Can a 3rd operator overcome market saturation?

We’ve recently finished an engagement where we came across an interesting case: a European 3rd operator, who several years back had a failed launch and has been unable to significantly develop its market share ever since. When the operator first entered the market, mobile penetration levels were under 70% however, since then penetration has reached around 110%. The question, put simply is: has the operator missed the boat?

While there are several examples of 4th entrants and MVNO’s launching in highly penetrated markets, it is hard to come across such a case with a 3rd operator. So I decide to put together a simple benchmark to see, how in the past, 3rd entrants market shares of subscribers developed against penetration rates.

Here are some findings of the 3rd entrants benchmarked:

• On average, approximately 90%* of their market shares were captured before mobile penetration levels exceeded 100% (*note that this compared against their forecasted market shares in 2010)
• The average market share achieved pre-100% penetration levels was approximately 20% (ranging from 9%-24%). Of course, operators who had been operating longer in pre-100% penetration level markets tended to have higher market shares than those who had launch later
• On average, from the point the 3rd entrants passed the 100% penetration mark up until 2010, they are forecasted to add as little as 2 percentage points to their total market share. While in many cases their market shares will decline

Clearly, once markets approach saturation, growth slows down drastically. This is because organic growth opportunities fade and enlarging the customer base must driven through acquisitions of competitor’s churners. The later is obviously more difficult, the operator must convince a customer to leave his current provider and join him (don’t forget this “convincing” can be costly requiring heavy investments in advertising and SAC). Additionally, the newly acquired churner, by nature is more likely to churn again (once again, holding on to customers can be costly). The net effect is that once a market nears saturation, the available pool of customers is smaller, the customers are much harder to acquire and they are much harder to keep.

Now, going back to our 3rd entrant in the precarious situation, did he miss the boat?

If the boat is a fast and large subscriber injection, I would have to say yes. But, it is not impossible that he captures the 20-something-percent market share as did the benchmarked operators. But if he is to succeed, he will probably have to fight a lot harder and a lot longer than those before him (and there are still no guarantees it can be achieved).

One additional note that applies to all 3rd operators, it seems that in many cases they wind up stuck with around 20%-25% of the market share of subscribers. This is why it is particularly important that a strong focus be given to developing the value of the customer base and not simply the number of customers.
Just because an operator is 3rd in terms of subscriber share doesn’t mean he can’t be 2nd in terms of share of revenues.

You can do more with less!

TRA