Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?

Russia's Beeline brand comes to Cambodia - and set to drive consolidation in the wake of Millicom's withdrawl? Picture (C) Roger Barlow.

Millicom International Cellular, the Luxembourg-based company which provides cellular telephony services to more than 30 million customers in across Latin America, Africa and Asia recently announced that its assets in the latter of these three regions are up for sale. The company's announcement mentioned that during Q1 2009, these Asian operations and joint ventures generated UDS 68 million in revenues and USD 4 million net profit for the group.

Even more recently - on Tuesday last week - the company announced its 2Q 2009 results, encouraging highlights of which were:

• mobile subscribers up 25% vs. 2Q 2008 - bringing total subscribers up to 30.8 million
• reported revenues up 5% to USD 814 million (2Q 2008: USD 774 million)
• EBIDTA up 14% to USD 371 million (2Q 2008: USD 326 million) - this beat the USD 361 million forecast in a Reuters poll of twelve analysts
• EBIDTA margin of 45.6% (+340 basis points vs. 2Q 2008)
  

These results excluded "discontinued operations" - this means Tigo Sierra Leone and the three Asian operators. This, then, certainly leaves little doubt that the group is committed to its exit from Asia. The three Asian operations concerned are in Cambodia, Laos and Sri Lanka.

Why is Millicom looking to get out of these markets? Zacks Investment Research offers the following explanation: "The major concerns in these markets for Millicom are increased competition and an extremely tight credit market." According to Zacks, the Asian region contributed just 8% of the company’s total revenue and its EBITDA contribution was even lower at 6% of the total. The Zacks commentary also notes that overall ARPU in Asia was just USD 6.2 in the first quarter of 2009, compared to USD 6.6 in the previous quarter and "a massive" USD 8.7 in 1Q 2008.

According to Millicom CEO Mikael Grahne, increased competition certainly does seem to have affected the profitability of Cellcard, the Cambodian cellco in which Millicom has a 58.4% stake. Steve Finch, writing on Friday in the Phnom Penh Post, observed that Millicom's Grahne appears very critical of the "disruptive market-entry strategies" of new entrants into Cambodia's increasingly crowded mobile sector. On the other hand, Finch also observes that another major shareholder in Cellcard does not agree with Millicom's assertion that this is negatively impacting profitability: "[There are] no concerns on profitability from our side," said Mark Hanna, CFO of Royal Group, which owns a 38.5% stake in the cellco, denying that margins had become tighter. As well as investments in property development and the media sector, Royal Group is very active in Cambodia's telecoms sector. In addition to its stake in Cellcard, the group has shares in Royal Telecam International (the second licenced international gateway in the Kingdom; also a joint venture with Millicom) and teleSurf, a broadband service provider.

Whichever side of this argument is the more valid, it seems undeniable to me that Cambodia is currently supporting an incredibly large number of cellcos. Millicom-backed Cellcard, which is by some margin the market leader (43.65% of subs according to WCIS) is one of three well-established players, the others being Hello (an Axiata company with 13.28% of subs) and Mfone (19.84% of subs). From 2007 onwards, a number of further entrants have piled into the market. The most recent of these is Beeline Cambodia, owned by Vimpelcom, one of Russia's big three cellcos. The arrival of this new operator, whose services were launched very recently and whose subs are not yet recorded by WCIS, brings the grand total to nine MNOs vying for business in a country of just 14.2 million people.

To me, this feels like a vastly excessive number, particularly in light of the fact that mobile market consolidation has been a recurrent theme here at DevelopingTelecomsWatch this year - we've discussed whether even a relatively large African market such as Tanzania can possibly sustain the numbers of licensed mobile operators currently competing there - and have asked the same question about much smaller markets such as Burundi and Gabon. Moreover, we have discussed this issue in broader terms, i.e. whether/when we should expect a wave of market consolidations across Africa, prompted to do so by the stated belief of MTN CEO Phuthuma Nhleko that this is set to happen.

Mobile penetration in Cambodia currently stands at 34.41%, according to WCIS. So there is room for growth. How many of this large number of cellcos, though, will be equipped to take full advantage of that opportunity? I suppose that will partly depend on their resources and the quality of their management teams - but even very solid companies could struggle if there is any truth in the Millicom allegation about the effects of new players' disruptive market entry strategies. As Steve Finch of the Phnom Penh Post explained, these strategies involve the distribution of free SIM cards and airtime - very nice for quickly building a subscriber base, but taken to its logical conclusion this can seriously erode overall market value for all players.

Has this kind of strategy worked for any of the new players in terms of rapidly building market share? The answer seems to be a resounding 'yes' in the case of one particular new entrant, Metfone, which is the Cambodian subsidiary of Vietnamese MNO Viettel. According to WCIS, Metfone has quickly carved out an incredible 17.47% of the market since its launch late last year. The current WCIS estimate for Metfone subsriber numbers is 900,000. There may be precedents elsewhere in the world for an operator arriving in an already fragmented market and amassing subscribers at something like that rate - but none spring immediately to mind for me.

How is Viettel able to do this? The answer might be that the company is simply not working to the same commercial logic as its rivals in the Cambodian mobile market. Viettel itself is owned by the army of Vietnam, a state officially committed to the creed of socialism and where all organs of government are controlled by the country's Communist Party. In a March essay here on the global links between the telecoms organisations of countries with left-leaning regimes, Metfone got a mention. That piece referenced a Saigon Times article on Viettel's foray into neighbouring Cambodia, which indicated that the new cellco would target low-income subscribers with a wide range of low-priced services and packages. Viettel Deputy General Director Nguyen Manh Hung was quoted as saying that this approach is not only about customer acquisition but is also intended to "contribute to society". Perhaps we should take that to imply a quite different interpretation of the for-profit motive than the one most of us in market economies have to live with in our jobs and lives.

Have any of Metfone's fellow recent market entrants been able to build a subscriber base at anything like the same speed? There answer here appears to be a resounding 'no'.

