Japan’s SoftBank Partners with 1nce as Carriers Expand Operations beyond Home Markets: What Are the Benefits for Carriers and Mobile Virtual Network Operators?

German startup 1nce, an Internet of Things (IoT) Mobile Virtual Network Operator (MVNO) that first came onto the scene with its disruptive IoT flat-rate pricing model, has recently announced a new round of investment from Mobile Network Operators (MNOs). These include Deutsche Telekom and Japanese carrier SoftBank Corp. Beyond the financials is a key operating trend that is notably gaining steam in the MVNO space. This trend is the use of the carrier partnership (with a player like SoftBank) to facilitate carrier operations outside of the home market. 1nce facilitates SoftBank by allowing it to provide connectivity as an international MVNO in Asia-Pacific markets other than countries where SoftBank has rights to radio spectrum licenses and physical Radio Access Networks (RANs) (in Japan). This partnership allows the Japanese MNO to operate outside of its core MNO markets, as an international MVNO in peripheral countries.

Partnerships between MVNOs and carriers carry strategic importance for both players. For MVNOs, it provides a revenue stream through licensing their platform and services to carriers. Licensing simultaneously transfers operational risks away from the MVNOs, which are not exposed to the uncertainty of entering new geographic regions and emerging markets (e.g., Asia-Pacific’s emerging markets like India, Bangladesh, Thailand, Indonesia, etc.). As for carriers, many are already present in parts of these geographic markets, with at least some levels of exposure to emerging markets. As a result, carriers can realistically absorb the operational risk of entering these untested waters by offering IoT services in exchange for revenue upside, namely by recording the lion’s share of the revenue by being an early mover into these nascent IoT markets. Thus, the impact of the partnership is primarily on revenue, with MVNOs getting licensing benefits by providing a platform for carriers to use and carriers entering geographic markets where they do not have radio spectrum licenses. Carriers benefit by diversifying their revenue streams from core geographic regions. A secondary impact is about the transfer of operational risks through these partnerships, which carriers can absorb as they are typically larger and have stronger financials than MVNO startups, which often have funding, profitability, and cash flow constraints.

Based on research interviews conducted by ABI Research, carriers are indeed expected to continue to expand their partnerships with MVNOs. However, while diversifying from a geographic segment perspective is important, carriers should consider that ABI Research forecasts continued commoditization in connectivity, and also expects connectivity management to continue serving as a loss-leader. Thus, diversification strategies are important not only from a geographic perspective, but also from a portfolio of products and services perspective. Carriers will increasingly consider the role of entering new geographic markets and geographic diversification as a secondary proposition to their overall success—their primary consideration is increasingly to diversify a product portfolio through offering value-add services. MVNOs already provide this. Some like Kore Wireless offer end-to-end solution building services by acting as an IoT enabler for their customers through providing applications. Other MVNOs like Pelion and Wireless Logic offer edge application management and secure private networks, respectively.

Carriers have historically operated as horizontal platform service providers. This strategy makes it difficult to differentiate a platform, as it lacks advanced use case-specific functionality. Some MVNOs have the luxury of being able to provide a horizontal offering, especially as they have dedicated IoT core networks with routing and switching optimized for IoT services. Nevertheless, other IoT MVNOs have developed vertical expertise over time. This expertise has then been further leveraged for developing end-to-end solutions and Application Enablement Platforms (AEPs), and to fulfill use case-specific security requirements. Carriers will be acting as international MVNOs outside their home market, so they should also consider embracing these other MVNO tactics that have proven successful in monetizing beyond the connectivity and connectivity management layer of the IoT value chain.