MVNOS in Africa – LittLe ACORNS :: Total Telecom

Source Total Telecom Full Extract of Article. By Vaughan O’Grady

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There has been little MVNO activity in Africa to date, but there are signs that market is poised for growth.

Virtual operators have carved out a significant presence in many global mobile markets, but have yet to make their impact felt in Africa. However, there are indications that the market is poised for growth. In recent years a handful of virtual players, some mobile virtual network operators (MVNOs) in the traditional sense and others operator sub-brands or highly-targeted niche players, have come to market in Africa, one of the most high profile being Set’Mobile, launched by footballer Samuel eto’o in Cameroon late last year. And a number of markets are on the verge of opening up to MVNOs. But these new entrants, and those yet to come, have some major hurdles to overcome if they are to build successful African MVNO businesses. Leveraging established brands from other industries will be an important weapon, especially in countries where the low-cost market, traditionally the remit of the MVNO, is still fiercely contested by the mobile network operators themselves. African MVNOs also face challenges when it comes to building the necessary scale, working with regulatory regimes, and finding a willing host network.

Nonetheless, analysts see potential in the market.
“MVNO set-up costs continue to fall, and African MVNOs can benefit from that as well as learning from the experience of success and failure in other markets,” says Tim Heal, consultant with CSMG. “Mobile is often a great channel for brands to get closer to their customers. And outside of big brands, there are lots of different kinds of niches that MVNOs can fill. There are always going to be opportunities and always going to be people trying their hand.”

Africa has seen very little MVNO activity to date, although some companies have dipped a toe in the water. According to Wireless Intelligence, of May 2012 just four were Africa-based. There were also five mobile operator sub-brands that offer MVnO-like services.

Cameroon’s set’Mobile, Virgin Mobile and Hello Mobile in South Africa, and Kirene Mobile in Senegal are arguably MVNOs as many established markets understand them, although the last is considered a sub-brand of host network Orange by local regulator the ARTP. Blueline of Madagascar is more of an ISP than a mobile provider, while Toubatel of Senegal is a closed user group. Launches are possible in the near future in Egypt and Morocco, where regulators are considering awarding MVnO permits, but that still makes for a tiny market.

And any activity may still be some way off, in part because there is little impetus for mobile network operators (MNOs) to drive the market.

“Historically, MNOs are much more likely to look favourably at MVNOs where growth has tapered off or when they are under-indexing in key customer segments,” Heal says. Many markets in Africa are still in the rapid growth phase so, “there hasn’t necessarily been the appetite from operators in those markets to seriously consider the wholesale strategy,” adds Mike Greening, VP at CSMG. African regulators have not pushed the MVNO concept either. “Currently, the regulators are more interested in basic yet necessary regulations, such as SIM card registration and mobile number portability,” says Kerem Arsal Senior analyst, EMEA at Pyramid Research. That said, he feels some regulators in the sub-saharan region will do “just about anything to promote competitiveness”, so MVNOs may yet be encouraged.

But if would-be African MVNOs decide to take the plunge there are many factors they will need to consider.

One of the biggest challenges is how to position an MVNO in a low-income market. In developed markets MVNOs can avoid cannibalising a host operator’s subscriber base by targeting low-end segments the MnO might find too costly to tap, says Arsal. But in Africa, “the low-end segment is definitive of most sub-saharan markets and the proper MnOs are already fighting for them”.

Hello Mobile’s cheap international calling model has made some progress among low-end users in South Africa, but penetration there is well over 100%. The company offers a SIM card that allows low-priced local and, crucially, international calls direct from a mobile phone.

Arsal believes that a business model around international calls also exists in less developed markets. “There certainly is a potential for MVNOs that specialise in low-cost international calls regardless of penetration,” he says. “Most African countries have tight connections with european countries and there’s a market for two-sided affordable calls in this segment.”

Whether this model takes off elsewhere, however, may depend on whether governments or incumbents in other countries relax their grip on this source of revenue.

But a simple, low-priced MVNO offer in general is unlikely to be a workable strategy in most African countries. And the high end should be managed with care too. According to Thecla Mbongue, Senior Research analyst at Informa Telecoms & Media, Virgin Mobile’s first foray into South Africa in 2006 foundered on the lack of a 3G network which the two big operators, Vodacom and MTN, already had. Virgin works with third operator Cell C. “it was difficult to be a challenger in the high end segment when you did not have a strong data proposition”, she says.

Today Virgin’s subscription numbers are closing in on half a million, which probably makes it the biggest MVNO on the continent, although such figures only put it fifth in south Africa and barely noticeable behind the 60 million total of the big three.

