Is there scope for MVNOs?
Virgin’s failure to make big splash casts doubts on viability
THE MOBILE VIRTUAL Network Operator (MVNO) business worldwide has experienced a turbulent past two years. (MVNOs don’t own their own physical network but buy access on existing networks, on which they sell services such as voice and data.)
Until recently the industry had been experiencing an explosion of launches, with new entrants emerging on an almost monthly basis and the Scandinavian market proving particularly receptive to the concept.
Though MVNOs such as Easy Mobile and Virgin Mobile in Britain may well have had a considerable impact in driving down communications costs and increasing competition, of late the proposition seem to have lost some of its lustre if the recent marked decrease in launches is anything to go by.
Volatile market conditions recently prompted Virgin Mobile to shut its service in Singapore, further casting doubt on the continued viability of this business model.
In SA, Virgin Mobile SA (VMSA) has failed to deliver in the nine months since its launch either the radical market shakeup or the true competition promised by founder Richard Branson. Due to regulatory constraints Virgin Mobile in SA operates in the guise of an enhanced service provider in conjunction with Cell C, but is to all effects and purposes an MVNO.
Africa Analysis’s André Wills cautions against drawing conclusions from the poor performance of Virgin in SA and Singapore and applying them to the MVNO business model as a whole. “From a South African perspective I share the frustrations of consumers, because VMSA hasn’t had any material effect on the tariff structure.
“They promised big when they launched and SA consumers – weary of being fleeced by existing operators – were given hope that the new entrant would become a viable alternative to the costly services offered by Vodacom and MTN.” However, that didn’t happen.
Peter Boyd, recently appointed CE of VMSA, is quick to defend the company’s business model. “Within this context it’s perhaps better to describe the MVNO opportunity not in terms of success or failure but rather as an ongoing evolution. The economic impact of our presence will be felt in due course and it’s premature to suggest that we’ve failed to make any meaningful impact on the local market.”
Although he wouldn’t be drawn on revenue or subscriber figures, Boyd said the company was well within its set internal targets. “Whichever way one looks at it, there’s scope worldwide – and particularly in SA – for the continued existence of MVNOs.”
Despite VMSA’s perceived failure, Wills argues that the core business model hasn’t only worked in Scandinavia but has also played a part in reducing communications costs in those countries.
Says Wills: “The challenge in SA was that the model was introduced at a time when the market was almost saturated by the likes of Vodacom and MTN. Had VMSA put in place a sound strategy that took that into account before launching it could have gained considerable market share. Part of the reason for the early popularity of MVNOs in Western Europe and Scandinavia was their launch of discount voice-orientated services.
“VMSA’s strategy was flawed because they’re a one-flavour kind of service provider. They’d been pinning their hopes on leveraging the Virgin brand, improving customer services and subtle pricing differences. All those areas were well covered by the competition, which go to great lengths to protect their market share. In SA, both Vodacom and MTN are much bigger brands than Virgin and that’s something that didn’t appear to be factored into Virgin’s thinking.”
Concurring with Wills that the MVNO market shouldn’t be judged on the SA experience, World Wide Worx’s Arthur Goldstuck says that poor brand visibility on the part of VMSA has been its undoing. “VMSA has got to enhance its marketing and advertising campaign and also improve its distribution channels. Whereas the Vodacom and MTN brand is ubiquitous, the VMSA brand is nowhere to be seen.”
Once the regulations allow the creation of a true MVNO in the SA market, the door may be open to other players to succeed where Virgin has thus far failed. However, it will require a strong hand on the part of Icasa and a willingness by the incumbent operators to offer real wholesale rates to the new entrants before the public will benefit from the true value of the MVNO model.
Don’t judge MVNO model on SA’s experience. André Wills
VMSA’s positive impact will be felt in due course. Peter Boyd