Mobile virtual network operators are rapidly gaining a foothold in the telecom market

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

With expensive 5G services driving up phone bills, mobile virtual network operators (MVNOs) that offer cheaper subscription plans using existing networks of major carriers are quickly gaining a foothold in the telecom market.

“It’s cheap, and that’s the biggest draw,” said a 52-year-old Seoul office worker who has been using an LTE plan from an MVNO for about a year. “And it works great, at least in Seoul and other big cities.”

Fueled by rising data traffic and high costs for 5G subscription plans, the average monthly phone bill per household rose 3.4 percent year-on-year to 124,000 won ($97.2) in 2021, according to the latest data from Statistics Korea, published in September were published last year.

It was the first upward move in four years.

Consumers across the board are looking for cheaper plans in the face of rising commodity prices, while the government is also politically supporting MVNOs to develop broader options for mobile users.

And with banks entering the wireless market, the local telecoms sector, which has been dominated by three major telecoms companies, could be in for a shake.

The Ministry of Science and ICT recently announced its plan to boost the local MVNO market to reduce phone bills and boost competition in the market in December as consumers seek cheaper alternatives to expensive 5G subscription plans.

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

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In October 2022, the number of MVNO service users in Korea reached 12.46 million, compared to 10.36 million in 2021 and 9.11 million in 2020. MVNO users account for 16.27 percent of all 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 outperformed the big telcos in terms of user satisfaction. The proportion of the big three telecom users who responded that they were satisfied with the services stood at 54 percent in the second half of 2022, while 62 percent of MVNO users said they were satisfied with the services, according to the market tracker Consumer insight.

However, MVNO providers are lagging behind in terms of performance, despite rising subscription numbers.

While MVNO providers accounted for 16.27 percent of the market, they accounted for just 5 percent of total sales at 1.16 trillion won in 2021 and posted a combined operating loss of 11.5 billion won.

To help the smaller players survive in the market, the ICT Ministry has developed cost reduction plans for MVNOs.

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

“We expect MVNOs to further improve their competitiveness through mergers and other measures,” said a spokesman for the ICT ministry.

Analysts predict that while this could lead to an increase in MVNOs’ market share, it will not have a material impact on the profits of the big telecoms.

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“If the price cut leads to an increase in MVNO subscribers, the telecom companies could see a small drop in profits due to a shrinking consumer base,” said Kim Hoi-jae, an analyst at Daeshin Securities.

“But since the MVNO business is essentially built on the network infrastructure of the telecoms and is therefore under the control of the companies, it is not likely to have a significant impact on the telecoms’ profits.”

Meanwhile, banks entering the telecoms business – aiming to collect more data from consumers – could further intensify competition in the market.

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

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

BY SHIN HA-NEE [[email protected]]