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Contents
About the authors......................................................................................................... 3 Understanding the global picture ............................................................................. 4 The outlook for MVNOs in Latin America .................................................................. 4 Opportunity for MVNO-led pricing arbitration is low.................................................. 5 Triple play will remain a major MVNO driver ............................................................ 6 Beyond the telecoms MVNO: The retailer, the financial and the youth MVNO....... 7 The MVNO quadrant: Global and regional case studies.............................................. 8 Global MVNO survey .................................................................................................... 10
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Dario Talmesio
Principal Analyst
Daniele Tricarico
Senior Analyst
Dario Talmesio, a principal analyst with Informa Telecoms & Media, leads the Mobile Europe team, focusing on market developments and competitive dynamics of the European markets. He advises European mobile operators in key areas of their business including competitive issues, market and marketing positioning, MVNO and retail strategies, new business models, and FMC and FMS strategies. Dario began his analyst career at the Economist Groups Economist Intelligence Unit, where he focused on the energy and telecoms markets in Western European countries. Before joining Informa, he worked for the Yankee Group as an EMEA mobile consumer analyst based in London. Dario holds a degree in Business and Economics from the Universita Cattolica of Milan and an MA in Applied Social and Market Research from the University of Westminster in London. Follow Dario on Twitter @dariotalmesio
Daniele Tricarico is a senior analyst covering Latin America at Informa Telecoms & Media. He examines operator strategies with a focus on operator performance, mobile networks and service strategies, including VAS and MVNOs. He regularly writes in-depth analysis and reports, and contributes to bespoke research and consulting projects in the region. Daniele has also developed a series of international conferences on telecoms networks and infrastructure, such as the IMS2.0 World Forum, the SDP Global Summit and the Femtocells Forum. Prior to joining Informa, Daniele worked as a social media analyst for consulting firm Interaction London. Fluent in English, Spanish and Italian, Daniele holds an MA from the University of Bologna and an MSc in new media and information systems from the London School of Economics. Follow Daniele on Twitter @dtricarico
For more details on Informa Telecoms & Media and how we can help your company identify future trends and opportunities, please contact Marco Esposito, marco.esposito@informa.com or +44 (0) 7884 400 999.
America and Western Europe will still account for the vast majority (see fig. 1), new markets are developing Latin America, Africa, Middle East and Asia are all experiencing great MVNO interest. When their offering is appropriately designed, MVNOs can be a win-win-win market: host operators can reach additional actual or potential customers in a way that is more efficient compared with what their own retail networks can do; wholesale partners can enrich their existing nontelecoms services with mobile connectivity, or extend their brands into the telecoms sector; and customers can benefit from a more accurately-segmented offering. However, the reality is that, in the vast majority of mobile markets, MVNOs do not exist at all, while in some markets, MVNO activity is still in an embryonic phase. In developed MVNO markets, the MVNOs can account for approximately 15-20% of the customer base, a level that is generally considered physiologically sustainable.
Latin America 3%
Source: Informa Telecoms & Media
licenses to the insurance company Porto Seguro and the VoIP provider Sermatel Comercio. Both companies have teamed up with second-placed operator TIM, which provides the network infrastructure, and Datora, a mobile-virtual-network enabler (MVNE). More recently, Anatel granted the first pure MVNO license to the MVNE Sisteer. Besides TIM, other network operators are looking with interest at the MVNO model, for example, the market leader Vivo. In March, Vivo announced plans to have at least two MVNO partners by the end of 2012. In order to achieve its objective, the operator created a board for wholesale and MVNO operations and is currently analyzing proposals from around 30 potential partners. The Latin American MVNO market started picking up in the second half of 2011, and the strongest activity was in Colombia and Chile. In February this year, Chilean regulator Subtel received 26 license applications from companies interested in launching MVNO operations. In April, Virgin Mobile Latin America (VMLA) inaugurated its first MVNO in the Andean country, targeting the youth and youthful segments with a simple portfolio of prepaid data packages and a small but attractive range of smartphones. So far, VMLA is the only international group with plans to launch MVNO operations across the region. In addition to Chile, it plans to launch in Brazil, Colombia, Mexico, Argentina, Peru, Uruguay and Bolivia. Interestingly, Colombia is likely to have eight MVNOs and three MNOs in operation by the end of 2012: In addition to the MVNOs already in operation, retailers Exito and Falabella, and fixed operator Emcali, have also started discussions to find an MNO partner.
