The IoT Value Chain and the Strategic Positioning of IoT Mobile Virtual Network Operators

Recently, Mobile Virtual Network Operators (MVNOs) have begun to diversify beyond their core connectivity offerings. MVNOs have historically served as resellers of connectivity from large Mobile Network Operators (MNOs). MVNOs also then provided complementary Connectivity Management Platforms (CMPs), which allows them to “manage” the connectivity. “Managing” connectivity means creating a system for customers to provision the Subscriber Identity Module (SIM) (i.e., onboard the SIM to a management dashboard) and then provide SIM lifecycle management capabilities (billing, monitoring SIM usage, and deactivation of SIMs). For MVNOs, this strategy was characterized by intense price competition, which drove down Average Revenue Per User (ARPU), despite the growing number of IoT connections.

There was some Merger & Acquisition (M&A) activity for MVNOs that were acquired by hardware vendors further down the IoT value chain. For example, module and gateway vendors like Telit and Sierra Wireless were the acquirers. However, there was little opportunity for market consolidation through mergers, as MVNOs cannot generate the same level of cost synergy (cost savings by merging), given the lack of ownership of the underlying telco infrastructure. This infrastructure belongs to MNOs that have been merging, such as Sprint and T-Mobile in the United States. The nature of the MVNO connectivity market, specifically low barriers to entry, combined with limited opportunity for product differentiation and little bargaining power when dealing with suppliers of connectivity, has led to MVNOs operating with margins based on selling as a pure-play connectivity vendor. This led to MVNOs re-inventing themselves as providers of other value-add services, such as additional security services for mission-critical use cases, device management, and even basic analytics or rules-based alerting services.

MVNOs have been gaining traction in connectivity management as the need for licensing of the 3G and 4G era winds down. Historically, Cisco and Ericsson dominated the IoT connectivity management scene, especially during the later 3G and early 4G era. In contrast, MVNOs have built their CMPs to accommodate next-gen IoT communication technologies like LTE-M and Narrowband-IoT (NB-IoT), as well as 5G. MVNOs have also enhanced their competencies in connectivity through building IoT-dedicated core networks, which provides better uptime (reliability and Quality of Service (QoS)) than core networks that serve both IoT and non-IoT traffic. Through these improved routing and switching capabilities, IoT MVNOs have developed expertise in IoT networks. MVNOs are increasingly marketing this as a differentiator from the carriers with infrastructure on which they piggyback. This full spectrum of MVNO capabilities is significant because it's impacting other players in the IoT value chain like carriers, but also historic CMP vendors, some of which also seek to bundle their connectivity management and device management solutions.

Although MVNOs are unlikely to fully embrace collaboration with other MVNOs, the nature and intensity of the competition among players will likely change. MVNOs are increasingly collaborating among themselves with leading CMP vendors white labeling their platform to smaller MVNOs. The smaller virtual operators target different geographic segments or industrial segments from their CMP providers. Some MVNOs are positioning their products and services as horizontalized applications, typically operating outside of specialist use cases, and more inside generalist use cases in the massive IoT domain. A horizontal strategy means there is less granularity in use case-specific management tools. Delivering these horizontal services especially requires collaboration among multiple IoT value chain stakeholders. MVNOs supplying CMPs and Device Management Platforms (DMPs) need not only partnerships with carriers with connectivity networks they piggyback on, but they also may need partnerships with device manufacturers to help provide a broad catalog of hardware that can be deployed zero-touch.

Other MVNOs are positioned as verticalized applications (e.g., specializing in Industrial IoT (IIoT) connectivity). This positioning has made MVNOs strategic acquisition targets for device (module and gateway) vendors that also operate in the IIoT domain. For them, the synergy from an acquisition is immense and moving into connectivity has allowed them to enter or expand offerings beyond connectivity in adjacent markets, such as IoT device management; especially as hardware integration allows use case-specific connectivity and device management functions. For example, remote hardware configuration allows changing how often the data points are transmitted by monitoring and tracking sensors in a factory or warehouse. This optimization is based on metrics, typically a combination of DMP and CMP remote monitoring data. DMP data could be the intensity of battery usage and the need to reduce sensor readings to preserve the battery level, while CMP data can include alerts when data rate plans are about to be maxed out. Specialist vendors provide use case-specific configuration options that affect the device management and connectivity management planes, often from a single pane of glass. Thus, there are multiple potential routes for IoT MVNOs to develop their products and services, either as horizontal or vertical offerings.