In terms of market share and subs, the other newcomers have fared as follows:

• Star-Cell (GSM) - 3.27%, 168,400 subs; part of the TeliaSonera group; commercial launch in 2007
• qb (W-CDMA) - 1.20%, 62,000 subs; commercial launch in 2008
• Latelz (GSM) -0.97% 50,000 subs; launched in 2009; owned by Time Turns Telecom, which is also an investor in telecoms operators in Burundi, Tanzania, Nepal and Sierra Leone
• Excell (CDMA) - 0.31%, 16,000 subs; launched in 2009
  

In September last year, Morten Eriksen, the CEO of the second operator in the above list was interviewed by AsiaLife Guide Phnom Penh, a monthly lifestyle magazine for expatriates living in Cambodia. Eriksen, who also explained that qb is funded by international venture capitalists and local Cambodian partners, expressed the belief that there is a good opportunity created by the country's very limited fixed line telecom infrastructure and the eagerness of its people of "to experience new technologies." He also asserted that rather than focusing on competing, the company is focusing on the people of Cambodia and how it can provide the best benefit to them. Specifically, Eriksen expressed his company's commitment to serving the youth segment with "packages and services to help students in the pursuit of education as they are Cambodia’s future." In an earlier interview - with the Bangkok Post in June 2008 - Eriksen reported that when he was first invited to get involved a 3G project in Cambodia, his initial reaction was that "they must be crazy". He explained that only after reluctantly travelling to Cambodia did he see the potential in a market with three incumbents providing bad, expensive service and where a 256Kbps ADSL line cost over USD 600 a month. The article indicates that the project formally started in 2004, with the company getting a licence in 2006 and then signing a turnkey network agreement with Ericsson in June 2007. Groundwork started in October 2007 and the first test call was made a month later. Finally on March 15 2008, qb was launched "with over 57,000 subscribers signing up on launch day courtesy of a huge concert and free SIM packages."

If that figure of 57,000 initial subs is accurate (and WCIS does reflect this), then further growth has certainly been very slow indeed.

Of the late entrant mobile operators, it would seem, then, that only Viettel's Metfone operation has really made a major impact on the Cambodian market.

So, if Millicom, as market leader, is going to withdraw from this market, which telecoms groups have looked at this seemingly very challenging competitive environment and expressed an interest in acquiring Cellcard? Two names which have surfaced in recent weeks are ones already competing in Cambodia. Consolidation, then, would appear to be on the cards already, even ahead of any of the smaller players potentially having to withdraw.

The first interested party, according to a TeleGeography article earlier this month, is Axiata, the Malaysian-owned mobile group formerly known as TM International. Axiata is said to be considering offering a total of USD 700 million for both Cellcard of Cambodia and Millicom's Sri Lankan operation. Were this bid to be made and accepted, Sri Lanka would also see market consolidation - Axiata owns the island's market-leading cellco Dialog Telekom. According to the TeleGeography article, Axiata has declined to confirm or deny the talks, but said "in-country consolidation is of strategic importance in some of our markets." This does seem to be something of a trend in Asia - and for Axiata - of late. Cellular News reported last month that Aktel, the Axiata/NTT DoCoMo joint venture in Bangladesh is rumoured to be in merger talks with rival Banglalink, which is owned by Egypt's Orascom Telecom. Banglalink CEO Ahmed Abou Doma explained in a statement that apart from the market leader (Grameenphone), "others are continually posting losses" and that "in order to sustain in this fiercely competitive market, and in line with [Orascom's] growth ambitions", his company is "considering many strategies of which consolidation is an option."

In Cambodia, the other potential bidder for Millicom's Cellcard operation seems to be Russia's Vimpelcom. Again, this is another existing competitor, albeit one whose Cambodian launch was very recent. According to a Reuters report earlier this month, Vimpelcom spokeswoman Yelena Prokrova was conceded that potentially the Asian assets of Millicom could be interesting for for the Russian telco because they are located in the region which the company views as strategic in its international expansion. The report notes that Vimpelcom would also be interested in Millicom's operation in Laos.

My sense is that, as we have seen here, Cambodia is one of a number of Asian markets in which mobile sector consolidation seems very likely. I am wary of the notion that low penetration rates alone mean that any given emerging market or developing country offers telecoms groups a licence to print easy money. The low ARPU inherent in serving relatively poor people and the challenges of rolling out infrastructure to under-developed regions, often in challenging physical environments, can make for unattractively thin margins. If destructive levels of price competition are thrown into the mix, it surely becomes difficult for large numbers of competing operators to survive in all but the largest markets. The withdrawal of Millicom International Cellualar from Asia, then, may stimulate much-needed market consolidations in at least two of its three existing Asian territories. Rumours from Bangladesh also suggest that similar developments may be in the offing elsewhere across the continent.

Millicom's withdrawal from Asia to prompt (much-needed?) market consolidations?

Zain Africa Speculation Watch: Episode 6

For an entity supposedly up for sale and coveted by a wide variety of interested parties, Zain's African unit has certainly been very busy creating new partnerships and gaining publicity for its various activities.

One example of this, brought to my attention by TelecomPaper this week, is the operator's cooperation with Western Union, whereby the two organisations will work together to deliver mobile money transfer services in countries in Africa and the Middle East through Zain's new Zap platform. The service enables Zain subscribers to manage their bank accounts, top up mobile airtime (and transfer airtime to other subscribers), pay utility bills, pay for goods in retail outlets, and transfer money to friends and family.

The opportunity around providing financial services to the unbanked in Africa and in developing countries worldwide is a certainly a rich one. At the Mobile World Congress in Barcelona earlier this year, GSM Association CEO Rob Conway observed that "there are over one billion people in emerging markets today who don’t have a bank account but do have a mobile phone." Conway feels that mobile operators "are perfectly placed to bring mobile financial services to this largely untapped consumer base" and that "mobile money for the unbanked has the potential to become a USD 5 billion market opportunity over the next three years."

Conway was speaking during an announcement made jointly with the Bill & Melinda Gates Foundation, which provided a USD 12.5 million grant to the Mobile Money for the Unbanked (MMU) programme, the aim of which is to "encourage the expansion of reliable, affordable mobile financial services to the unbanked."

With Rob Conway having set out the scale of the opportunity for MNOs, the Foundation's Bob Christen was keen to stress the humanitarian benefits, noting that "technology like mobile phones is making it possible to bring low-cost, high-quality financial services to millions of people in the developing world so they can manage life’s risks and build financial security."

