Author(s): Kester Mann
Since launching in 2003, Three UK has largely focussed on selling into the consumer market. However, in recent years the operator has put much more emphasis on the wholesale business and partnerships, as part of its drive to achieve greater scale to challenge its much larger rivals.
Wholesale is a side of a telecom operator's business that is often underappreciated, typically receiving a much lower profile than consumer-facing services. I recently met with Three's director of wholesale Lynda Burton, who highlighted four areas of focus for the arm: mobile virtual network operators (MVNOs), the Internet of things (IoT), bulk messaging as well as roaming and interconnect.
Of these four focal points, Three's MVNO efforts are best known: it now counts a total of 1.1 million customers, mostly thanks to the iD Mobile offer from Carphone Warehouse. Yet Three is a relatively late player to this market, with iD only launching just under four years ago (see Google and Carphone Warehouse Unveil Innovative MVNOs). One of the main reasons for this has been the negative perception of the Three network. CEO Dave Dyson acknowledges this is still a challenge, but believes recent improvements now place the operator in a far stronger position as it seeks to bring on board new partners.
iD has had a successful journey so far. With the aim of resolving common customer frustrations, it reached 975,000 customers in early January 2019. Illustrating Three's emphasis on segmentation, the service targets people who use much less data than a typical subscriber to the parent brand. And unlike many other MVNOs, iD benefits from access to Carphone Warehouse's strong retail presence that spans more than 1,000 stores. This is important as it's the only UK network operator not to have a reseller agreement with the company.
In June 2018, Three bolstered its wholesale strategy with the launch of an MVNO from health and beauty chain Superdrug. The operator's white-label platform — effectively telecommunication-as-a-service — enables Superdrug to focus on sales and marketing in its 800 high-street stores as well as online.
Superdrug Mobile targets another new segment for Three: young, female consumers that are highly loyal and engaged with the cosmetics brand. Superdrug also has a shared parent to Three in Hong Kong conglomerate CK Hutchison. Indeed, the two companies have a long history of partnership: Superdrug began selling Three mobile phones at in-store concessions in 2003 and continues to do so in several outlets to this day.
Three also has 12 other MVNO partners. The best known is business-only provider Gamma, which works to provide unified communications services to small, medium and corporate customers.
Ms Burton hinted that more collaborations are in the pipeline. An important catalyst for this could be Three's strong spectrum position in 5G, which creates new capacity for it to forge new deals (see Three Sees Bright Future Thanks to 5G). Significantly, 5G enables providers to "slice" a network to assign specific qualities to different customers in a wide range of sectors; for example, low latency for a gaming company or high bandwidth for a broadcaster. Slicing could also encourage Three to expand its own strategy in sub-branding, following the successful launch of Smarty in 2017 (see Three's Smarty: Pants or Tops, Dude?).
Three says it's likely to offer 5G to its MVNO partners at launch, and will ensure network parity with its retail offering. This reflects the operator's approach in 4G and contrasts with some of its rivals, which initially restricted access. Three's view is that by not holding back new technologies it can better grow alongside its partners. Ms Burton pointed to industry consensus that widespread 5G launches from MVNOs won't happen until 2023, owing to limited initial coverage and high prices of supporting smartphones. Nonetheless, she expects Three's partners to be ahead of this timeline.
Less well known is Three's bulk SMS business. Despite an industry-wide decline in messaging, this is a surprising growth area, with the number of text messages rising 30 percent year-on-year. Examples include reminders to patients for healthcare appointments.
Three also has a fledgling position in IoT. This isn't a traditional area of focus for the operator, mainly because of its keenness to achieve scale in the consumer market and lack of a 2G network. It points to solid year-on-year growth of 13 percent in IoT data traffic, although presumably from a relatively low starting point. A notable partner is AT&T, to which it offers solutions such as fleet management and asset tracking to UK-based business customers.
Another focus is virtual numbers. Known as "appVNO", this approach is becoming popular in services such as dating and ride hailing, allowing people to connect with each other through in-app calling. Three expects good growth in a segment that we have also identified as one to inject new life into the virtual market (see CCS Insight Predictions for 2018 and Beyond).
Lastly, Three wholesale is responsible for the operator's roaming agreements with over 400 networks in nearly 200 countries. It also offers roaming as a managed service for MVNO "lite" customers.
With an accelerating focus on segmentation, a strong 5G spectrum holding and ambition to diversify, Three's wholesale arm could play an important role in the operator's push to achieve the growth it craves.