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Matt Hatton of specialist IoT advisory firm & MEF Member Transforma Insights gives his perspectives on the evolving dynamics of the IoT MVNO space.

The last two years has seen money pouring into the IoT Mobile Virtual Network Operator (MVNO) space. In January 2022, EMnify raised EUR50 million in Series B funding. This was hot on the heels of numerous investments and funding rounds by other operators. Fellow German MVNO 1NCE raised USD50 million in September from investors including Deutsche Telekom and Softbank. Elsewhere JT spun out its IoT business and Wireless Logic was aggressively on the acquisition trail, in France, Germany, Italy, the UK and many more.

These are just a few examples, others include U-blox acquiring Thingstream, and G+D buying Pod Group. Across the pond, Hologram also secured a hefty Series B funding round in 2021, to the tune of USD65 million and, in early 2021, KORE went public by way of acquisition by a special purpose acquisition company (SPAC) valuing it at over USD1 billion. Other interesting investments recently include those by a number of established mobile network operators in MVNOs, including Telus in Eseye and Telefonica Tech Ventures and Singtel Ventures in Monogoto (which is also a Mobile Virtual Network Enabler). There are some big bets being placed on IoT MVNOs, and seemingly with good reason, with numerous MVNOs reporting connection growth of 25-50% per annum.

The Venture Capital and Private Equity space is awash with funds looking for a home. It’s inevitable, therefore, that some of the investments have been rather more speculative than might have been the case five or ten years ago

What’s behind the buoyant nature of the IoT MVNO market? Firstly, at the risk of being a party-pooper, money is very easy to attract currently. The Venture Capital and Private Equity space is awash with funds looking for a home. It’s inevitable, therefore, that some of the investments have been rather more speculative than might have been the case five or ten years ago. And valuations are certainly higher, in terms of multiples of revenue or EBITDA; typical revenue multiples 5 years ago for a connectivity player would have been perhaps 1-2x revenue. Today it’s more like 5x. However, it must be noted that many of the investments are clearly strategic, aimed at bolstering a global (or regional) offering, or adding functional capabilities.

The second trend is that some MNOs are being much more proactive in their approach to nurturing MVNOs. In our recent Communications Service Provider IoT Peer Benchmarking report we identified a trend for MNOs to bolster their wholesale offers, in some cases as a retrenching away from having a direct approach to the market. The likes of AT&T, KPN, Tele2 and Verizon have all made moves to have a stronger wholesale offer for MVNOs. Or, rather, some MVNOs.

At the same time, many operators have introduced more aggressive clamping down on so-called sponsored-roaming, i.e. piggybacking on consumer tariffs, with the introduction of monthly recurring charges and/or flagging connections to some MVNOs as being permanently roaming SIMs, and consequently deactivating them. The IoT MVNO market is therefore bifurcating into those who ‘play fair’ with MNOs and get the benefit of doing so, versus those which have taken advantage of some arbitrage opportunities and are being (some might say justifiably) punished.

The third driver is eSIM. MVNOs, more than MNOs, have worked out how to best harness this new functionality to deliver a superior experience for their customers. This was inevitable in the short-term. MVNOs typically have relationships with multiple operators and so tweaking commercial models to be able to switch between them was a somewhat smoother process than for MNOs who don’t generally have a strong history of collaborating with each other. There’s a sense that this is evolving, but for diverse multi-region deployments MVNOs have been able to steal a march on the MNOs.

The final trend I want to cover in this article (there are more) relates to building ‘hyperscale’ capabilities, i.e. platforms and architectures geared up for low-touch, scalable support for rapidly growing numbers of connections. For instance, some MVNOs have been very good at building cloud-native architectures for their global capabilities, with distributed virtual core networks and good integration with hyperscale cloud providers. This probably hasn’t moved the needle too much yet but bodes well for the future.

If you are interested to learn more about the evolving capabilities of IoT MVNOs, Transforma Insight’s recent ‘IoT MVNO market landscape 2021’ (November, 2021) provides analysis and profiles of the capabilities of 175 MVNOs around the world, including profiles of each. The CSP IoT Peer Benchmarking report also includes extensive discussion of their view of what MNOs and MVNOs need to do to be hyperscale, as well as detailed analysis of strategies and capabilities of 10 major CSP groups.

Matt Hatton

Founding Partner, Transforma Insights