Mobile financial services then, should surely be a vital component of the strategy of any telecoms group whose operations are, in large part, in developing countries - a nice revenue opportunity plus wonderful CSR benefits around poverty alleviation.

Setting up services of this kind, however, can be challenging. The last time I heard this discussed at a conference (East Africa Com in Kenya this April), delegates were asking questions about regulatory complexity and about to what degree securing the necessary participation of established financial institutions was going smoothly.

Bearing this in mind, it is perhaps worth noting that while Zain's announced partnership with Western Union sounds exciting, much of the text refers to this being a work in progress - not yet fully operational and subject to regulatory clearance in countries worldwide.

This leads me to wonder whether it would be sensible to dedicate considerable efforts to this venture if up to sixteen of the operations in which the service will work are really to be sold in the near future.

Another initiative possibly set to do wonders for Zain's image as an organisation committed to improving lives in Africa was announced only days ago. Dubbed "Weather Info for All", this involves Zain, Ericsson, the Global Humanitarian Forum and the World Meteorological Organization. The aim is to "radically improve Africa’s weather monitoring network in the face of the growing impact of climate change," which is said to be responsible for some 300,000 deaths worldwide each year and over USD 100 billion of economic losses, mainly because of shocks to health and agricultural productivity. As the Weather Info for All announcement indicates, "Sub-Saharan Africa accounts for close to a quarter of these losses, and is the region at the most immediate risk of droughts and floods."

Africa suffers not only from the effects of these adverse weather conditions, but also from a dearth of reliable information about when and where disaster is likely to strike. This is due to the continent having a weather monitoring network eight times below the WMO minimum recommended standard, and less than 200 weather stations that meet WMO observation requirements, compared to several thousand each in Europe, North America, and parts of Asia.

The Weather Info for All initiative is aimed at adding 5000 weather stations across Africa. Zain has got the ball rolling by providing access to tower sites in Kenya, Tanzania and Uganda.

Mobile network infrastructure provides an unrivaled wealth of support for weather stations - connectivity, power supply and security.

Ericsson, meanwhile, will develop mobile applications to help communicate weather information via mobile phones to the vulnerable communities whose lives can be wrecked by adverse conditions.

I know less about the levels of investment and commitment required of Zain with regard to the Weather for All Initiative than I do about the amount of hard work needed to roll out mobile financial services for the unbanked. Both initiatives, however, have in common a sense of being long term endeavours. Again, I ask whether all of this activity might suggest that the sale of Zain's African operations is rather unlikely.

Zain Africa Speculation Watch: Episode 6

Reaching rural communities in Mongolia

According to a Cellular News report this week, Chinese telecoms equipment vendor ZTE has announced the world's first overlay of a W-CDMA network on an existing CDMA service to realise UMTS/CDMA convergence at the core network level.

The customer is Mongolian CDMA MNO Skytel, a joint venture company established by Mongolian and South Korean investors in 1999, the latter including SK Telecom. While this is a global first in terms of the UMTS/CDMA convergence feature, market-leading GSM MNO MobiCom has already launched 3G services, having launched the country's first high-speed mobile broadband network in the country in April, powered by HSPA technology from Ericsson.

Skytel, which has gone on to carve out a 20.08% share of the Mongolian mobile market (by March 2009, according to WCIS), also competes with Unitel (GSM standard) which has rapidly built a 22.01% market share since commencing operations in June 2006. In terms of eroding the market share of its longer-established competitors, the entry of Unitel has made a much bigger impact on MobiCom than on Skytel.

One more operator makes up the quartet of mobile service providers in Mongolia - G-Mobile, which won a Government tender in 2006 specifically to establish a CDMA service to connect rural Mongolians with the country’s main telephone grid. G-Mobile has since established a market share of just 6.25%.

Although Mongolia has become increasingly urbanised in recent years, with about 40% of the population living in the capital city, and a further 23% living in other towns, a significant minority continue to live in extremely small, remote settlements and on a semi-nomadic basis. As demonstrated by the G-Mobile tender, extending communications services to these people is important for the country's telecoms sector as a whole.

With this in mind, MobiCom signed a three-year managed services contract last year with Altobridge, an Irish company which has developed technology designed to minimise backhaul bandwidth utilisation, thereby making the delivery of mobile communications to small, remote communities a more compelling proposition for MNOs. This deployment won an award earlier this year from the country's leading tech publication and the national Information Communication Technology Authority, who wanted to recognise the positive impact the Altobridge solution is having on communities and enterprises in remote parts of Mongolia. The Altobridge CEO Mike Fitzgerald said at the time of the award that he was delighted that MobiCom had received praise for connecting people still cut off from the benefits of mobile communications. He stressed that this was consistent with a for-profit motive for the operator.

I am always encouraged to read of telecoms solutions improving lives in developing countries. Having met a handful of friendly people from Mongolia's operators at conferences, I'll be interested to see what impact Skytel and MobiCom's recently commenced 3G services have - I'm not yet clear if these services will be aimed purely at higher margin urban customer segments or whether a rural 3G services business case has been calculated.

Reaching rural communities in Mongolia

Burundi: room for more mobile operators or set for market consolidation?

Thoughts of my imminent trip to Nairobi have, of late, prompted me to write more regularly here about African markets than I would usually. One about which I know very little is Burundi, a small Francophone country in the Great Lakes region of Eastern Africa, bordered by Rwanda to the north, Tanzania to the south and east, and the Democratic Republic of Congo to the west. Burundi, one of the the poorest countries in the world, has an exceptionally low GDP, largely due to civil wars, corruption, poor access to education, and the effects of HIV/AIDS. In light of these difficulties, it is perhaps not surprising that this land of some 3.59 million inhabitants has the third lowest mobile penetration rate in Africa - 5.48% in December 2008, according to the World Cellular Information Service database maintained by Informa Telecoms & Media. Only Ethiopia (3.16%) and its neighbour Eritrea (2.13%) have lower mobile penetration.