Fig. 2: Latin America, selected MVNOs' subscriptions, 4Q10-4Q11
Uff 250 Subscriptions (000s) 200 150 100 50 0 4Q10 1Q11 2Q11 3Q11 4Q11 Maxcom UNE EPM Telecsa
Given their pricing environments and churn trends, Brazil, Mexico and Colombia, and to a lesser extent Argentina, would appear well-suited for additional price competition. In all the markets, the lack of regulation in mobile termination rates (MTRs) and the fact that operators have mostly been left to negotiate MTRs among themselves have resulted in the higher cost of off-net calls. Brazilian rates are also affected by high telecoms-services taxation and, as a result, the country has the highest SMS prices in the region. Promotional activity, primarily the offering of cheap on-net calls, is strong across the region, contributing to sustained high levels of multiple-SIM ownership and churn.
Informa, however, believes that for Latin American MNOs the option of teaming up with low-cost MVNOs to bring price competition to other MNOs is not particularly attractive. In the prepaid-dominated Latin American markets, the potential negative impact of low-cost MVNOs on an already flat or declining ARPU is a major concern for MNOs. Latin American MNOs will be more interested in teaming up with MVNOs that, although helping improve EBITDA margins, can also bring additional revenues from unaddressed niches willing to use incremental airtime and data services (see fig. 4).
Fig. 4: Selected operators, EBITDA margin, 3Q11
50 40 Margin (%) 30 20 10
Movistar (Argentina)
Vodafone (UK)
Telcel (Mexico)
Orange (France)
TIM (Brazil)
Claro (Brazil)
At the same time, MVNOs must be able to negotiate good wholesale rates from MNOs for the data they then sell at retail. In the retail market, MNOs are moving away from flat rates and toward models where they charge by actual data consumption, by time or by access to selected apps. MNOs themselves are still struggling to find efficient ways to price data services in the retail market. When it comes time to negotiate wholesale data prices, MVNOs face the risk of remaining stuck with unfavorable conditions, which could ultimately jeopardize their business model.
Informa also believes that pricing will be crucial to the success of the higher-value data MVNOs. In addition to the well-known benefits of the MVNO model, higher-value data-focused MVNOs can help provide incremental revenues to offset declining ARPU levels. Finding the correct pricing levels and models, however, is a tough task. As in the case of Virgin Mobile in Latin America, data MVNOs will be eager to add smartphones to their data plans, but without subsidies it can be challenging to meet customer demand for the devices at the right price.
AT&T (US)
Brazil
Argentina
Colombia
Mexico
Notes: The Herfindahl index is defined by the sum of the squares of the market shares of all firms in the market, where the market shares are expressed as fractions. An index below 0.01 indicates a highly competitive market. An index below 0.15 indicates an unconcentrated market. An index between 0.15 and 0.25 indicates moderate concentration. An index above 0.25 indicates high concentration. *Nextel, CTBC and Sercomtel In Brazil; Iusacell and Nextel in Mexico; and Nextel in Argentina. Telecom Italia owns 22.9% of Telecom Personal in Argentina. Source: Informa Telecoms & Media
and reinforcing their offering by bundling products. With their knowledge of and expertise in the telecoms business, fixed-line players and ISPs remain the most likely candidates to buy into the MVNO model at the early stages of its development. It is no coincidence that the first cable operator to launch an MVNO was Megacable in Mexico and that the challenger fixed-line operator Axtel is also said to be close to launching an MVNO there. The opportunity is comparatively weaker in countries where the broadband market is more competitive, such as Brazil, and the main existing mobile operators can develop converged offers through partnering with their own fixed-line counterparts. In markets like Brazil, it is the nontelecoms companies that are expected to be major players in the MVNO business, starting with retailers and financial institutions.
