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Vodafone’s MVNO future unclear after failure of Sainsbury’s deal

Vodafone’s MVNO future unclear after failure of Sainsbury’s deal

With the mobile operator pulling out of Mobile by Sainsbury’s, Paul Withers says this just adds to the confusion surrounding its plans for the MVNO market 

The termination of the Mobile by Sainsbury’s MVNO has only added to intense speculation that network partner Vodafone is pressing ahead with a strategy to exit the UK MVNO market.

Rumours have been rife for over a year when last November, TalkTalk brought its four year agreement with Vodafone to an end in favour of a new partnership with O2. At the time, the MVNO had some 350,000 customers.

Vodafone’s future in the MVNO space took another dramatic twist in July with information contained within documents issued to the Competition and Markets Authority by TalkTalk as part of its review into BT’s proposed £12.5 billion acquisition of EE.

TalkTalk claimed Vodafone had cancelled its MVNO agreement the previous November without notice, and had also served notice to Sainsbury’s that it will cancel its MVNO agreement as part of an exit strategy from the market.

Vodafone hit back immediately, with Group chief executive Vittorio Colao strongly denying TalkTalk’s claims, stating Vodafone was not exiting the market.

However, just four months later, news has broken that the Mobile by Sainsbury’s MVNO will come to an end in January, with the joint venture not proving to be financially viable for Vodafone.

After such a strong denial that it was exiting the market just four months ago, several question marks have now arisen around its future in this segment.

However, in Vodafone’s defence, Sainsbury’s had amassed just 150,000 customers in the two years the partnership had been running.

When you compare that to Tesco Mobile for example, which has amassed more than four million customers running off O2’s network since launching in 2002 at a time when the MVNO market was very much in its infancy, this is a poor return from the supermarket.

Sainsbury’s was far too late to the mobile party. Tesco, which is the biggest MVNO outside of the mobile operator space, had firmly established itself as the leader here, having amassed more than three million customers before Sainsbury’s had even thrown its hat into the ring.

Its other big rival, Asda, had its own MVNO proposition running since 2007. Curiously, it had used the Vodafone network for six years, until September 2013, when EE won the rights to be its partner. That was another MVNO lost for Vodafone.

With its two big supermarket rivals already getting massive headstarts on it, Sainsbury’s gaining success in the mobile market was always going to be extremely difficult.

This leaves it in a tough place. It is in talks to revive the MVNO through another mobile operator but with so much uncertainty surrounding that space at present, where does it go from here?

The MVNO market is becoming increasingly congested, with many thousands of connections now made through that channel through a number of firmly established players.

Also, after seeing Sainsbury’s fail with Vodafone, which other network will want to partner with it at a time when margins continue to be tight and the right decisions critical? They have bigger priorities at the moment, most notably the proposed BT/EE and Hutchison Whampoa/O2 acquisitions and if they are cleared, making them a success.

It may be quite a while before Vodafone enters into any new MVNO agreements or we see a large-scale offering in a Sainsbury’s supermarket.

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