The experience of Mobile Virtual Network Operators (MVNOs) in Africa is not a happy one. According to the GSMA as of the end of 2015, the world’s Mobile Network Operators (MNOs) hosted 1038 MVNOs and 277 MNO sub-brands.
Europe is home to two thirds of domestic MVNOs (599), followed by Asia Pacific (137) and Northern America (113). By contrast, the MVNO sector remains in its infancy in Sub-Saharan African markets with just 13 MVNOs across the region which means a massive opportunity.
I believe the potential for Africa is at least 500 MVNOs over the next 10 years provided aspiring players can figure out some innovative business models.
In brief… MVNOs are struggling in Africa for several key reasons:
1. They are undercapitalised …aspiring MVNOs enter the fray with very little capital because they have completely underestimated the cash required for advertising and marketing
2. The delta between the wholesale and retail price is razor thin. They just don’t have enough margin to make a decent profit because the MNOs do not support MVNOs with better pricing models. In fact incumbent MNOs go out of their way to sabotage MVNOs by competing in the same target segments with heavier AD spend.
3. The Regulatory regimes are unfavourable to the growth of MVNOs. MVNOs have long been encouraged in Europe by regulators as a way to increase competition and reduce prices, and their presence has been one of the contributing factors to the steady decline in consumer revenues in the region not so in Africa.
An unfavourable MNO host agreement, brutal price competition, apparent lack of regulatory support and outdated business models is the harsh reality in Africa. So the basic problem may well be that the business of making a margin on the wholesale price is at an end. The Mobile Termination Rates (MTR) are declining even as Operators battle for profit on voice and data by reducing prices. So what can be done? It’s time for aspiring MVNOs to think about other revenue sources while earning little or nothing on basic voice/data. How about an ad funded business model pioneered by Blyk ?
Blyk was an ad-funded MVNO focused on the 16-24-year-old market (although they positioned themselves as a ‘media company’). It gifted minutes and texts to customers in exchange for the right to send advertisements to them. Users complete a set of questions about themselves when they sign up, giving Blyk information about their preferences. Advertisers market their products and services via text to Blyk users based on this profiling and Blyk got paid to deliver the advertisement. So, at first glance, Blyk reversed the normal revenue model for operators: it collected money upstream (advertisers) and paid out for delivering services to customers: in reality however Blyk was making money from customers as well (2 sided business model ) via:
Termination charges from off-net callers: Operators are both receivers of money from end users (when originating the call) and receivers of money from other operators (when terminating the call). So every time a Blyk user receives a call or text from an off-net customer the originating operator pays Blyk for termination. In turn, Blyk obviously paid some of this termination charge out to its network supplier (Orange) but one can hazard that the company still made some margin on this.
Overage: Typically, 16-24 year old individuals have a pre-determined communications budget – “I will spend $x on my phone each month”. The fact that Blyk gave users free calls and texts does not stop users from spending this money. Blyk’s users would simply display the same behaviour that every Telco exec is familiar with: increased communications usage as the price reduces (price elasticity). Blyk offered 217 free minutes and 43 texts, so users will be profligate with their communications. They would use this free allowance up and STILL spend at least some of their previous budget.
Giffgaff is a new age Mobile Virtual Network Operator (MVNO) using the United Kingdom’s O2 network and was launched on 25 November 2009. The key elements of the strategic positioning were around addressing technology savvy youth. Its aim was to create a simple, transparent and engaged mobile operator: As part of the service launch a community was set up (technology supported by Lithium).
The community together with GiffGaff collaborated to define the product and services. Community members could contribute and present ideas, which were reviewed, rewarded (gamification) and incorporated into the overall service plan. In return help and support was provided through the community in all care and support questions. This GiffGaff had no inbound call centre (only agents monitoring the community), no below the line marketing and
Even with its relatively low-tech data acquisition approach, Blyk showed that targeting customers with the right message/product/service/solution really does work. However, with your customer base on one side and you are building scale on the other side, the platform will only thrive it not only provides an effective service (identification, authentication, advertising, billing, content delivery, customer care, etc.) and does it more cheaply than can be found elsewhere. Google is winning because advertising is cheap for brands, Microsoft won on Windows partly because the platform, when bundled in with a PC purchase, was negligible. This means that driving costs out of the platform is critical. A strong CRM capability becomes a must-have if they wish to become a platform player like Google.
If the MVNO has a strong and innovative business case it shouldn’t be difficult to prove the real opportunity that can emerge from their partnership with a Host Network Operator. The HNO and MVNO together can create new revenue streams, address new customer segments whilst reducing their marketing costs, increase customer retention by augmented customer satisfaction in the targeted segments and enhance their product offering by creating valuable partnerships with content or VAS providers.
Mobile operators in Africa need to accept the terrible truth that they are no longer in the access business and focusing on growing subscriber numbers obliges them to overlook the very opportunities (such as mobile advertising, M2m, Quadplay) and value creation opportunities that Internet brands are rushing to embrace and MVNO’s can bring to the party.
Therefore, MNO’s need to take a proactive role in helping well funded new MVNO’s to explore alternative revenue opportunities instead of forcing the tired wholesale retail voice commodity business. And Regulators must get engaged to create a level playing field to encourage more MVNO’s in Africa.
Contributed By Sadiq Malik (Telco Strategist at Broadband Gurus Network)
Blog link: https://maliksadiq13.wordpress.com/