The cellular industry in Burundi, however, is apparently growing strongly, albeit from a particularly low base. A Telegeography article this week noted that the country's telecoms regulator, Agence de Regulation et de Controle des Telecom (ARCT), has published data showing 78% year-on-year subscriber growth from the end of 2007 to the end of 2008. ARCT figures have subcriber numbers moving from 270,000 to 480,000 over that period. WCIS numbers indicate even more impressive growth, with the Informa service indicating that the growth from y.e. 2007 to y.e. 2008 was 224,300 to 495,250.

Whichever set of figures is correct, the Telegeography article contends that "the sharp rise has been attributed to increased competition in the local market and mobile network expansion by the four active operators - U-Com, ONAMOB, Africell Burundi and Econet."

The first of these is now part of the Orascom Telecom empire, having been acquired from India's Global Vision Limited in July, according to a Global Mobile Daily article.

In my last post on Zimbabwe, I noted that Egypt's Orascom Telecom seems to have a taste for adventurous investments which is not always shared by other major telecoms groups with multi-country footprints. Thus far, under-penetrated Burundi, too, has not taken the fancy of any truly large-scale international telecoms company apart from Orascom Telecom. U-Com's foreign-owned competitors are subsidiaries of rather smaller players.

Africell, for example, which offers which offers GSM services under the Safaris brand, was acquired by Dubai-based telecoms group VTEL Holdings in January last year, according to a Global Mobile Daily article of the time. Africell is the lone African operation of VTEL Holdings, which has stakes in an eclectic portfolio of telecoms and broadband assets scatted across the Middle East region, the Caucausus and the Caribbean.

Africell does not appear to be holding its own. WCIS figures indicate that the VTEL-backed cellco's market share was just 1.96% by December 2008. The Burundi subsidiary of Econet Wireless Holdings is also finding the going extremely tough, its share of the market having fallen below 1%. The vast bulk of the country's mobile subscriptions, then, are split between U-Com and ONAMOB, the mobile arm of Burundi's state-owned incumbent telecoms operator.

The decline of Africell and Econet Wireless Burundi (the former had nearly a 25% share of the market in December 2004; the latter had 12.45% of the market at that point), seems to support the idea recently expressed by MTN CEO Phuthuma Nhleko who believes that Africa will see a wave of telco sector consolidation in the next 1-2 years as both new entrants and more established competitors struggle to maintain healthy margins in increasingly crowded markets.

While Burundi's extremely low mobile penetration looks encouraging for potential further entrants, the overall market size is quite limited and the population's spending power is severely constrained. I wonder, then, what the future holds for two operators which are supposed to be making their Burundi debut soon, according to the recent Telegeography article, which states that two more companies hold mobile licences: Lacell and HiTS Telecom. All I know about the former is some information about the operator having done a turnkey deal with Ericsson for the network rollout. There is nothing on the website of Kuwait-based HiTS Telecom about a Burundi licence or subsidiary company.

The Burundi market appears to have proven too tough for two of its legacy cellcos. I wonder how succesful two more entrants can expect to be without the backing of deep-pocketed strategic investors. Although under-penetrated, there is something about this this small African market which has deterred major players (other than Orascom Telecom) from getting involved. I will watch future developments with interest.

Burundi: room for more mobile operators or set for market consolidation?

Africa or India: Which will be first to see mass-market MVNOs?

I was pleased to see confirmation that those to whom I handed over the task of organising this year's annual Eurasia Com conference in Istanbul have found a speaking slot for Cristobal Alonso, Chief Commercial Officer at mmChannel, a technology company dedicated to the development and management of digital entertainment services and platforms on a B2B format.

Cristobal and I have been in contact since mid-2007 without ever having the opportunity to meet face-to-face. This is a shame for me given how much he has to share about boosting the take-up of mobile value-added services. You can get some sense of Cristobal's ideas by having a look at his blog, where I noticed that he and I have something in common - we have both recently had the pleasure of attending a Mobile Monday Istanbul meeting. In January, I gained from the wonderful networking opportunity which Mobile Monday events provide and made a short presentation on the theme of mobile social networking. Cristobal was at the February get-together, and on his blog he reports on that meeting's MVNO-themed discussions. I imagine that was a lively session, given that the mooted market entry of MVNOs in Turkey has been something of a hot topic for a while now. Cristobal is quite right to compliment the MoMo Istanbul organiser Natali Yeşilbahar for the great job she has done to boost attendance and further improve the usefulness of the discussion sessions.

I guess Cristobal maintains a keen interest in whether MVNOs will succeed in emerging markets, given that his blog also mentions the insightful materials on this theme recently prepared by his colleague Carlos Valdecantos. Carlos asks whether there is any realistic prospect for successful MVNOs in Africa, where "most markets are experiencing pent-up demand, customer segmentation has only started to be a buzz word, and capacity is scarce." As Carlos notes, this is a markedly different scenario from that seen in the mature markets where MVNOs have sought to exploit the challenges faced by their host network operators, namely "slowing subscriber growth, lack of consumer segmentation, and excess network capacity."

As well as discussing which MVNO business models might work in an African context, Carlos segments the continent's many markets according to the likelihood of their being able to bear the entry of MVNOs. Carlos believes the high potential markets (good market size/GDP, strong economic liberlisation and a "dynamic" telecoms sector) are Morocco, Algeria, Tunisia, Egypt, Ghana and South Africa:

Assuming the onset of the global economic crisis has not caused him to revise his view, I assume that Peter Boyd, the former CEO of Virgin Mobile South Africa, would agree with this assertion. Back in July 2008, Boyd was quoted in a Middle East and Africa Wireless Analyst article as saying that "if there is one place where consumers need choice, it's Africa." Boyd argued that "you don't need multiple network licenses – that's an inefficient allocation of resources. Having an environment that lets people plug in an MVNO is a much more efficient way to serve consumers."

My former Informa Telecoms & Media colleague Matthew Reed wrote the article, noting that "even in South Africa, MVNOs are technically illegal. The only way for Virgin to introduce one was by forming a joint venture with Cell C, which holds a license to operate." If this and other barriers to MVNO market entry could be overcome, Boyd felt that the MVNO model enables the host network to sell its spare capacity, giving it new income to recoup expenses or invest in extending its coverage. This sounds quite compelling when applied to markets in which MNOs and governments jointly have the aim of extending the availability of services to less affluent prospective subscribers in the under-connected hinterland.

