Mobile virtual network operators fast gaining foothold in telecom market

A customer looks at a smartphone displayed at a mobile virtual network operator service center in Seoul. [NEWS1]

With pricey 5G services pushing phone bills higher, the mobile virtual network operators (MVNOs) — which provide cheaper subscription plans using existing networks of major carriers — are fast gaining a foothold in the telecom market.

"It's cheap, and that's the biggest pull factor," said a 52-year-old office worker based in Seoul, who has been using an LTE plan from an MVNO for about a year. "And it works just fine, at least in Seoul and other big cities."

Due to increasing data traffic and the high costs of 5G subscription plans, the average monthly phone bill per household increased 3.4 percent to 124,000 won ($97.2) in 2021 on year, according to Statistics Korea's latest data released last year.

It was the first upward turn in four years.

Consumers are seeking cheaper plans amid soaring commodity prices across the board, while the government is also providing policy support for the MVNOs to come up with wider options for mobile users.

And with banks joining the mobile market, the local telecom sector, which has been dominated by three major telecom companies, may face a shake-up.

The Ministry of Science and ICT recently announced its plan to boost the local MVNO market in order to cut phone bills and encourage competition in the market in December, as consumers seek more affordable alternatives to pricey 5G subscription plans.

MVNO providers lease capacity from carriers and offer discounted telecommunications services. With cost competitiveness as the biggest strength, the companies have been expanding their presence in the market over the years.

As of October 2022, the number of MVNO service users reached 12.46 million in Korea, compared to 10.36 million in 2021 and 9.11 million in 2020. MVNO users account for 16.27 percent of total telecom service subscribers.

During the same period, SK Telecom had a 40 percent share with 30.7 million subscribers, KT 23 percent, and LG U+ 21 percent.

MVNO providers scored higher in terms of user satisfaction than the major telecom companies. The proportion of the three major telco users that answered they were happy with services stood at 54 percent in the second half of 2022, while 62 percent of MVNO users said they were satisfied with services, according to market tracker Consumer Insight.

However, MVNO providers are coming up short in terms of performance despite increasing subscription numbers.

While representing 16.27 percent of the market, MVNO providers took only 5 percent of the total revenue with 1.16 trillion won in 2021, and logged a combined operating loss of 11.5 billion won.

In order to help the smaller players survive in the market, the ICT Ministry came up with cost-reduction plans for MVNOs.

The wholesale price for 3G services provided to the MVNOs will be cut by 15 to 20 percent on year. For the 4G LTE and 5G services, the network usage fee that the MVNOs need to pay to the telecom companies will be reduced by 1 to 2 percentage points.

“We expect the MVNOs to further enhance their competitiveness through merger and other measures,” said a spokesperson for the ICT Ministry.

Analysts forecast that though it may lead to an increase in the MVNOs’ share in the market, it won’t have significant impact on the major telco’s profits.

“If the price reduction leads to an increase in MVNO subscribers, the telecom companies may see a minor decline in the profit due to a shrinking consumer base,” said Kim Hoi-jae, analyst at Daeshin Securities.

“But as the MVNO business is fundamentally based on the telecom companies’ network infrastructure and therefore is under the companies’ control, it is not likely to significantly undermine the telecom companies’ profits.”

Meanwhile, banks entering the telecom business — with the goal of harvesting more data from consumers — may further intensify the competition in the market.

Viva Republica, operator of internet-only Toss Bank, plans to introduce a mobile subscription plan in January. The company acquire Merchant Korea, an MVNO, for 300 billion won last year.

KB Kookmin Bank’s Liiv M mobile service topped the user satisfaction survey in December, with 78 percent of the users responding positively for the service.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]