MVNO ‘s in emerging markets : time to rethink and retool the business model !!

Presentation1Last week’s the annual MVNO Africa Summit was well organised and high traffic event : various players in the telecom value chain including bankers jostled around to get a sense of why MVNO’s are not taking off in Africa. Deloitte figures showed there are 1,200 MVNOs active globally, 800 of which are in Europe and less than 10 in Africa, a pathetic figure which may belie a massive opportunity for some innovative MVNO business models. “The potential for Africa is at least 500 MVNOs over the next 10 years. What a fantastic opportunity. I don’t think there is any other market out there that has the same opportunity “ gushed a key note speaker !!

Yours truly was chairing Day 1 of the Event and set the tone by asking the audience why African MVNO’s are unsuccessful . I was requested by the Organisers to read a letter from a Ugandan MVNO that is struggling and here are a few excerpts that sortta explains some of the conundrum:

” Tariff regime is not properly regulated with very limited interventions in balancing the market forces. The law of the jungle now prevails i.e. survival of the fittest. Price undercutting is the order of the day, pushing small operators against the wall!”

” In Uganda, ‘real’ regulation has diminished and almost absent. It’s the ‘big boys’ that have turned themselves regulators through ‘arm twisting, control and compromise’. We are seeing emergence of control Cartels! ”

” Unfavourable provisions of the partnership and service agreements with the host MNO. We were tied with provision related to capital investments and cost recovery subjecting it into a perennial debt trap. There was reluctance to re-negotiate the un friendly provisions.”

” The fear of ‘cannibalisation’ remained contentious i.e. the Host MNO fear of infringement on its customer base. There was difficulty in harmonising competition between the host MNO and the MVNO. This led to limitations and restrictions in offers for fear of competition thus restricting us to the low return voice with very limited access to the more lucrative data segment.The limited 3G access turned out un competitive compared to offers by other MNOs.”

The above sentiments reflect an unfavourable MNO host agreement , brutal price competition , apparent lack of regulatory support and maybe an outdated business model etc which by the way is reality in Africa. So the basic problem may well be that the business of making a margin on the wholesale price is at an end in Africa. The MTR rates are declining even as Operators battle for profit on voice and data by reducing prices. So what can be done ?? Its time for aspiring MVNO’s to think about other revenue sources while earning little or nothing on basic voice / data. How about an ad funded business model pioneered by Blyk ??

Blyk was an ad-funded MVNO focused on the 16-24 year old market (although they positioned themselves as a ‘media company’). It gifts minutes and texts to customers in exchange for the right to send advertisements to them. Users complete a set of questions about themselves when they sign up, giving Blyk information about their preferences. Advertisers market their products and services via text to Blyk users based on this profiling and Blyk got paid to deliver the advertisement. So, at first glance, Blyk reversed the normal revenue model for operators: it collected money upstream ( advertisers ) and paid out for delivering services to customers: in reality however Blyk was making money from customers as well ( 2 sided business model ) via :

Termination charges from off-net callers

Operators are both receivers of money from end users (when originating the call) and receivers of money from other operators (when terminating the call). So every time a Blyk user receives a call or text from an off-net customer the originating operator pays Blyk for termination. In turn, Blyk obviously paid some of this termination charge out to its network supplier (Orange) but one can hazard that the company still made some margin on this.


Typically 16-24 year olds, like the rest of us, have a pre-determined communications budget – “I will spend $x on my phone each month”. The fact that Blyk gave users free calls and texts dis not stop users from spending this money. Blyk’s users would simply display the same behaviour that every Telco exec is familiar with: increased communications usage as the price reduces (price elasticity ). Blyk offered 217 free minutes and 43 texts, so users will be profligate with their communications. They would use this free allowance up and STILL spend at least some of their previous budget.)