Matt's article noted that Virgin Mobile, then lobbying the Independent Communications Authority of South Africa for reduced interconnection fees, had acquired very few subscribers compared to the more than 40 million subscriptions shared by South Africa's three MNOs. Matt noted that while Virgin Moblile was lagging far behind the MNOs in this regard, "one figure where [it] is ahead of its rivals is ARPU, as a result of targeting higher-spending users rather than the mass market."

Has this situation improved for Virgin Mobile South Africa? It seem the answer is a pretty clear 'no'. Now led by new CEO Steve Bailey, the company has yet to have had a significant impact on the market, according to a more recent MEAWA article. Writing last month, Dario Talmesio notes that although the MVNO still has the highest ARPU in the market, "it had signed up just 600,000 subs by end-2008, and only 200,000 of them were active – giving it a market share of just 0.4%."

Talmesio reminds us that before launch, Virgin Mobile South Africa had hoped to acquire 10% of South Africa's mobile market within five years and asserts that target is now unrealistic. Talmesio feels that the company is unable to differentiate its services other than by using its distinctive branding. 3G services are not an option, notes Talmesio, because host operator Cell C, has not deployed a W-CDMA network. Of the three cellular network operators competing in South Africa, Cell C is alone in not having a 3G offering. Rivals Vodacom (50.98% market share according to WCIS) and MTN (35.55% share) began to sign up 3G subscribers in December 2004 and June 2005 respectively.

Virgin Mobile is also prevented from lowering its prices, Talmesio writes, because of the high interconnection rates it continues to pay. Talmesio also states that the MVNO has a more limited handset portfolio than its rivals.

In contrast to Virgin Mobile's highest ranking ARPU, host network Cell C had the lowest ARPU in the country in 2008, according to Informa Telecoms & Media. Talmesio writes that "from Cell C's perspective, hosting MVNOs makes sense when they can complement Cell C's market position and reach a different segment of the country's customers."

Talmesio seems to feel that Virgin Mobile South Africa has just one unique selling point: "the simplicity of its semiflat tariff" with "VMSA customers pay[ing] a premium rate in return for getting a simplified tariff".

Talmesio also argues that lateness to market may have worked against Virgin Mobile in South Africa, noting that "mobile penetration was already 72% when VMSA launched" and that "by contrast, the UK's penetration was just 40% when Virgin launched [there]". Therefore, he writes, "VMSA had to try to lure users away from incumbents rather than focus on greenfield users, as Virgin Mobile UK did in the late 90s."

If this last point is one of the most important inhibitors to strong growth for Virgin Mobile South Africa, this might suggest that, favourable regulatory regimes permitting, less highly penetrated markets in Africa might prove more fruitful for future MVNOs. Of the countries coloured green on the map above, perhaps Ghana looks the best bet, then. I also wonder whether Nigeria might be a viable environment for new MVNOs.

Whether MVNOs do succeed in Africa, or in other emerging markets, remains to be seen. Writing for Billing World in September, Patrick McGrory of customer care and billing giant Amdocs felt that "new services — Internet access, VoIP, WiMAX — and evolving business models like MVNOs enable cheaper and faster deployment in areas that previously were not viable prospects".

Two companies seemingly not about to launch MVNOs in an emerging market are Ericsson and Nokia. A Total Telecom report last Friday rubbishes recent rumours that the Scandinavian firms were planning to offer MVNO services in India.

"The speculation is completely incorrect – it's pure nonsense," an Ericsson spokeswoman told Total Telecom.

"Nokia is not planning on offering MVNO services in India," commented a Nokia Siemens Networks spokesman, who added "we provided input and advice to the Telecoms Regulatory Authority of India to help educate them with our experience of providing services to MVNOs, and that was it."

The denials of these two companies notwithstanding, some analysts feel that the Indian market is ripe for exploitation by MVNOs. The Total Telecom article quotes a research note from Ovum which states that "being able to enter a huge market with a population of 1.2 billion people when the mobile penetration rate is extremely low at around 26% is certainly a dream prospect for MVNOs, and many will find it hard to resist." My former Informa Telecoms & Media colleague James Moore is quoted as saying "the MVNO model will be an opportunity for GSM operators without a 3G license to offer WCDMA services."

If Africa continues to be a hostile environment for prospective MVNOs, perhaps it will be India which proves to be the first emerging or middle income market in which virtual wireless operators gain traction and become a large scale phenomenon.

Africa or India: Which will be first to see mass-market MVNOs?

How rural users gain from connectivity in emerging markets

The theme to which I have really warmed in the last few days is that of how telecoms and Internet services are improving the lives of poor people in developing countries, especially those who live away from major towns and cities. I have tried to examine how this kind of humanitarian objective can be reconciled with for-profit telecoms sector businesses seeing a solid return on their investments and thereby building shareholder value.

My most recent post, for example, mentioned Village Phone projects in Bangladesh, Indonesia and those involving subsidiaries of MTN in Uganda and Rwanda. This did include a video clip about the Village Phone initiative in Uganda, but I am conscious that I have otherwise been a bit vague about precisely how access to services makes a positive impact on the economies and social conditions of rural communities in emerging markets. In the following clip, which relates to the Rwanda project, we see how a small business works more efficiently by gaining the facility to order materials online rather than having someone travel to make a purchase. The same business has also gained from being able to access international markets for its products.


As well as showing us the benefits for users of services, we also hear echoes of a point discussed here. In the clip, MTN Rwanda CEO Themba Khumalo says: "we are creating a base of potential customers into the future. Not the very far future. The near future." This chimes neatly with the 2005 quote from Neil Gough of Vodafone which I dug up for Saturday's entry: "all of these results were achieved through enterprise rather than aid. A clear success story in commercial terms but one that also had a profound impact on the development of the economy and society."

