THE recent pronouncements by the communications regulator (Potraz) that it has come up with a draft framework to license Virtual Network Operators (VNOs) came at the opportune moment when the market is ripe for VNO establishment considering that the mobile penetration now nears saturation, with the latest results showing levels past 90 percent penetration.
The announcement is a welcome development that is meant to further open the market as well as increase the consumer choices in selecting a communications service provider.
Put simply, a Mobile Virtual Network Operator (MVNO) is a communications services provider that independently brands and markets its wireless service, usually targeted at specific market niches and supported by an existing customer base holding some affinity with the brand while riding on the infrastructure of an established mobile network operator.
In the eyes of the customer, MVNOs are just like any other mobile operator.
The business notion that one cannot be all things to everyone applies equally to established mobile and fixed telcos who should see the licensing of VNO as an opportunity for innovation in both their wholesale and retail business.
A normal knee-jerk reaction by the three mobile network operators (MNOs) would be viewing MVNOs as parasites that are meant to “free-ride” their way into their revenue base, but a deep introspection shows that hosting MVNOs is both strategic and financially rewarding; benefits are real and quantifiable, hence it is a win-win situation for MNOs and MVNOs.
The fact that MVNOs have to negotiate with the network infrastructure owners to ride on their network for a fee means the MNOs establish a new wholesale revenue stream without incurring the costs that are associated with acquiring and retaining subscribers. These two costs are now very high due to the market nearing saturation.
The reasoning behind MVNOs wanting to enter saturated markets is their ability to target niche segments and attract subscribers at a lower cost than the MNOs. By virtue of having a leaner structure, MVNOs can contain their distribution chain costs more effectively than MNOs.
Telcos, especially mobile and fixed operators in Zimbabwe, have been dominating the news headlines announcing investments in network infrastructure whose capitalisation is through debt. MVNOs will help ramp up network utilisation of telcos and this will ultimately aid telcos meet their debt obligations with their financiers as the MVNOs pay for using the network infrastructure.
Surely, any telco whose infrastructure is under-utilised yet is laden with heavy capital debts should open their network to host many MVNOs just like what CellC in South Africa has done by hosting more than eight MVNOs on its network through its wholesale business. It is worthwhile to get an understanding of the mobile subscriber who is the customer to the telco.
The same subscriber is a sports fan, a music lover, a church member, a club member, an avid traveller, a shopping addict, brother/sister to siblings in the Diaspora, a bank account holder, a movies lover, news and current affairs geek, a farmer, a fashion enthusiast, a fitness maniac and a family man/woman.
The mobile subscriber changes “name” depending on association or activity, and this subscriber wants to address the other facets of their livelihood on mobile gadgets. Zimbabwe’s communications market is characterised by pervasive lack of segmentation: One is either pre-paid or post-paid and, on a few instances, some providers provide hybrid schemes.
Differentiating customers on payment methods alone is archaic and limiting since it falls short in addressing the customer needs. Our lives now revolve around content and societal associations that we are exposed to and, to some extent, this determines one’s lifestyle. Generational cahoots also play a part in understanding customer segments, but there are very few service offerings in the communications sector that are primed to address the diverse segments of our society.
It is not a far-fetched notion that region plays a major role in a significant chunk of the populace, hence taking a cue from the viewership of religious television channels further exacerbates the lack of segmentation since religious content is mainly available on television and not on-the-go via a mobile gadget. The local market is now dominated by multi-SIM subscribers with some having three SIMs — one from each operator.
The offerings from the three are not much differentiated. MVNOs should therefore take advantage by further segmenting the market into niches and pay particular attention to the characteristics and needs of the target market and craft service offerings that speak to the niche so as to stand out.
The Virgin Group, with business interests spanning travel, banking, hotels, fitness and health prides itself in serving the select elite customers through offering luxurious service. With its vast presence across the globe, virgin established MVNOs in a number of countries offering deluxe services that include flight ticket, hotel booking and gym membership discounts to its mobile customers.
To date, Virgin Mobile is present in more than 12 countries, including USA, South Africa, United Kingdom, India and Singapore. Virgin Mobile South Africa controls about 15 percent of the South African MVNO market.
The above views allude to the need for brand traction if one is to establish a successful MVNO business. A brand-led, niche-focused MVNO can easily ride on its brand strength and visibility since it already has an established, identifiable and measurable market base.
A soccer team recently partnered a milling company to brand maize-meal because the soccer team’s belief that its brand has traction to attract customers. It is in the same vain that religious establishments whose apparel is now common sight individuals and on cars through wrist-bands and stickers can lay claim to having strong brands.
Mr Price Mobile, a subsidiary of Mr Price group which operates the second-largest chain store in Africa, is a successful story of a brand that rode on its retail brand visibility and distribution chain to set up an MVNO that now significantly contributes to the group revenues. Reports show a 58,7 percent revenue growth in 2016 to 259 million rands from 163 million rands in 2015.
Mr Price Mobile client base is drawn mainly from creditworthy customers who are account holders at the Mr Price retail shops. With MVNO success stories within the region in countries like South Africa, Kenya and Tanzania, the licensing framework allows new players to tap into the latent opportunities in the local communications services market for those entities with strong brand and distribution, media and content, affinity group associations and established, loyal membership base.
We see MVNOs driving data usage through content by between 5 percent and 10 percent within two years of their launch. Our study of the Zimbabwe market shows MVNOs reaching break-even point within three years (maximum) of launch.
This dovetails well with the global trend that shows subscriptions for MVNOs growing by about 18 percent annually compared to the global rate of 4 percent growth rate for the mobile market.