By Tawanda Chihota
Virtual networks have long held a theoretical attraction for developing markets, given their speed of deployment and significantly lower roll out cost in comparison to a regular cellular network. Despite these advantages, MVNOs have been slow to take off across the Middle East and Africa region.
|~||~||~|Virgin Mobile is the most high-profile mobile virtual network operator (MVNO) in the world today, offering millions of subscribers across the UK, USA, Australia and Canada access to its suite of cellular services without owning any part of the underlying infrastructure. The model would make sense in emerging markets such as those found across the Middle East and Africa and yet to date, there are no such success stories.
In the lead-up to the award of the second GSM licence in Saudi Arabia last year, speculation was rife that the licensee would not be required to build out its own network, and would instead be able to utilise that of incumbent operator Saudi Telecom. Such a move would have maintained the status of the state telco as the monopoly network infrastructure provider, while the market would benefit from differentiated services and the other positive effects synonymous with the introduction of ‘competition.’
Saudi authorities went on to licence a consortium backed by UAE operator Etisalat, which is now in the process of rolling out its own GSM infrastructure, though market conditions across the region are evolving at such a rate that the virtual network model has become an ever-more realistic proposition. In Iraq, for example, the National Communications and Media Commission (NCMC) confirmed in a consultation statement in June, that it was “exploring the possibility of offering one or more MVNO licences in the future to stimulate competition should the total market size justify such an introduction.”
The NCMC acknowledged the benefits offered by MVNOs in representing “an efficient entry point for licensees whereby they purchase capacity from existing network operators, add their own brand name, customer service, and billing systems and then sell this package to their customers.” The Commission goes on suggest that; “MVNOs can also stimulate infrastructure investments by adding a new revenue channel for infrastructure providers.”
The award of a third mobile licence in Saudi Arabia slated for 2007 raises the possibility of the issuance of a virtual licence of some nature given the progress the two incumbent GSM operators would have made in extending their networks to the most economically viable areas of the kingdom. Following the announcement of a second all-service mobile licence in the United Arab Emirates earlier this year, the Telecommunications Regulatory Authority also announced that it did not intend to award any further communications licences until 2015 at the earliest. It has been suggested that this clause could later be interpreted to mean the regulator does not intend to licence another player that will have the right to roll out infrastructure, though service providers, or ‘virtual operators’ offering an array of branded services over the infrastructure of the incumbent players may be permissible.
||**|||~|MVNO-opener200.jpg|~|There are no MVNO success stories in the MEA region to date.|~|In South Africa, the MVNO model is even closer to introduction given that Virgin Group in June penned a deal with third-placed operator Cell C to launch a virtual service. It is reported that the terms of the deal will see Cell C and Virgin establish a joint venture operator, trading under the Virgin brand and targeting more affluent consumers. The offer of virtual services had previously been illegal in South Africa, though following the amendment to the Telecommunications Act effective earlier this year, the provision of such services were made legal.
Virgin in South Africa is a well-recognised aspirational brand, much like it is in UAE, and already has a presence through Virgin Active sports clubs, Virgin Cola and Virgin Atlantic. Virgin is also interested in entering the Nigerian market and negotiations are still underway there. The company’s airline - Virgin Atlantic - flies to Nigeria and hence Virgin has some experience of the market.
The Middle East and Africa are not the only markets outside of Europe that are set to see increased activity within the MVNO space. Having received initial exposure to the model by the launch of Virgin Mobile in the country in 2002, the USA is fast developing into a hotbed for such services. With network operators facing increasing penetration levels and saturation in the voice services, MVNOs are proving to be a viable alliance for offering differentiated value-added services, garnering new customers and driving incremental revenues, according to research house Frost & Sullivan.
Analysis from Frost & Sullivan reveals that revenue in the virtual operator space in the USA totalled US$2.48 billion in 2004 and could reach as much as US$9.35 billion by 2011. MVNOs have a ready-made database of end users and strong brand positioning, allowing them to more easily target and appeal to a specific market segment, the research house says.
“For entities with a strong brand value, an established customer base and a desire to enter into the wireless services arena, the MVNO model becomes a very attractive platform,” says Samir Sakpal, research analyst with Frost & Sullivan. “Partnering with network operators and carriers at this stage, gives the ability to serve the market which has not been catered to by the carrier or network operator and also eliminates the risk of cannibalising the carrier’s market or entering into strong head-on competition with experienced wireless service providers,” Sakpal adds.
