Kickstart MVNO’s : A look into the WiFi First and Advertising business model !!

The story of MVNO’S in Africa is not a happy one…infact compared to MVNO’s in Europe and Latin America African MVNOs are an ongoing failure for many reasons such as an unfavourable regulatory environment , flawed business models etc. According to Informa Research there are around three million active SIM cards on MVNO networks across the continent, with that number expected to increase to 3.6 million by the end of 2013 and 14 million by the end of 2018. Hardly the stuff of legends !!

We all know that an investment in customer acquisition will tank if the wholesale price is higher than the retail price. Any wholesale rate agreement must have protections against price cutting by the host network so the agreement should incorporate an element of retail minus pricing so that the effective wholesale rate is the lower of the agreed rate or the host’s retail rate minus x%. That is why international players like Orange insist that ONLY a formalised MVNO regulatory regime will encourage companies to launch in South Africa and ultimately improve competition.

So what next in Africa ?? Perhaps we might take a cue from what Scratch Wireless and Republic Wireless did in the USA….they have just ushered in a brave new world where Wi-Fi is the default network for free services, and you only use and pay for cellular voice and data if you have no Wi-Fi access. In October 2013, US mobile virtual network operator Scratch Wireless launched a mobile service with an innovative business model that leverages the principle of always preferring Wi-Fi over cellular to allow it to market free voice, data and SMS plans. Scratch Wireless is, at its heart, an innovative MVNO that leverages the growing proliferation of free wifi access , its customised Android smarptphone and its own SMS / VOIP platform to claim unlimited free calling, free data and free SMS over Wi-Fi

Scratch Wireless is a no-contract, pre-pay (pay-as-you-go) MVNO on Sprint’s 4G/LTE network that is targeting the price-sensitive, yet tech-savvy, 14-24 year old instant messaging generation. This demographic “uses very little voice” with “average call times of less than four minutes.” This, coupled with the fact that the cost of voice termination in the North America is trending towards zero, Scratch Wireless has calculated that it can offer free voice calling (inside North America) while on Wi- Fi. Instead of offering its subscribers Wi-Fi offload as a complement to the more-often-used cellular network, Scratch Wireless has flipped the model on its head and is carving out a space for itself by being the first MVNO to pitch Wi-Fi First.

Scratch Wireless launched with a single smartphone, which comes pre-installed with their own customized version of Android 4.1 Jelly Bean that, according to the company, has been certified by both Sprint and Google. Scratch are keen to point out that the company’s “secret sauce” is installed native and is not available via an app. The customization is a smart move, ensuring that the Wi-Fi, VoIP and SMS smarts appear native in the handset. This is important for two reasons. First, by ensuring that the support is native, Scratch has a better chance of controlling quality of service and avoids all the problems that arise with the variability of app performance on different versions of the android OS. Secondly, the user does not need to do anything to make a free VoIP call to the USA, send an IP SMS or download data over Wi-Fi. All SMS/texts sent over the Wi-Fi network and cellular network are free IP texts sent using the Scratch Wireless SMS platform.

This Scratch features in the OS ensure that all voice calls made while the smartphone is connected to Wi-Fi are in fact VoIP calls that use the Scratch VoIP platform rather than using Sprint’s cellular voice platform. Wi-Fi allows operators to improve consumer reach into new mobile devices that emphasize video experience. Offering content for tablets and smartphones via Wi-Fi can reduce the dependency on mobile network operators and guarantee a better customer experience. There is no question that this business model is innovative. But with its high priced cellular voice and data packs, this model really only suits those that are nearly always inside a free Wi-Fi zone or are happy to communicate mainly via SMS and pay a premium for cellular voice ; data services when they need it. In response to Scratch other Wifi First MVNO’s are sprouting up.

