The Belgian MVNO market is consolidating, driven by Telenet’s takeover of the most popular host network Base and Lycamobile’s acquisition of Ortel. The new requirement for registering prepaid customers, and the general market shift to data-driven postpaid plans are also contributing to the pressure on virtual operators.
Telenet was previously the largest MVNO in Belgium, until it acquired Base in early 2016. This left Lycamobile as the largest virtual player in Belgium, followed by Ortel Mobile, according to Telecompaper research. Lycamobile has now agreed to acquire Ortel, and it’s likely the latter brand will disappear soon from the market. Both MVNOs target the same segment: immigrant/ethnic groups making frequent international calls.
Ortel Mobile was owned by KPN, and even before KPN sold Base to Telenet, the Dutch operator was paying less attention to the brand, both in Belgium and the Netherlands. The start of mandatory registration of prepaid subscribers in Belgium in December 2016 could have been the last straw to push KPN into selling. MVNOs targeting international travelers and immigrants tend to have a relatively high level of inactivity in their Sim base, and Ortel, which only offers prepaid services, likely faced a significant number of disconnections due to the new law.
We expect that the total number of Sims at the new Lycamobile will be less than those of Lycamobile and Ortel Mobile combined, as both deactivate unregistered prepaid cards in the integration process. In addition to the new legal requirements, the deal underlines the difficulties faced by ethnic players in attracting and keeping customers in the face of growing adoption of OTT apps. Low international call rates are not enough when customers want data or use Wi-Fi to WhatsApp and Skype with relatives abroad.
In addition to acquiring Ortel Mobile, Lycamobile announced a switch from the Orange network to the Telenet/Base network. This is a blow to Orange’s wholesale business, as it's already losing Telenet as a customer. Orange reported just over 2 million MVNO customers in Belgium at the end of 2016, good for around a third of all Sims on its network.According to Telecompaper’s report on the Belgian mobile virtual market, 43 percent of virtual Sims in Belgium were carried on the Orange network in Q3 2016, while Telenet/Base accounted for 54 percent. With the addition of Lycamobile to its list of MVNO customers, Telenet will jump to a market share of around 90 percent of all wholesale Sims in Belgium.
A market share of 90 percent may attract scrutiny from regulators. However, the Belgian authorities may see the strengthening of Lycamobile as the biggest MVNO (alongside the new full MVNO Medialaan, with its brands Mobile Vikings and Jim Mobile) as a good thing in terms of competition for the mobile market in Belgium. Such large players, especially when backed by an international group like Lycamobile, are more likely to be able to compete with the MNOs than tiny virtual players. Furthermore, the mobile wholesale access market is unregulated, so unless BIPT starts hearing complaints from other MVNOs, Telenet is likely to remain dominant.
For Telenet, the new wholesale contract is a nice addition to filling its network and helps to offset the pressure on retail mobile revenues. In addition to the EUR 1.3 billion purchase price for Base, the operator has announced plans to invest EUR 250 million in upgrading the Base network. Telenet is under pressure to monetise this investment as well as improve the margins in its mobile business. Boosting its wholesale business can help finance the cost of bringing the Base network up to the same quality as that of Orange and Proximus.
Having lost first Telenet and now Lycamobile, the wholesale business has clearly become less relevant for Orange. Orange appears more focused on competing with Proximus at the high end of the market, by promoting the quality of its network and building out its converged offer. It may want to ensure that it reserves enough capacity and quality on its network for its own customers, especially in light of the growing demand for data services.
