Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Jose F. Otero is president at Signals Telecom Consulting. His Twitter is Jose_F_Otero and you can write him at e-mail [email protected].
The most important truism of the telecommunications industry is the need to identify a saviour that would disrupt the status quo, provide universal coverage, and be cheap to implement. The quest for a redeemer is not an easy task for those self-sacrificing representatives of the industry. It requires hundreds of power point presentations and even more charts depicting the easy path towards the telecom utopia. Unfortunately, reality has not been able to live up to expectations and the ground has been filled with numerous fallen heroes: CDMA 450, WiMAX, LMDS, and PLC to name a few.
The marvellous thing about Latin America’s telecommunications sector is its resilient belief in progress. The downside is that sometimes it tends to deify business opportunities, making it impossible for them to live to popular expectations. The latest great opportunity that has suffered of utmost exaggeration is the MVNO business model.
This feverish optimism is more evident in markets such as Brazil where the approval of MVNO specific legislation during the 4Q10 translates into all the companies requesting a virtual operator license would soon be launching successful mobile operations in the country. Unfortunately, this optimism needs to get a dose of pragmatism to understand that being able to establish a successful MVNO is not an easy task. Not many realise that after Chile enacted its 2005 MVNO Law (the 1st in Latin America) at least eleven companies have been granted a license, but only one MVNO has been launched. On the other hand, the existence of CN Chama in Brazil prior to the approval of the MVNO law highlights the need for niche operators in the market.
One of the main barriers faced by potential MVNOs in Latin America is the high level of mobile penetration of the vast majority of markets. This market characteristic translates into higher subscriber acquisition costs for the virtual operator that could only grow its subscriber base by targeting users from established mobile service providers including the host MNO. The other barrier that virtual operators need to overcome is being able to provide a value proposition that is not easy to replicate by established mobile players.
It’s important for potential new entrants to understand that price-based competition won’t be able to sustain the existence of a MVNO over the medium to long term. Latin America is plagued by examples of mobile operators that have implemented predatory pricing schemes and failed to increase their market share. Successful MVNOs need to provide high value to the customer, which in many instances doesn’t translate in value on telecom related services.
It’s true that Latin America shares many similarities with Western European mobile markets, for example: falling ARPU, saturated markets and regulatory constraints. But it’s also true that the after years of MVNO competition in markets such as the United Kingdom, The Netherlands, Spain or France virtual operators only represent less than 20% of the total subscriber base. With this in mind is that I can say that the initial investment announced for the arrival of Virgin Mobile to Latin America – US$ 300 million for 8 markets – is not enough. Either the company decreases its objective or it increases the amount to be invested in the region. Otherwise, its arrival to Latin American will have more similarities with the late Virgin Mobile Singapore (the MVNO only lasted a year) than with the success of Virgin Mobile UK (at launch the market had less than 50% mobile penetration).
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