Virgin is making moves to scale up though. Earlier this year it agreed a partnership with Dubai-based Friendi Group to merge its South African business with friendi’s MVnO operations in Oman, Jordan and Saudi Arabia. The merged entity was renamed Virgin Mobile Middle east & Africa. The new company has 1 million customers and aims to reach 5 million by 2015 both through organic growth and expanding to new markets. “I am excited about working closely with the Virgin Group on rolling out new MVnO operations across the Middle east and Africa,” said Mikkel Vinter, Friendi Group CEO, in June.

“Pan-regional MVnOs are likely to be the trend; the new strategic alliance between Friendi and Virgin also hints at a move in this direction,” says Arsal.

Working with one host network operator across multiple countries sounds ideal: it could mean the same technology platform, contractual agreements and volume discounts on wholesale rates. but CSMG’s Heal has some caveats. Will all local versions of regional giant Mtn, say, want to work with the same MVNO? what if an MNO is the incumbent in one market but the challenger in another? if so, they would likely have different strategic objectives. There will be financial pressure on MVNOs to take the best deal in each market, even if that means working with different MVNOs.

But scale certainly does help. So far there hasn’t been sufficient activity in Africa to attract aggregators–MVNAs–which enable MVnOs to launch at a lower cost of entry and often greatly facilitate the set-up process. MVNAs would normally establish scale of their own by working with a number of MVNOs. The single enabler–MVNE–model through which operators can cost-effectively host specific strategic MVNOs is more likely in the near term.

But even with a great business case and the practical details worked out, timing can defeat a budding MVnO. Greening says he worked on a very promising MVnO launch in Uganda; at least, it was promising until the local mobile network operators engaged in an all-out price war, partly fuelled by bharti Airtel’s entry into the market (through the acquisition of Zain in 2010).

“Their low-cost, aggressive pricing model contributed to the massive reduction in retail rates. It completely blew the business case for any MVnO wanting to enter the market,” Greening key driver as to whether MVnOs can be sustainable in low ArPU markets.”branding, meanwhile, will be vital for would-be MVNOs. Cell C’s sub-brand red bull has the obvious youth appeal of a ‘cool’ drinks brand. Kirene of Senegal is even more interesting. Kirene is the country’s largest water and non-alcoholic beverage distributor, as well as being an MVNO. “they have their own distribution channels; they have something more to offer,” says informa’s Mbongue. This might be scratch cards offering airtime distributed with beverage bottles, or giving customers bottles of water in return for phone usage. “in terms of value-added services or customer loyalty they have a two-pronged offer,” she says.

Equally plausible is the appeal to a group identity that drives Toubatel, also in senegal. This service positions itself as a low-cost offer with a closed user group and a target market among the Mouride Muslim brotherhood (touba is a holy city in senegal). Toubatel is a sub-brand of senegal’s third-largest mobile network operator expresso, which is itself a subsidiary of sudan’s Sudatel. Madagascar’s wiMAX-based blueline service is even harder to define, offering tV services as well as mobile internet and phone services.

set’Mobile, on the other hand, which came to market in Cameroon last year, triggered much discussion. The service, which borrows the name of the country’s world-famous footballer Samuel eto’o, was initially interpreted by many Cameroonians as that of a new mobile network operator, Mbongue says. When the regulator clarified that it had not issued a mobile licence to the MVNO and the only licence it had was to resell traffic from existing MNOs, the joke among some Cameroonians was that set’Mobile was simply setting up ‘callboxes’–internet cafe-style businesses that hire out phones and airtime to people who are too poor to buy their own–since they were unfamiliar with the MVNO concept.

This is a customer education question that may yet cause some problems. In South Africa for example, “a lot of the customers are not aware that Virgin is an MVNO,” says Mbongue. it has a branded SIM card and is therefore viewed as being a network. In Senegal, meanwhile, the regulator insisted that, as Kirene is not a licensed operator it had to rebrand its SIM cards as ‘Kirene avec Orange’, its host operator being incumbent Sonatel, which is owned by France telecom and offers services under the Orange brand.

Many of these issues (scale, set-up costs, pricing, and so on) are not confined to the African market. “New MVNOs typically underestimate the rapid cash demand from growth and subscriber acquisition,” says Heal. “You have to have a really solid business case and stress-test it for a range of scenarios. MVNOs that focus on the low-cost segment need to think about the response from competitors–can the business still work if retail prices need to come down another 5%?” but despite the challenges, Africa is still a promising market. “there will be some successes in the near term. there is activity in the market today, but unfortunately wholesale is not a priority for most MNOs,” says Greening. “Operators are currently reacting rather than proactively driving the MVnO market,” he adds. “As we see these markets mature and operators look for new ways to drive growth and retention then MVNO will become more important for them.

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