According to Frost & Sullivan research, most MVNOs rely on their strong brand name and existing customer loyalty to make the seamless transition into wireless ventures. However, the research firm believes that the real challenge for MVNOs lies in making a successful entry into new markets.
“The access layer and all the back office functions are secondary when it comes to the MVNO model,” says an informed source with experience of launching virtual operators in Europe. “Billing and ownership of SIM cards and all that type of thing comes after the primary objective of the penning of such a deal, which is to focus on appealing to a specific segment of the market,” the source adds. ||**|||~||~||~|In order to succeed in the wireless arena and effectively utilise its brand value, Frost & Sullivan believes it is crucial for an MVNO to estimate the market size and know its customers as it enters the market. Targeted advertising and marketing campaigns, combined with tactical market segmentation based on prior experiences with customers, often prove highly profitable activities, the research company suggests.
While brand values and easy availability of loyal subscribers make MVNOs attractive options for lucrative partnerships, Frost & Sullivan suggests that virtual operators must exercise caution when choosing an appropriate partner. In a recent report, the research company states that it is imperative for an MVNO to partner with a network operator that has proven credentials, network capability, and quality service.
“In order to gain share in the market, MVNOs need to consider that differentiated services such as value-added data services, for example, MMS, wireless instant messaging, ring-tones, images, music, and videos, will form essential wireless services in the future,” says Sakpal.
It is in the offer of differentiated services that markets across the Middle East and Africa are said to have proved unfit for the launch of virtual operators until recently. “The essence of an MVNO launch is all about market segmentation,” comments the informed source. “So the reason why there is no case for a virtual operator model in the UAE [and similar markets] is because there is little segmentation - a generic service is offered across the board and Etisalat has not begun to differentiate products for specific segments,” the source says.
The youth market in the UAE for example, or the pool of construction workers stand out as obvious targets for segmentation exercises, though the incumbent operator has not been under any pressure to undertake such a strategy up until now. “The point of an MVNO is to extend usage to groups that the network operator may not yet have reached. So in terms of the MVNO deal between T-Mobile and Virgin Group in the UK, the intention was to extend usage to the youth market and to Virgin’s distribution channel, through megastores and associated retail outlets,” the source explains.
Such was Virgin Mobile’s success in the UK that in the latter part of the lifetime of its joint venture with T-Mobile, that the network operator started to experience cannibalisation of its own subscriber base through the ongoing operations of Virgin Mobile. “Virgin became too much of a threat when it started offering services like-for-like against T-Mobile in third-party retail outlets like Carphone Warehouse,” the source says.
Last month, the virtual network operator reported that its active customer base in the UK had risen 21% year on year to 4.11 million, having added 77,000 subscribers in the quarter to end-June. Rolling 12 month ARPU came in at around US$216, with non-voice services having increased to account for 31.5% of total service revenues.
Virgin Group’s strong marketing muscle and high-level of brand awareness made it a prefect candidate to offer virtual services, though it has been advised that both the service provider as well as the network operator be clear on the objectives and parameters of the agreement from the start. Virgin Group had a similar MVNO agreement with Singapore Telecommunications (SingTel), which was terminated after less than a year of commercial operation following disagreements between the partners concerning the direction of the venture.
||**|||~|Branson200.jpg|~|Branson's Virgin Mobile is the most successful MVNO in the world, with over 4 million subscribers in the UK alone.|~|The joint venture company launched in Singapore in October 2001, with further launches in Asia, including Hong Kong and Taiwan set to take, but which never occurred. In Singapore, Virgin Mobile Asia replicated the company’s model in the UK by buying cellular airtime from SingTel on a wholesale basis, and Virgin Mobile managed its own marketing, billing, customer care and tariffs. However, a mere nine months after launch, the parties announced the dissolution of company following a well-publicised losing battle to sign up subscribers in the highly competitive, saturated Singaporean mobile market.
Parties privy to the deal between Virgin and SingTel believe the arrangement went sour because the terms of the agreement were such that upfront, they appeared like a good deal for Virgin, but once commercial operations began, it became clear that it was not in Virgin’s best interests. Virgin was said to have been close to signing a similar agreement with a rival network operator to SingTel, prior to finally penning the deal with the Singaporean telco, and some sources believe that had this avenue been explored, it may have resulted in a completely different outcome for Virgin.
Thus the combination of a strong, marketing-savvy service provider coupled with an operator with the requisite technical support and cooperative outlook is a strong starting point for the development of a virtual operator. Effective segmentation of the market and effective communication with the target market also appear to be key ingredients in the development of such a model.