June 25, 2015
In a market growing at, well, a snail's pace, the stand-out in China's emerging MVNO business is a games firm with international ambitions called Snail Mobile.
Fourteen months after the market opened to much fanfare in April last year, the company is claiming to have signed up 1.6 million MVNO subscribers -- a giant chunk of the current market total of around 5 million.
The regulator, MIIT, has opened up the market as a way of providing competition to the three state-owned giants, which between them have more than 1.2 billion customers.
Snail, whose parent is a mobile and PC games specialist with nearly 100 million users, sells prepaid voice and data packages for up to 399 yuan (US$64.23), offering flexibility the incumbents do not, such as the ability to roll over unused data and enjoy and zero-rated downloads from the Snail app store.
It's a desperate business, though. A study by the China Institute of Communications calculates that gross average revenue per user (ARPU) for the new MVNOs is around 13 yuan ($2.09) and that net ARPU is even lower -- possibly as little as 3 yuan ($0.48).
However, Snail may have identified a path to profit through hardware. The company has bought a Shenzhen firm that makes a 3D gaming smartphone it can bundle with SIM cards.
It is also going after the roaming business. In particular, it is eyeing the army of Chinese tourists venturing overseas; last year they numbered 110 million.
Godfrey Chen, a Snail Mobile marketing executive, said the company was targeting international business travelers flying between China and Europe, where it has signed agreements with 20 operators and MVNOs.
It's hoping to set up service points in Europe and even to obtain an MVNO license.
But while Snail is ebullient, the rest of the industry is struggling. Half of the 40 firms who received MVNO licenses last year have not launched services.
Executives from MVNOs set up by well known electronics retailers Suning and Digitone have both said progress to date falls well short of expectations. An IBM study found that most MVNOs do not believe they will reach their targets because of high wholesale prices, an unclear commercial model and limited consumer recognition.
Experts say most of the new players are repeating the past mistakes of operators, like competing heavily on price or relying solely on third-party retailers or online distribution. Consumers have complained about lack of customer care and elementary technical problems, such as being unable to recharge online.
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It doesn't help that the rules are stacked in favor of the incumbents. For example, mobile number portability doesn't exist, making it difficult to entice customers to churn.
Snail Mobile's Chen says MVNOs must also rely on their operator wholesale partners for key resources. The most critical of these is phone numbers. "It is the biggest problem faced by the thriving MVNOs," he says.
Snail's partner China Unicom recently distributed 20 million numbers to MVNOs nationwide, but it has capped the number in each city at 10,000, he says. That's a problem for Snail, which is signing up almost as many customers as China Mobile in some cities, according to Chen.
"In many fast-growing cities our number pools are pressing the limit, so Snail has to apply for more pools to meet the increasing demand. This restriction hampers Snail Mobile's fast development," Chen says.
He also notes that many customers have never heard of MVNOs or have been unwilling to change their phone numbers. "This indicates the consumer market has barely accepted the notion of the MVNO," he says.
Nevertheless, Chen is hopeful the MIIT will make policy changes later this year that will help the MVNOs.
Despite the impediments they face, MVNOs have had a positive impact on the market, he insists, forcing the three network operators to improve their services and helping to "put more weight on the side of customers."
— Robert Clark, contributing editor, special to Light Reading
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