the largest slice of handset sales, especially for prepaid users. The combination of a strong brand and a larger and far-reaching retail network are the key benefits retailer MVNOs could offer MNOs. Despite the clear benefits that retailers could bring to MNOs, only a handful of international retailers, such as supermarket chains Tesco in the UK and Aldi in Germany, have launched MVNOs. Retailers are typically focused on volumes, have low EBITDA margins and are used to having strong negotiating and bargaining power with suppliers, factors that can prove to be especially challenging in their negotiations with MNOs. Furthermore, retailers will naturally target the mass market, which for MNOs raises the risk of market-share cannibalization, especially in the prepaid-dominated Latin American markets. Even so, the retailer model does have potential in the region, starting in the geographically larger countries, such as Brazil, Mexico and Argentina, where it is more challenging for MNOs to develop far-reaching retail networks. In addition, retailers can help MNOs increase loyalty and reduce churn by using their customer-loyalty experience to offer discount and loyalty cards and to offer leasing programs for device purchases. As the VAS market develops, the retail MVNO is also in a good position to develop mobile commerce. The m-commerce and m-banking opportunity, alongside the retail network, is at the core of the potential value proposition of the financial MVNO. The opportunity for this type of MVNO varies across Latin America, depending on the level of maturity of each market. There is certainly scope in the region for prospective ethnic MVNOs, targeting communities of migrants and nationals with family or friends living abroad to provide financial services. Given the reach and needs of the Latin American diaspora in Europe and North America, the long-distance market offers a good opportunity to add mobile-money value-added services (VAS), such as international credit transfers, to voice services. Overall, banking penetration remains on average lower than mobile penetration, and telecoms and financial regulators are starting to develop rules for the provision of mobile-money VAS to those both with and without bank accounts. A number of providers of financial services have already launched m-banking platforms and could be interested in the MVNO model. Since smartphone penetration remains about 10% regionally, the MVNO opportunity is initially expected to be limited mainly to
Beyond the telecoms MVNO: The retailer, the financial and the youth MVNO
Retailers can help MNOs increase loyalty and reduce churn, but negotiations with MNOs will be tough
Beyond the telecoms MVNO (e.g., an existing fixed-line telecoms player with an MVNO operation), retailers and financial institutions have been and remain among the strongest candidates to become MVNOs in Latin America (see fig. 6). Large and mass-market retailers are already key players in the value chain, since they take
Fig. 6: Brazil, companies interested in launching an MVNO
GVT, Lebara, Virgin Mobile
Telecoms
Financial
Banco do Brasil, Banco Real Santander, Itau, HSBC Carrefour, Casas Bahia, Pao de Acucar, Walmart Sao Paulo FC, Santos FC, S.E. Palmeiras, Gremio FBPA, Corinthians, CR Vasco de Gama Correios, Ipiranga, Globo
Retail
Sports
Others
offering voice and basic SMS-enabled financial services for low-end and feature phones, but as smartphone prices decline, more sophisticated services will appear. The financial MVNO, however, faces the same challenges as the retailer MVNO in terms of negotiations with MNOs, given its natural focus on the mass market. In addition, operators are increasingly eager to play a role in the m-commerce and m-banking markets. The way regulation develops in this area will largely determine the development of this MVNO model. Regardless of market-structure barriers to MVNOs, given the current demographic trends, Informa believes that those MVNOs targeting the youth segment have a larger addressable market in Latin America than in Europe and North America (see fig. 7). Nonetheless, the size of the addressable market for youth MVNOs will depend on the income levels and local competitive dynamics in each country. In the case of Virgin Mobile Latin America, for example, the flexibility of pricing models will determine the real size of the youth segment addressable in countries as different as Chile and Bolivia, especially when MVNOs
plan to offer unsubsidized devices. The strength of the opportunity for the youth MVNO will also vary depending on other factors, such as changing regulation. For example, with Brazil planning to cut taxes for tablets manufactured in the country, there might be an opportunity for data-focused MVNOs targeting the devices to the youth segment.
Fig. 7: Global, estimates of under-15 population percentage, end-2010
35 Under-15 population (%) 30 25 20 15 10 5 0 Eastern Europe Southern Europe Central America Northern Europe Eastern Europe South America North America Caribbean
Source: UN
quad-play offerings and is regarded as one of the most thriving full MVNOs globally. Its subscriptions totaled more than 2 million at the end of 2011. The M6 MVNO of Metropole Television, the third most-watched TV networkin the country. NRJ Mobile, a 90/10 joint venture between banking corporation Credit Mutuel-CIC and multimedia group NRJ. Like Virgin Mobile, NRJ targets the youth segment. It had 900,000 subscribers at the end of 2011.