This is taken from the Autumn 2008 edition of Ericsson 's online magazine 'Telecom Report' and is part of a longer video article on Corporate Social Responsibility. In my last post, I looked at the enthusiasm of Ericsson's rival Nokia Siemens Siemens Networks for work of this kind, quoting the company's Head of New Growth Markets, Rauno Granath who is adamant that "there is still a lot of pure business sense for operators to reach the rural areas." With that in mind, I do wonder why the presenter of Ericsson's video magazine saw the need to round up the item by asking whether the case of the basket weavers of Rwanda is "a marketing ploy or sincere commitment", particularly because it's not immediately clear whose possible 'marketing ploy' he is referring to. Does he mean a marketing ploy on the part of MTN? It is hard to tell, not least because I am not sure who commissioned and produced the film from Rwanda. MTN? Ericsson? Some third party? Whatever the story, I feel sure that Ericsson would not want the remark to suggest any cynicism on their company's part regarding the idea of bringing communications services to poor people in rural areas in the developing world - not least because in late 2007, the Swedish vendor announced its own partnership with the United Nations and The Earth Institute to provide connectivity to African villages through the same Millennium Villages project mentioned in the Rwanda clip.

In the clip, and via Ericsson's November 2007 announcement, we can see that as well as improving the efficiency of the villages' nascent entrepreneurs, access to the Internet is being used to benefit the education of children. Ericsson's Millennium Villages announcement also emphasised the health benefits, quoting Jeffrey Sachs, special advisor to the United Nations Secretary-General and head of the Earth Institute at Columbia University, a key partner in the Millennium Villages project: "A mobile phone is one core breakthrough technology; it won’t end malaria by itself, but it can make it possible for a mother whose child is dying of malaria to access a community health worker to ensure that her child gets the emergency treatment they need to stay alive."

I only wish these points were always so clearly articulated in the general news media. The UK's Guardian newspaper supports development work carried out by the African Medical and Research Foundation (Amref) and Farm-Africa in Katine, a rural sub-county of north-east Uganda. The project was launched by Guardian editor Alan Rusbridger and is being funded by donations from Guardian and Observer (the paper's Sunday edition) readers and Barclays Bank, which initially gave £500,000 to the project and will match fund donations over the course of the project up to £1m.

The Katine project is more than just a fundraising push. Via the Guardian's dedicated Katine website readers can follow how the money is spent, how development works (the successes and the failures) and how the lives of the sub-county's 25,000 inhabitants are changing.

While this all sounds very good, something I did find rather frustrating was an article earlier this month, which I felt made a fairly weak case for spending donors' money on providing Katine resident with Internet access. I felt the flippant title ('Learning to surf') and the fact that the piece does not really go into how Internet access will benefit the villagers makes it an unhelpful contribution to the debate around this.

Last month, however, there was a better Katine article covering mobile phone use and how "the latest technology is enabling villagers to bypass middlemen and find out the prices their crops will command." I also noticed that Ken Banks of Kiwanja.net fame responded to the article's point about how mobile users in Katine charge their phones. There is more about this issue from Ken on one of his 2008 blog posts.

That's all for now. In the next hour I have to head for the airport to take the last family vacation before starting my challenging, exciting new assignment. I daresay that by the next time I am on online there will be plenty of news emanating from Barcelona worthy of comment here.

How rural users gain from connectivity in emerging markets

India's WiMAX/3G debate revisited

It does seem to be India week here on Developing Telecoms Watch. When I posted a link to this blog at the Mobile Consultants LinkedIn group, a member who has worked as an RF networks engineer for a number of the country's cellular operators was very keen to assert in response that his market is "the blue eyed baby for the [global] telecom sector nowadays and adding 8 million subs per month". In my respondent's view, interesting developments to look out for in India will include:

• Site sharing to save OPEX and CAPEX, with "some operators [having] set annual targets of 50-60% incremental sharing".
• As a result of looking at carried traffic and site utilization, "operators are taking a call to switch off some sites during night time to save OPEX".
• Single billing systems for all services provided by an operator, such as mobile, DTH, data usage, IPTV etc.
• Operators identifying common weak coverage areas and areas in high security zones - and planning single sites instead of deploying multiple sites in those areas.
• Operators waiting for number portability "to be deployed ASAP to maximize their revenues".

I concluded Sunday's India-themed post by choosing to infer from a recent report by consultants BDA that there seems to be reasonable case for WiMAX and an even stronger one for 3G in India. Since then I've read articles in which the prospects for both are enthusiastically talked up.

Making the case for 3G, in an interview in an interview with Business Line yesterday was Mr P. Balaji, Ericsson India's VP of Marketing and Strategy. Balaji asserts that Indian operators will be able to roll out services with minimal additional infrastructure costs and that 3G will help to bridge the urban-rural digital divide. "Telemedicine, e-education and e-governance can be offered through 3G in rural pockets," says Ericsson's Balaji, "and this is bound to improve the quality of life of the people."

Asked how 3G stacks up against WiMAX, Balaji states "we believe the Government should leave it to the market forces and not dictate technology choices" and that in his opinion "3G will score in the Indian telecom market because it offers greater economies of scale, faster time to market and multiplicity of handsets".

This is not very surprising. Outlined in a white paper released last month, the Ericsson view of comparisons between WiMAX and HSPA can is as follows: "While the peak data rates, spectral efficiency and network architecture of HSPA Evolution and Mobile WiMAX are similar, HSPA offers better coverage. In short, Mobile WiMAX does not offer any technology advantage over HSPA. What is more, HSPA is a proven mobile broadband technology deployed in more than 100 commercial networks... [and] can be built out using existing GSM radio network sites and is a software upgrade of installed W-CDMA networks. Compared with other alternatives, HSPA is the clear and undisputed choice for mobile broadband services."

The Swedish vendor certainly seems to have lost enthusiasm for the IEEE 802.16 family of standards since making extremely positive noises when joining the WiMAX Forum in December 2004.

Feeling more upbeat about WiMAX in India is research and consulting house Strategy Analytics, whose recent study sees the country's WiMAX subscriber base hitting 14 million by Year 2013 and growing annually by nearly 130%. An Economic Times article on Saturday indicated that the Strategy Analytics report predicts initial investment in WiMAX ventures will top $500 million in India. The US-based research firm feel that after initial deployments primarily in major urban areas pockets, "WiMAX will find relatively greater utility and less competition from competing technologies in smaller towns and villages."

This last point seems to go head-to-head with the claims made by Ericsson's Balaji regarding his envisioned role for 3G networks in India's rural areas. I wonder who will turn out to be right? Or will it be a case of both being half-right?

