During my short stay in Germany in 2006, I used a
mobile service provider that did not own any infrastructure. By then, I only
understood the company as a reseller of O2, later I came to understand that it
was a mobile virtual network operator
(MVNO). The first MVNO was
created by Tele2 in Denmark, and subsequently rolled out in several European
markets. This model formed the basis between the cooperation between Tele2 and
Telia in Sweden. However, the first commercially successful MVNO was Virgin
Mobile UK, which was launched in 1999. The success of Virgin Mobile UK was
replicated by the United States licensee of the Virgin Mobile brand. Initially
an independent company, Virgin Mobile USA was eventually acquired by its host
mobile network operator, Sprint Nextel.
As of October 2012 there were 634 active MVNO
operations worldwide, which in turn are operated by 503 companies. In April
this year, the Communications Authority of Kenya (CAK) recently issued MVNO licenses
to Finserve Africa Limited, a subsidiary of Equity Bank, Zioncell Kenya Limited
and Tangaza’s Mobile Pay Limited, with the three companies entering into an
agreement to use Airtel’s infrastructure. In hot pursuit of the same is Kenya
Airways, having signed a Memorandum of Understanding (MoU) with Airtel to
deliver an MVNO service for the airline, subject to regulatory approvals.
An MVNO is a cell phone carrier that
typically does not have its own network infrastructure and licensed radio
spectrum. An MVNO pays wholesale fees for minutes and SMSs and then sells them at
retail prices under its own brand. The
advent of MVNO in most countries is as a result of the regulation authority’s
intent to compel mobile service providers to offer wholesale access to their
network to encourage competition whose aim is to benefit the consumers. As the
number of MVNOs increase, the consumer will have a variety of pricing models
and value propositions to choose from. The main advantage of MVNOs is that they
do not incur capital expenditure on spectrum and infrastructure and does not
have the time-consuming task of building out extensive radio infrastructure.
These factors make them fiercely competitive and innovative leading to new
products and services in the market.
There are some disadvantages to MVNOs. Since they
do not control the network infrastructure, the response time to technical
challenges is hampered and may lead to instances of customer dissatisfaction.
Some MVNOs do not allow roaming, due to lack of commercial agreements with
providers in other countries. From the perspective of the mobile network
operators, MVNOs cause a cannibalizing effect by targeting the same retail
market as them. In some cases, it may lead to a shift of same consumers from
the mobile network operator to the MVNO considering it’s essentially the same
service rendered. It is essential for
the regulatory authority to consider the merits and demerits of MVNOs as the
authority issues licenses. In developed markets MVNOs can avoid cannibalizing a
host operator’s subscriber base by targeting low-end segments the MNO might
find too costly to tap.
MVNO market in Africa is in its infancy with only
a few countries having taken up the concept. South Africa is the leading with several
operating and upcoming MVNOs; Virgin Mobile, Redbull Mobile, Econet, Hello
Mobile, 8.da and Appchat. In Cameroon there is SET Mobile and SMS Mobility, in
Senegal there is Sonatel and Toubatel, Morocco has Poste Maroc, Madagascar has
Blueline and Tanzania has Zantel. 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. One of the biggest challenges is
how to position an MVNO in a low-income market. Stability of retail pricing
will be a key driver as to whether MVNOs can be sustainable in low ARPU
markets.
MVNOs have to be innovative. 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. This is the model Kenya Airways has adopted with Airtel
leveraging on the provider Pan African coverage in 17 African countries. In
some countries, MVNOs use a mobile virtual network aggregator (MVNA). MVNAs
would normally establish scale of their own by working with a number of MVNOs. 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. The single enabler–MVNE–model
through which operators can cost-effectively host specific strategic MVNOs is more
likely in the near term. Some MVNOs have taken advantage of popular established
brands during market entry; Cell C’s sub-brand Red Bull has the obvious youth
appeal of a ‘cool’ drinks brand. Set’Mobile, on the other hand, which came to
market in Cameroon, borrowed the name of the country’s world-famous footballer
Samuel Eto’o.
