Market Insight

Tesco Mobile is first MVNO to launch 4G plans on smartphones in the UK

October 21, 2013

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On Friday the 18th of October Tesco became the first UK virtual mobile network operator (MVNO) to launch 4G services to all its customers.

Tesco will charge a £2.50 premium for the benefit of 4G, with plans starting from 500MB for £10 to 3GB for £20, making them the most affordable 4G plans in the UK.

Tesco Mobile is jointly owned by Tesco and O2, and runs over O2's network.

It may seem unorthodox that Tesco Mobile, an MVNO with just over 3 million subscribers, is selling 4G services before Three, who has its own network and has received a license for 4G bandwidth. However, Tesco is not developing its own network and does not face the same obstacles as the mobile network operators do. Three has the smallest market share of the 4 mobile network operators and the least licensed spectrum meaning it has fewer resources to perform the necessary trials and network deployments, while Tesco piggy-backs on O2's network. Tesco Mobile may get its favoured status among O2's MVNOs as it is half-owned by the operator, while the association with Tesco gives it an excellent retail position.

Tesco will benefit greatly from the proximity of its 4G launch to the rest of the mobile market. O2 launched 4G services in the UK in August 2013, only two months before opening it up to Tesco Mobile. Upon launch, Vodafone and O2 have made a large marketing push for 4G services, increasing consumers' awareness. Tesco's 4G launch will improve its image from a small MVNO to an operator offering the latest and greatest. Tesco's 4G pricing is cheaper than its parent O2's with 1GB and 3GB plans £13.50 and £11 cheaper on Tesco Mobile respectively; however, while Tesco's price plans are cheaper, they do not offer any bundled content where O2's plans do. While this matches Tesco Mobile's positioning as a value brand, it will hamper O2 and Vodafone's efforts to extract a premium for 4G from their customers.

In contrast, Virgin Mobile, a MVNO using EE's network, launched its 4G tariffs in September 2013, around 11 months after EE launched its 4G network. However, its 4G tariffs are only available to Virgin Mobile business customers as mobile broadband, meaning 4G is not available to the majority of its customers. More importantly, Virgin Mobile does not offer 4G on smartphones. Virgin Media and EE have a more co-dependent relationship as Virgin provides the backhaul for EE's mobile network. In addition, EE customers benefit from Wi-Fi on the London underground. The reason for the delay in opening up 4G to Virgin Media could be that EE wants to be the only real quad-play provider with superfast access both in and outside of the home, but more likely EE is concerned with MVNOs undercutting its 4G plans.

In the UK large companies have been entering the mobile market as MVNOs. BT, the fixed-line incumbent who won 2.6GHz spectrum in the 4G auction, changed its provider from O2 to EE while Sainsbury's, the UK supermarket chain, has followed Tesco's lead, and has partnered with Vodafone to launch an MVNO. ASDA, a supermarket chain owned by US-based Wal-Mart, has recently switched network providers for its MVNO service from Vodafone to EE.

At the moment though, the only interaction between the mobile arm of Tesco and the broader company is through loyalty card points. However with its unique position with content, hardware, a mobile network and a big retail operation with a large loyalty card base, there's room for Tesco to explore both innovative pricing strategies and experiences.

4G presents an opportunity for new companies to enter the crowded mobile market, and through a variety of offers that mainly involve loyalty cards, supermarket chains are hoping to get a foothold in yet another industry.

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