Movistar, Mexico
Telefonica in Mexico was one of the Latin American pioneers in the MVNO space, hosting one of the first regional MVNOs, by fixed-line operator Maxcom, back in 2008. In recent quarters, Telefonica has consolidated its MVNO strategy. In July 2011, Megacable launched Megacel on Movistars network with the plan of targeting existing fixed-line clients by offering multiple SIMs to family households at preferential rates. At the end of 2011, Movistar was announced as the MNO partner for Virgin Mobile in Mexico. As a challenger operator in a market where America Movil has a dominant presence, MVNO enablement has become an important strategic tool for Movistar in an effort to gain market share.
The MVNO
Poste Mobile, Italy
Poste Mobile, the MVNO of national postal service Poste Italiane, is the most significant player in the Italian MVNO market, with various voice and data offers, mobile phone deals and a large distribution network. It offers a host of VAS, primarily m-banking and m-payment, such as airtime remittances, coupon click-to-buy and m-insurance. Poste Mobile recently launched the Zero Pensieri Infinito service plan, which includes unlimited voice calls and SMS messages to all national destinations plus 1GB of data for a monthly fee of 34 (US$44). Poste Mobile is also a rare example of an MVNO marketing services specifically to business customers. Hosted on the network of second-placed Vodafone, it has more than 2 million subscriptions.
Uff, Colombia
Uff was launched in late 2010 by TV network RCN Television, a unit of media conglomerate Ardila Lulle group. Uff has a no-frills business model based on offering cheap long-distance calls to the main countries where the Colombian diaspora lives. Hosted on Tigos network, Uff rapidly added 50,000 subscriptions in its first two months, reaching a total of 250,000 subscriptions by the end of 2011 and becoming the first sizable MVNO in Latin America. From launch, the MVNO has evolved its service proposition by adding two prepaid data plans and two BlackBerry plans. Through a strategic agreement with Nokia, it also offers the Pack Listo Uff plan, including a Nokia C3 device with unlimited data.
The MVNE
Teleena, Netherlands/UK
Teleena is a mobile virtual network enabler (MVNE) based in the Netherlands and the UK that provides an array of services on a wholesale basis to MVNOs and corporate customers, including low-cost roaming and converged fixed/mobile applications. The company is focused on enabling MVNOs to differentiate themselves through offering VAS. Teleena owns and operates its own BSS/OSS and an all-IP mobile core network, which is connected to Vodafones radio access network in the Netherlands. In Europe, Teleena has a partnership with Vodafone in the UK and the Netherlands, where it hosts over a dozen MVNOs.
Which MVNO types offer the biggest growth potential? (Choose two)
"Ethnic and retail segments are still big, but new segments are emerging"
40 Share of respondents (%) 35 30 25 20 15 10 5 Youth/media and entertainment Device/machineto-machine Ethnic/international Social networks Retail/brand extender Telecoms discount Enterprise Wholesale-contract terms 0
What are the top business challenges for MVNOs? (Choose two)
"The MVNO target market will remain price-sensitive; diversification might be needed"
MVNOs will focus more on customer-experience management. Data connectivity will enable diversification in products and services. But price pressure will remain challenging.
50 Share of respondents (%) 40 30 20 10 0
Service diversification
Retail distribution
Price competition
Technology management
Customer segmentation
10
Device management
Which non-telecoms industries could benefit from MVNO services? (Choose two)
"The MVNO business model will support vertical sectors core business"
Media and entertainment companies could benefit from the MVNO business model. The financial-services industry is emerging as a sector that could benefit from MVNOs. Connected-device firms and social networks are also potential beneficiaries.
60 Share of respondents (%) 50 40 30 20 10 Automotive Media and entertainment Consumer electronics Financial services Social networks Other Mobile advertising Loyalty programs 0
International roaming
Mobile broadband
Dynamic pricing
11
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