Is there scope for MVNOs?

Vir­gin’s fail­ure to make big splash casts doubts on vi­a­bil­ity

Finweek English Edition - - Communication & technology - CHIMWEMWE MWANZA

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

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