Two years after its launch , Blyk became part of France Telecom’s Orange network in the U.K. Despite successes in luring major advertisers and producing effective campaigns, Blyk never reached its hoped-for scale. It topped out at 200,000 customers in its first year of existence.A co-founder of Blyk, admitted, “Advertisers want to see scale but we were not rolling out quick enough.” Blyk ran more than 2,000 campaigns and attracted quality marketers to its service: Coca-Cola, Colgate, Penguin Books, L’Oreal, Lucozade and the BBC all partnered with Blyk to create cutting-edge mobile marketing aimed at an exclusively young audience. Many people in the industry view Blyk as a pioneer; a trailblazer for mobile marketing whose innovations have set the standard for the industry and will continue to play an important part in its evolution.

Orange’s ambition is to grow its media business in order to offer a portfolio of opportunities for consumers and media houses alike. Blyk has proven that sending timely, interesting and relevant messages to young people from brands builds high levels of engagement and elicits high response and action rates. Orange will continue to offer brands the same direct communication but on a far larger scale backboned on Blyk’s advertising engine. In addition the latest trend in mobile content advertising is the use of viral marketing. Through specially designed programs users can send recommendations for mobile content they like to their contact lists. A good example for this is the Italian Passa Parola, which has reached a total of 800.000 registered users, by the use of viral marketing alone.

So what are the lessons from Blyk MVNO rise and demise ??

Perhaps the most obvious lesson for other operators is that there is value in 2-sided business model where the Telco earns both from upstream and downstream clients : in Blyk’s case from advertisers and subscribers ! While Blyk struggled to make a return because of scale ( or lack thereof ) ,it did enough to show that for operators with large existing (youth) customer bases the ad-funded model could be fruitful. It was not mere marketing fluff that Blyk refers to itself as a media company rather than a MVNO. It showed that Blyk’s management considered the advertising community as its primary market and end users as ‘members’ rather than customers. Indian carrier Aircel teamed with youth media firm Blyk to launch a content and advertising service in November 2010.Blyk still has its eye on the prize: developing the capabilities – in partnership with mobile operators – to be a game-changing engagement media in reach and response !!

Even with its relatively low-tech data acquisition approach, Blyk showed that targeting customers with the right message/product/service/solution really does work. However with your customer base on one side and you are building scale on the other side, the platform will only thrive it not only provides an effective service (identification, authentication, advertising, billing, content delivery, customer care, etc.) and does it more cheaply than can be found elsewhere. Google is winning because advertising is cheap for brands, Microsoft won on Windows partly because the platform, when bundled in with a PC purchase, was negligible. This means that driving costs out of the platform is critical. A strong CRM capability becomes a must-have if they wish to become a platform player like Google.

MVNOs that provide M2M (machine-to-machine)/telemetry services, enable companies and consumers to enjoy new ways to manage and monitor their businesses, lives, and health. Clearly there is enormous potential considering also the hype around MHealth. M2M communications offer a plethora of opportunities to all parties involved, from product manufacturers, to HNOs, MVNOs through to end users. Jasper Wireless was founded in 2004 in California and provides the platform, applications, and design services needed to profitably connect and manage devices worldwide and today partners with prestigious top HNOs such as ATT, Telefónica, Vimpelcom, KPN, Rogers, Telcel and Telstra.

If the MVNO has a strong and INNOVATIVE business case it shouldn’t be difficult to prove the real opportunity that can emerge from their partnership with a Host Network Operator. The HNO and MVNO together can create new revenue streams, address new customer segments whilst reducing their marketing costs, increase customer retention by augmented customer satisfaction in the targeted segments and enhance their product offering by creating valuable partnerships with content or VAS providers.

Mobile operators need to accept the terrible truth that they are no longer in the access business and focusing on growing subscriber numbers obliges them to overlook the very opportunities (such as mobile advertising , M2m ,Quadplay) and value creation opportunities that Internet brands are rushing to embrace and MVNO’s can bring to the party. MNO’s need to take a proactive role in helping well funded new MVNO’s to explore alternative revenue opportunities instead of forcing the tired wholesale retail voice commodity business.

Guys ..a little creative thinking will reap financial dividends. And there is no doubt that regulators must play their role to facilitate service-based competition in their markets, while meeting the needs of both existing players and new entrants.

Bottom line :there is more than one way to skin a cat !!

Sadiq Malik ( Telco Strategist )


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