Telco is one of those rare industries that has largely resisted disruption, especially at a structural level.
Mobile network operators (MNOs) such as BT and AT&T still own the underlying telecoms infrastructure. Meanwhile, customer-facing mobile virtual network operators (MVNOs) like Tesco Mobile, which are carried on MNO infrastructure, have until now led on providing products to businesses and consumers.
However, this established telco setup is undergoing a seismic shift — and this is creating a significant opportunity space for pioneering startups, including next-gen B2B software companies…
Fig. 01
Shifting Sands: How disruptors are emerging to seize an opportunity
Apple’s release of its first eSIM-only phone in 2022 was a major catalyst for disruption in Telco. Why? Because for the first time ever, billions of people no longer needed to go to a mobile provider for their SIM cards.
This “unbundling” creates a new opportunity for businesses to provide data plans, and moves the dial on who owns the customer in the telecoms space. The manufacturer? The MVNO? Or, in a world where customers have loyalty to apps and brands, could fintechs like Revolut own the customer through selling an in-app data plan?
Telco is a huge $3 trillion market, and — as you can see in the slide above — this disruption has ushered in new B2B and B2B2C opportunities for next-gen MVNOs and Cloud providers.
Widespread e-SIM adoption is already challenging the status quo. Well-funded new MVNO providers have emerged over the past 3–4 years, with companies already showing impressive traction including: eSIM marketplace Airalo, which just raised a further $60m to fuel growth; the world’s first telecom-as-a-service platform, Gigs, which helps companies rapidly launch wireless services; and ESimGo, a startup enabling travel companies to offer data to customers globally, providing greater revenue streams and ease of use.
These companies are proving successful because they provide enterprises with a cheaper and easier way to deliver mobile connectivity to their customers.
Until now, only large enterprises with strong distribution channels and negotiating power, such as Tesco Mobile and Sky Mobile, have been successfully bundling up mobile plans to their offerings, like Option A or B below. Other businesses have tended to shy away from this lucrative sector due to sky-high setup costs required to deliver data plans to their customers, and lack of familiarity with the space, like airlines. But today new “MVNO-as-as-service” offerings have created a new B2B2C opportunity, as shown in Option C. For example, Gigs, EsimGo, ReachNext and others offer an “MVNO-in-a-box” product that fully digitises and simplifies the process between business and customer, and eliminates the need to pay for multi-year projects and hire multiple staff members to establish an in-house offering.
Fig. 02
Airlines are a fast-growing B2B customer base for these next-gen providers, with many using their services to sell eSIMs on flights or with tickets. Marketplaces and aspiring superapps are also key segments, as all look to extend their reach as much as possible.
The future looks bright for these next-gen startups, although we do see a few reasons to be cautious. There is direct competition from incumbents to consider, and the fact that the product-market fit of new-age D2C eSim providers is yet to be fully proven. So, it’s a huge market, but how to win in this rapidly-evolving space?
Fig. 03
Mapping a road to victory: Five points for disruptors to consider
1. Focus on specific verticals
History shows that focusing on specific verticals can accelerate market entry for disruptors. It means startups can rapidly service specific customer needs, and deliver a clear advantage over incumbents with lengthy sales processes.
2. Offer a differentiated digitalised GTM approach
SMB clients and tech scale-ups are often disruptors’ core early customers. Offering a differentiated digitalised product will help secure these clients in a cost-efficient way, and will be vital.
3. Expect incumbents to innovate — and plan accordingly
Most incumbents still have a manual and paper-driven setup, while disruptors can deliver multiple parts of the product digitally, driving superior customer experience.
However, it’s important not to underestimate the innovation capacity of existing industry champions — especially when barriers to innovation are now lower. The cost of a MVNO setup has already reduced from millions to $80–100k, for example.
Disruptors need to monitor developments closely and ensure they remain a step ahead in terms of tech advancement. If innovators can do this, and deliver know-how guidance and verticalized integrations packed into an easy solution, we see the potential for innovators to capture new industry verticals, and tap into incumbent revenues long-term.
4. Improve margin with add-on software services
A structural challenge for both MVNO and MNO enablers alike is the fixed underlying costs associated with MNO and infrastructure. To elevate on the blended average margin, challenger startups could consider what leverage they can deliver with their software offering beyond connectivity, for example they could explore ways of channelling the OSS/BSS model to monetise on software. This is what Twilio has been doing with their software offerings beyond connectivity through API. moving into the CPaaS, UCaaS, CCaaS market as depicted in the above chart.
5. Know your B2B2C: Offer ways to help your business customers drive ‘sticky’ adoption across their consumer base
Business models in this space are usually linked to usage, so disruptors’ B2B customers’ success with consumers is vital. Both passive and active approaches could work in this context, such as:
Helping B2B clients improve customer success through delivering a high quality and largely digitised offering.
- Experimenting with optimal pricing to give business clients the flexibility to moderate prices and product offerings to attract end consumers.
- An entire ecosystem is being reimagined, and here at Dawn we’re closely watching the exciting disruptors emerging. If you’re a founder innovating in this space, please get in touch at zoe@dawncapital.com and shamillah@dawncapital.com.