MVNO Africa : time is ripe but get your maths right !!!

Presentation1MVNO’s in Africa : time is ripe but get your maths right !!!

One should expect a powerful growth phase in MVNo expansion in Africa since there are still many market segments untapped by the mobile network operators that are being addressed by MVNO’s . These include the ethnic markets, data-only connectivity, and community-led and retailer-owned MVNOs – and there is also a strong push from mobile operators wanting to increase their share of mobile wholesale revenues.

Almost all analysts agree that the opportunity for mobile operators to take advantage of MVNOs outweighs their competitive threat. Moreover, the competitive threat argument is questionable considering prices would continue to fall even without the presence of MVNOs.Ultimately, there will be an increasing need for mobile operators to fill their networks (e.g. 3G or 4G), regulators will demand further roaming and interconnection reductions, mobile-only operators will use lower prices to advance fixed-mobile substitution, and new companies with disruptive technologies (like VoIP) will compete by offering even cheaper voice packages.

Analysis indicates that non-telecoms based MVNOs are able to target profitable market niches and attract more customers by taking advantage of their recogniz¬able brands and well tailored mobile offerings. These players are able to explore the market potential more comprehensively than companies with a telecoms background (e.g. fixed op¬erators entering the mobile market or CATV operators turning to quadruple-play). What opens exciting possibilities for MVNOs offering services beyond discount voice and SMS is also the popularization of 3G+ networks enabling new applications and services, thus leading to further specialization. For example :

• Data-only MVNOs bank on mobile data services to up-sell and cross-sell core products for instance laptops, e-book readers or services for instance telematics or ICT solutions in general — and thus add value to product or services that they already offer within their portfolio.

HP, for instance, launched its data-only MVNO service already in 2009 to improve market share in Japan where it faced strong competition from local manufacturers. The same logic was followed by Amazon that bundled mobile data services to its Kindle to protect its market from Apple and other tablet manufacturers.

Retailers can help MNOs increase loyalty and reduce churn by using their customer-loyalty experience to offer discount and loyalty cards and to offer leasing programs for device purchases. As the VAS market develops, the retail MVNO is also in a good position to develop mobile commerce. The m-commerce and m-banking opportunity, alongside the retail network, is at the core of the potential value proposition of the financial MVNO as well . Furthermore, retailers will naturally target the mass market, which for MNOs raises the risk of market-share cannibalization, especially in the prepaid-dominated African markets.

The financial MVNO faces the same challenges as the retailer MVNO in terms of negotiations with MNOs, given its natural focus on the mass market. In addition, operators are increasingly eager to play a role in the m-commerce and m-banking markets. The way regulation develops in this area will largely determine the development of this MVNO model. There is certainly scope in the region for prospective ethnic MVNOs, targeting communities of migrants and nationals with family or friends living abroad to provide financial services.

Postal Organizations in Africa are well positioned to launch their MVNO’s now. As a virtual operator, Poste Italiane extended access to its existing postal and financial products via mobile phones, while leveraging wireless technologies to offer innovative, revenue-generating services. In the first month of operation as a startup company, PosteMobile attracted 100,000 subscribers and captured 7,000 activation orders per day at the peak of this growth. Within two months of the launch date, PosteMobile became the leading Italian MVNO in terms of customer base.

The business plan plays a number of essential roles in the planning and creation of a successful MVNO. The business plan covers all aspects of the company launch plan including market assessment, funding requirements, financial analysis, market segmentation and product differentiation. Also included is go-to-market plan, distribution and replenishment plans, comparison of MVNO’s and more.

An MVNO is no different to any other business and must have a source of (sustainable) competitive advantage if it is to create value for investors. Competitive advantage is achieved by effectively leveraging their existing assets to generate customer growth with low customer acquisition costs. It is this leverage that provides the basis for a good business “story.” MVNOs typically seek to leverage the following assets:

• Existing customers –it is easier to sell a new service to existing customers than it is to win entirely new customers (e.g. Tesco)
• Brand –to be successful the leveraged brand must drive the purchase of mobile telephony (e.g. Virgin)
• Distribution –existing channels to market will help reduce the cost of customer acquisition (e.g. Tesco, Aldi)
• Content –for some, mobile provides simply another media for the distribution of existing content (e.g. Jim Mobile)
• Convergence –bundling of multiple communication services is increasingly common and has been shown to increases customer loyalty (e.g. Tele2, BT leveraging customers and fixed assets)

Along with the evolution of MVNOs and their growing needs, a market of mobile virtual network enablers (MVNEs) has emerged. MVNEs provide MVNOs with all necessary back-office operations and IT platforms allowing them to concentrate on the core of their mobile business – developing new tariffs and services and taking care of customer acquisition and retention.The MVNO paradigm provides companies with access to revenue-generating goods and services and transfers their specific experience to the wireless markets.

On the other hand, mobile operators acquire access to new markets and additionally, they gain access to specialized content and services. Sharing some business processes will certainly result in their overall performance increasing.With vast amounts of unused bandwidth to share and the inability to provide proper services to all market seg¬ments and niches by traditional operators, the MVNO is a classical win-win situation with greater economies of scale and more value added for end-customers.

Sadiq Malik ( Telco Strategist )

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