNOs claim to offer the exact same network experience as their host networks – in some cases, quoting drive-test results for their host network without clarifying the difference – our data shows that the end-user experience varies.

As part of their price and plan differentiation, some of the MVNOs offer plans that have throttled or deprioritised data. For example, our data shows that nearly half of speed tests on Zero 1 are throttled to speeds of less than 3 Mbps; less than 10% of total speed tests on the host network, Singtel, fell below the same threshold.

Although throttling and deprioritization are disclosed in the plans’ terms of service, inconsistent technical language can make comparing plans difficult. Rather than comparing the dollar price of a gigabyte of data, consumers have to navigate “unlimited” plans with “managed data speeds,” “deprioritisation,” or data that’s throttled to “3G” speeds -- all of which might mean different things on different network operators.

However, current evidence suggests that the trade-off is worth it for consumers. Circles.Life is one of Singapore’s most-loved brands, according to YouGov BrandIndex, despite being just a few years old, and competing in an industry that doesn’t usually garner much consumer goodwill.

But even if MVNOs have proven their worth to consumers, the benefit to the incumbent network operators is less obvious. Both of the two largest operators, Singtel and Starhub, have seen a consistent decline in net profit, revenue, and mobile subscribers since 2017; most worrying for the companies is the decrease in ARPU, which in the mobile industry has a habit of being sticky downwards.

Yet for now, it seems that the financial pressure created by the MVNO boom is tolerable, as it’s seen as the lesser of two evils. Australian telco TPG Telecom is slated to launch Singapore’s fourth mobile network in 2H 2019, and the competitive market conditions created by the MVNO boom will make it harder (and more costly) for TPG to achieve a meaningful market share or extract profit.

Whilst the MVNOs may be taxing the incumbents’ ARPU and profit, they still rely on the host networks for their underlying profit, and as such don’t pose an existential threat in the same way that a new mobile network operator does.

However, overall the future looks remarkably rosy. For consumers, competition from MVNOs and new entrants should keep prices low, and Singapore’s networks are well-positioned for a rapid transition to 5G, which will enable even lower prices and larger data plans.

For operators, the short-term pain from MVNOs will help protect their long-term positions, and the experimentation with pricing schemes and data plan features can help hone a more sustainable business into the 5G era and beyond.