Another thing for me to wonder about: I wonder if tomorrow will be the day when I finally managed to discuss something other than India's WiMAX and 3G prospects here...

India's WiMAX/3G debate revisited

Delays notwithstanding, 3G to outpace WiMAX in India

On Friday I spotted an article in the Economic Times which quoted a familiar name: Kunal Bajaj, the India MD of BDA, a consultancy business which originated as an advisory firm specializing in China's telecommunications, media and technology sector. Kunal was a very useful contributor to one of the first Com World Series events it was my pleasure to host while working with Informa Telecoms & Media - the COAI-endorsed GSM>3G India 2007 conference and exhibition in Mumbai.

This event, now known as India & South Asia Com was, in those days, a useful place for telecoms tech vendors to mingle with a large, senior and diverse crowd drawn from India's numerous mobile operators. The event has since become rather more than that, having grown simultaneously in two directions.

One of these directions, in common with all the equivalent Com World Series shows in other regions, is about extending the appeal of the conference beyond the cellular sector and into the wider telecoms world. At any Com World Series event now, you can expect to meet representatives of a very broad range of telcos: MNOs, incumbent and challenger wireline operators, cable MSOs and all kinds of broadband service providers. While it is true that the mix varies depending on the relative value of each of these segments in the part of the world concerned, I am ending my involvement in the Series with a sense that the team are doing an ever better job of providing the exhibitors and sponsors (largely tech vendors: network equipment, OSS/BSS etc.) with high-value one-stop-shops of potential customers from across huge regions. The tricky part is ensuring that the conference element is genuinely useful for the telcos' delegates, i.e. providing them with meaningful peer networking opportunities and insightful presentation material from genuinely influential speakers. I believe the Com World Series team pull off this trick remarkably well.

In the case of the Mumbai event, the other change which I was responsible for driving was to do with marketing the conference to delegates from India's neighbours across the rest of South Asia, namely the Maldives, Bhutan, Nepal, Sri Lanka, Bangladesh and Pakistan.

Securing speakers and delegates from the last of these is not without challenges. One scarcely needs to be an especially diligent student of South Asian affairs to be aware of the tensions between Pakistan and India, two countries which have gone to war with each other three times since the partition of India in 1947. In terms of how these tensions have affected my work in that part of the world, I remember our team assisting the then-CEO of Pakistan's Ufone GSM, Mubashir Naqvi, whose participation we had secured as one of the key speakers. It was clear that the paperwork and delays around arranging a visit to India were rather more arduous for Pakistanis than for citizens of any other country. Along the way, I also realised that roaming agreements did not exist between mobile operators in the two countries, meaning that Pakistani visitors to the Mumbai conference would need to go to some trouble in order to keep in touch with colleagues and families back home.

These difficulties notwithstanding, I am convinced that Pakistani delegates can be attracted to the India & South Asia Com World Series event, even in the context of tensions raised yet higher by the November terrorist attacks on Mumbai. I noted in my end-of-year post on my former Com World Series blog that the timing of this terrible incident made a postponement of the India & South Asia Com 2009 unavoidable. The event was set to go ahead in January, and is now rescheduled for mid-May.

The main reason for my feeling sure that the Mumbai conference can successfully gather participants from all over South Asia is what I learned when I travelled to Bangladesh in July 2007 with the specific intention of gauging the appetite for a whole-region event. My trip to Dhaka took in a meeting of the South Asian GSM Forum and a conference which Informa Telecoms & Media ran in conjunction with Singapore-based colleagues at sister company IBC Asia. Dubbed Mobile South Asia, this event had previously been held in Sri Lanka and Pakistan as well as Bangladesh. The 2007 iteration, which I attended, seemed to be well-received by delegates from the operators, but it did prove rather harder to persuade sponsors that any of these venues would work well. That was part of why it seemed attractive for us to merge the Dhaka event into the Mumbai conference in 2008 and beyond. The Mumbai audience, when polled on site, were actively supportive of the move, but I travelled to Bangladesh less sure of whether the Mobile South Asia crowd would welcome being bundled together with their Indian colleagues. Again, I conducted a poll on site and came away feeling sure that the combined event would be successful. I would like to think that in my new role I will be able to attend this gathering, if not this year then at least in the not-too-distant future. I expect to see it evolving positively.

The article in which Kunal Bajaj's name cropped up concerns the idea that India's telecoms operators are worried that the further delay of 3G and WiMAX auctions (which I was writing about here on Friday) will significantly dampen the development of services. Kunal and his colleagues at BDA seem to be more optimistic. A report which they have prepared, in conjunction with the Federation of Indian Chambers of Commerce and Industry (FICCI), predicts that by 2011, 25% of 3G revenues will come from non-voice services, a half of which will be data access. Kunal Bajaj says "while this seems like a modest estimate, it is to be noted that data comprises less than 1% of present 2G revenues."

I suppose BDA's estimate only appears modest to those who did not adjust their expectations down to realistic levels in the wake of relatively lacklustre 3G debuts in markets around the world. I remember a very good article written in 2006 by Neil Montefiore, who recently stood down as CEO of Singaporean cellco M1 after a stint of nearly thirteen years at the helm. Writing for the Informa Telecoms & Media Global Mobile fortnightly research service, Montefiore argued that "the basic problem with all technology lies in its marketing." He observed that "clever stuff is developed and launched and sometimes catches the imagination of the masses without too much effort from the marketing experts," and that "it's when the clever stuff gets complicated that the marketing becomes the catalyst for success, or the point of failure." Montefiore argued that when compared to products such as the iPod, SMS or mobile voice, "3G is a complex proposition... [requiring] new technology and new handsets [and enabling] the mobilization of familiar experiences." Montefiore noted that most operators had targeted 3G launches at the mass market, "focusing on expensive, high-profile content downloads and mobile TV", had spent significant sums on mass-media advertising, and had offered "huge voice-tariff incentives for people to switch to 3G." He observed that handset makers had launched wide "ranges of cheaper handsets in an effort to fire up the market, losing sight of the fact that the success of 3G is based on the sale of the service itself." This last point is surely familiar territory for us all. How many of us are currently using anything like the full range of functionalities offered by the mobile devices in our pockets? Perhaps it's even more pertinent to ask about the handsets in the pockets of our friends and family members who do not earn a living in the mobile sector.