Working with qualified MVNE players it is possible to reduce capex by leveraging their existing infrastructure ( billing , logistics , CRM ) to launch an MVNO within weeks. Competitive advantage is achieved by successful MVNOs through effectively leveraging their existing assets to generate customer growth with low customer acquisition costs. As such an MVNO relationship ( Wifi First ) can deliver revenue from onselling bundled offers ( 3G Data + Wifi Data + Voice + Mobility ). Most SA Mobile operators offer a connection bonus plus 20 to 25 %  of on going revenue for their service providers….money for jam !!

Infact Mobile Operators in Africa should not bother with the free wifi game even for data offload : they will have LTE spectrum soon enough , LTE direct and LTE U is on the way and their core competence is managing Macro Cell 3GPP infrastructure…let the ISP’s and Municipal councils do their wifi broadband digital divide thing on fibre backbones. However Mobile Operators should facilitate the growth of WiFi MVNO’s ( like Scratch Wireless ) so the consumer gets the best of both worlds: Cellular and WiFi. MVNOs provide MNOs with access to potential customers via non traditional channels such as WISPs and alternative retail stores.Belive it or not there are many ways to make money from WiFi for Telcos and MVNO’s even if wifi is dished out FREE….you just have to be a little creative : Through advertising, CSP’s have a potential opportunity to:

+ Reduce the price of content and services to end-users
+ Increase the volume of available content and services,
+ Provide value to the advertising community

The idea of offering customers free access to the internet in exchange for watching a short ad from the sponsor allows users to integrate with sponsor brands’ social network, increasing their opportunities. For instance, studies have shown that 90 percent of consumers who receive content or services based on their location perceive value in that communication. More important for the advertiser, 50 percent of those recipients act on that information. Mobile advertising can generally be divided into three categories. Landing-page ads are displayed on a site’s primary webpage, providing the mobile version of their web portal. Access ads are displayed when the Wi-Fi network presents the sign-in page to subscribers and nonsubscribers. Location-based ads push content and services based on a customer’s location.

Telcos and MVNO’s can contribute to the development of a differentiated new advertising channel in which users are provided with a portfolio of content and services supported by contextually-relevant advertising. Operators have an opportunity both to provide their own advertising-funded services as well as become an enabler to the advertising community by helping advertisers interact more effectively with their targets (who may or may not be Telco customers).Advertising based on Wi-Fi access promises to change the economics of mobile advertising.

Modern Wi-Fi can provide much more accurate user location (typically within 3 to 5m [9.8 to 16.4 ft] or less) than mobile cellular, allowing for much better targeted advertising.  Typically, the use of Wi-Fi is opt-in, meaning that customers are much more receptive to advertising than the alternative spam model. Cisco research reveals that one Wi-Fi service provider is achieving a $24 CPM in a mall in Canada and another is commanding $40 CPM for a mall in Singapore. One operator is even reporting a $350 CPM for Wi-Fi-based advertising in a high-end mall in Dubai. Business modeling by Cisco reveals that Wi-Fi based advertising can conservatively be a multimillion dollar new business for service providers.

*CPM (Mobile advertising is typically receiving $1 to $10 cost per mil (CPM) – the typical pricing metric in the advertising business.}

In addition Location-based services provide a host of analytics and big data that the venues can use to improve their operations or sell to third parties. Aggregating the information available from the Wi-Fi access points provides unique insights into where people go, their common paths, and most visited places. Mall owners, for example, can then use this detailed data to justify higher rents for stores in high-trafficked areas or to measure the impact of signage on customer traffic patterns. Trend analysis and history comparisons of data can show the effectiveness of changes in marketing of store layout. In addition to shopping malls, other large venues such as airports and stadiums can use the data to help improve operations and security.

Retailers can combine the location and user information from the Wi-Fi access points together with customer relationship management (CRM) and customer loyalty data to provide personalized experiences and offers to shoppers at points of purchase in the stores. Equally, retailers are combining location-based services and shopper services to provide additional product information and help customers navigate throughout the store.

Bottom Line : 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 must really must 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. WiFi technology allows the creation of new Service Providers that can co exist very peacefully with 3G/4G. And if they do it right they do make money even as they reduce the price of data connectivity and get ” have nots ” on line.

Sadiq Malik ( Telco Strategist )


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s