Virtual Pioneers

Before the end of the year, the Middle East and North Africa telecoms landscape is set to take a significant step forward with the introduction of a new business model to the market. A Dubai-based start-up, Friendi Mobile, is building the case for the introduction of the first pan-regional mobile virtual network operator, and CommsMEA secured an exclusive interview with the company's top management to discuss the opportunity that lies ahead.
Virtual Pioneers
By Tawanda Chihota
Mon 04 Jun 2007 03:47 PM

In a temporary office high above the construction taking place below in Dubai's Marina district, the executive team of newly named Friendi Mobile, a start-up mobile virtual network operator (MVNO), are hard at work, literally creating the next stage in the Middle East and North Africa's telecoms market.

In much the same way that the architects and engineers are building the Marina district below from nothing but desert, Friendi Mobile's management is creating a business model, which, in the absence of their combined vision, would still be some way from commercial introduction in this geography given the regulatory and competitive environments.

Operators need to think about network utilisation, and total network market share for all brands on the network, not necessarily for one brand only. In the MENA region it really does make sense to operators to consider this option.

"The opportunity exists to evolve to this kind of model in this market at this stage because in many cases the maximum number of operating licences have been awarded, and the market is generally opening towards service provision licences," says Phil Reynolds, a seasoned telecoms lawyer who is Friendi Mobile's chief legal officer.

"This shift in regulatory framework is happening in other places in the world, for example in Malaysia, where one of the pre-conditions for bidding for the last mobile licence awarded was that the operator would open its network to permit virtual operator access," he adds.

The MVNO model has been most successfully implemented by the Virgin Group, through its Virgin Mobile brand, which in November 1999 became the first virtual operator and fifth mobile service provider in the UK. The MVNO went on to rack up around 4 million subscribers before being acquired by NTL Telewest in July last year, and being incorporated into a wider media company.

Following its launch in the UK, Virgin Mobile subsequently exported the model to the US, Singapore, Australia and South Africa, with all but the Singaporean operation continuing to be operational. Interestingly, Mikkel Vinter, Friendi Mobile's chief executive officer, was formerly chief commercial officer of Oman mobile operator Nawras, which is headed by Ross Cormack, the former CEO of Virgin Mobile's ill-fated Singapore operation. "What we are looking to establish is a pan-MENA MVNO operating under one brand," states Vinter.

"We are currently working in 12 countries across the region and would be looking to announce a commercial launch before the end of the year," he adds.

In Western Europe there are around 75 operators and twice as many MVNOs in operation, a situation that Atte Miettinen, Friendi's strategy and business development officer believes highlights the extent of the opportunity in the MENA region, where to date not a single MVNO is in commercial activity.

A number of overlapping circumstances thus make the timing of the introduction of virtual services timely at this point in the regional market's development.

Reynolds describes the liberalisation taking place across the Middle East in particular as the "second phase of liberalisation", with numerous national regulators looking to widen the nature of competition in their respective telecoms markets. "Jordan is one country actively consulting on the introduction of MVNOs, for example," highlights Reynolds.

Friendi Mobile management have been pro-active in working with operators and regulators in various countries in the region, and CEO Vinter says the response they have so far received has been positive and encouraging.

"One of our main messages to operators is for them not to see us as an additional competitive threat. In fact, MVNOs help drive the maximum utilisation and benefit of the network, from which the network operator gains an advantage," Vinter explains.

Friendi Mobile believes its proposition appeals to market leaders and new entrants alike, given that market leaders would look to secure a larger number of potential subscribers as a defensive play, while new entrants by their nature are looking to grow their market share and appeal to various segments in the market. Thus the introduction of an MVNO business model can be used as either an offensive tool or a defensive one.

Emphasising the fact that cooperation with an MVNO can in fact improve the bottom line of the partnering network operator, Friendi Mobile has conducted research that shows the wholesale contribution of revenues derived from the activities of the MVNO are higher than the incremental revenues derived from the offer of retail services.

Regional offices are under development, and we are aware that our own time to market is important. We are ready to compete and confident in our proposition, our experience, and our knowledge of the local markets.

In short, there is a positive net effect for the network operator as a result of the activities of the MVNO.

"Operators need to think about network utilisation, and total network market share for all brands operating on the network, not necessarily for one brand only," comments Miettinen. "In the MENA region it really does make sense to all operators to consider this option."

As such Friendi Mobile is looking at developing a two-prong business approach. Its preferred arrangement is to operate as a standalone MVNO, purchasing capacity from a network operator partner, while being in charge of its independent marketing and billing infrastructure. However, in markets where the company is unable to secure a full MVNO concession, it is looking to partner with network operators, and develop Friendi-branded propositions that are offered separately to the network operator's own brand.

"There are three components required to launch an MVNO. There needs to be an operator, the regulatory environment permitting such an offering, and local assistance with respect to logistics and distribution," explains Reynolds. "However, to operate a virtual network, there need not necessarily be a separate licence in place, and the network operator and MVNO are sometimes able to come to some manner of commercial agreement that will be acceptable to the regulator," he adds.

Vinter is still a little guarded with respect to detailing Friendi Mobile's financial and strategic backers. What he wants to make clear though, is that the company is not a fly by night start-up, it is already fully funded for its evolution from launch phase to commercialisation, and recently closed its second round of funding. "We have attracted a double digit amount in millions of dollars, and aside from global venture capital partners, we also have a large fund involved, together with regional investors," Vinter explains.

Miettinen says the company has complete launch funding available for the first two or three countries Friendi Mobile is looking to enter, and as the year progresses the company will be taking greater strides towards full launch mode. "Regional offices are under development, and we are aware that our own time to market is important. We are ready to compete and confident in our proposition, our experience, and our knowledge of the local markets," comments Vinter. "We offer the best of both worlds in terms of having a management team that has international experience, but with a local focus. I feel confident," he adds.

Indeed a number of the leading mobile retailers in the region have expressed an obvious interest in developing a business model that they believe offers additional value to subscribers.

"Becoming a mobile virtual network operator would be quite a natural step," Faisal Al Bannai, Axiom Telecom's CEO told

at the beginning of last year. "We are a retailer, a distributor. We do servicing and after-sales service. We are a value added service provider...the question is will it be a year or three, this is the timeframe," he added.

At the time, Al Bannai forecast that the first Axiom MVNO would launch before end-2007, but that he hoped even earlier if possible.

Vinter views Friendi Mobile as a local company and describes the long-term vision of the operation as offering a service that creates a single community of users across a number of countries, utilising a single brand.

Miettinen confirms the vision. "We are looking to create a brand that actually appeals to customers, and are looking to take advantage of the trend where operators are moving from being technology led to being services led."

In markets that embrace services-based competition the MVNO model is likely to be more easily accepted. However, even in those with more conservative regulatory regimes, the tide of liberalisation seems inevitable.

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