Writing in 2006, Montefiore argued that "the results have been mixed, the adoption rate is slow and there is no mass-market take-up... because the mass market believes the hype and assumes the service will be as good as the advertising says it is." He insisted that "when the experience doesn't live up to the expectation, the momentum quickly dissipates" and that "ultimately, the marketers are trying to sell the service to the wrong people."

Montefiore argued that "as an industry, we need to relaunch 3G. We need to communicate specifically with early adopters and develop targeted marketing propositions to cater to their expectations. That means thinking outside the box in terms of media, looking at ways of reaching our target markets in a structured rather than scatter gun approach. It means treating 3G as a niche market with identifiable and quantifiable applications that have a value and purpose. We need to turn our perception of 3G on its head, stop treating it as the cure-all for falling ARPU by assuming that every user out there actually wants streaming video, and revert to proper, old-fashioned marketing by building a proper business case for its adoption."

My feeling is that these lessons have been learned in the two-and-a-half years since Neil Montefiore levelled his criticisms at operators and handset vendors. We are, finally, living in a mobile data market showing clear signs of explosive growth after years of slower progress. The Informa Telecoms & Media report, Mobile Networks Forecasts: Future Mobile Traffic, Base Stations and Revenues (published June 2008), quotes network vendor Ericsson as stating "that on the W-CDMA networks it has deployed worldwide, total data traffic overtook total voice traffic in May 2007" and that "by December 2007 total data traffic was 3.7 times the level of voice traffic."

In his article, Neil Montefiore argued that "the way to build a market for a new technology is surely to focus on the people who understand the way that technology evolves, who are excited by its potential and who are forgiving of its teething problems." He said that computing, Internet services, DVD, VCR, MP3 "all started as expensive, complicated, sometimes unreliable technologies, but the mass markets they enjoy today have been built on the belief and understanding of those early adopters who disregarded the hype and focused on the capabilities."

To me, drawing on my daily experiences of living in the UK, it seems intuitive to believe that the remarkable growth in data traffic reported by Ericsson has been driven more by tech-savvy/time poor business users of HSPA dongles than by trendy consumers playing with funky phones. Beyond people working in the industry, I still seem to know very few people with 3G handsets and even fewer who are using them to do anything very bandwidth-hungry. However, for MNOs looking for a return on their 3G network investments, we possibly should not suppose that the mobile phone form factor and consumer services will always contribute less than dongles and corporate data subscriptions. The Informa Telecoms & Media Non-SMS Data report (published June 2008) notes that even the 2G version of the iPhone has significantly boosted the take-up of mobile Internet browsing, citing the case of T-Mobile's German operation, which announced in 1Q08 that average mobile data consumption, mostly for mobile Internet browsing, was up to 30 times more than for users of other handsets. Maybe a disruptive player shaking up the devices market is one of the more significant factors moving us towards the tipping point for mass-market mobile data use.

Devices also get a mention in the Economic Times article in which we saw Kunal Bajaj being relatively bullish about mobile data in India. The article flags up doubts about the practicality of 3G arising from "the unaffordability of 3G-enabled devices in the market and the costs involved in setting up a 3G network." In the same piece, these concerns are swiftly dashed by COAI supremo T.V. Ramachandran: "Even though most 3G enabled phones in India today are priced above Rs.8000, LG has launched a $100 phone which is enabled for 3G services but does not have any multimedia capabilities. These will flood the Indian market for 3G voice services [once the spectrum auctions are concluded]." Ramachandran continues: "nearly all of the existing telecom networks, which have been set up in the past two years, are 3G enabled."

According to the article, Kunal Bajaj estimates it will take only six months to deal with the need to build the additional capacity building to run commercial 3G services on these networks.

The thrust of the Economic Times article is that the prospects for 3G in India are rather better than for WiMAX, hence the title of my blog entry. Remember that the spectrum issues which have delayed the onset of the 3G era in India have also affected those seeking to deploy WiMAX, so I would not expect to see a situation similar to the one I've heard described in the Russian Federation. There, the three leading mobile operators (MTS, Vimplecom and MegaFon) have rolled out 3G services in major cities but not in the nation's capital. As recently as December 12th, Global Mobile Daily was reporting that the rollout of commercial 3G services in Moscow faces further delay because the Russian military has not yet freed up UMTS frequencies. I have heard the argument that this frustrating 3G launch delay in the country's most lucrative market has created a window of opportunity for broadband providers offering WiMAX-enabled services and has been the catalyst for some fairly enthusiastic hyping of the prospects for WiMAX in Russia.

Not only will prospective Indian WiMAX deployers not gain from any significant first-mover advantage, Friday's Economic Times article also makes the case for how 3G enjoys two advantages over the rival access technology, one of which is probably true worldwide, the other of which has to do with the specifics of the Indian market.

The first of these points in favour of 3G is that "there is no such truly affordable counterpart [of the above-mentioned low-cost 3G phones] available for accessing WiMAX." The second concerns market maturity. "National penetration of mobile telephony," the article states, "is expected to cross 50% through 3G in 2011, thrice as fast as it would with 2G, as the capacity of a 3G network is thrice more than that of a 2G equivalent." The argument goes that whereas in developed countries 3G was developed only when 2G penetration was saturated and telcos wanted to grow their revenues through more value added services (VAS), the case is very different in India. Says Kunal Bajaj: "In India, we are already on a 2.5G platform in terms of technology; but our services are still poorly developed owing to spectrum constraints. In this context, 3G will definitely mean better voice services and data access for the first time in many segments, rather than increase in other VAS."

This is not to suggest there is no business case for WiMAX in India. I think I understand from the Economic Times article that Government policy has a place for WiMAX, favouring the technology as a provider of data access, particularly for last mile connectivity in rural areas. Additionally, the BDA report says that "WiMAX is expected to be used for fixed residential and enterprise broadband access in cities."

This all makes it sound as if there is a reasonable case for WiMAX and a stronger one for 3G in India. Let's see.

Delays notwithstanding, 3G to outpace WiMAX in India