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?

Nokia: Low TCO is key in emerging markets - but how to achieve it?

I recently made reference to an emerging markets-focused publication which I consider to be an excellent source of information and insights: Expanding Horizons magazine, which is offered to ICT decision-makers in the private and public sectors by Nokia and Nokia Siemens Networks. The latest issue is a special edition packed with interesting articles from the last 2-3 years. Expanding Horizons aims to explore the socio-economic benefits that mobile technologies offer as well as best practices from around the world in order to encourage affordable mobile communications and bring the Internet to the next billion consumers. Its editors also aim to demonstrate how to create favourable environments for market growth in developing countries.

One of the most recent articles opens with a challenging question: Why is TCO (Total Cost of Ownership) of USD 5 per month possible in India, Pakistan, Sri Lanka and Bangladesh but not in 76 other emerging markets covered in a study conducted by Nokia in 2007. For the purposes of the study, TCO was defined as a combination of the service fee, taxes and mobile device price. The study found that the average TCO for subscribers in these developing countries was USD 13 per month and its authors asserted that bringing this figure down to less than USD 5 would enable a majority of low-income prospective subscribers to use mobile services. Surely, then, all four South Asian countries with outstandingly low average TCO should have very high mobile penetration rates when compared to the broader selection of emerging markets. Let's look at mobile penetration in these four countries as of December 2008, according to the World Cellular Information Service.

• India: 28.31&
• Pakistan: 51.68%
• Sri Lanka: 49.48%
• Bangladesh: 28.95%

Of the 76 countries found to have higher average TCO, quite a large number have outperformed these South Asian markets in terms of mobile penetration. Let’s pick out some examples, choosing only countries with lower per capita GDP and/or ranking lower on the Human Development Index than India. Again, the figures are from the Informa Telecoms & Media World Cellular Information Service:

• Vietnam: 79.37%
• Yemen: 28.53%
• Kyrgyzstan: 65.83%
• Cameroon: 31.01%
• Nigeria: 44.50%

I wish I had time now for a detailed discussion about why some of the above countries, all of which have higher average mobile services TCO than the South Asian markets, have done better in terms of getting mobile devices into the hands of larger slices of their populations. In lieu of that discussion, for which I hope to find time another day, it does, at least seem fair to assert that while low average TCO is highly desirable, it is clearly not the single most important factor for mobile services to be taken up by the less affluent population segments in developing countries.

This is not to say, of course, that it is not worth trying to understand how TCO can be minimised. Nokia were interested enough to commission a follow-up study, executed by LIRNEasia, a regional ICT policy and regulation capacity-building organization active across the Asia Pacific.

So what explanations were found for the USD 5 TCO in the four South Asian countries? The Expanding Horizons article states that "surprisingly, the data led to the exclusion of such factors as per capita GDP, mobile penetration and growth rates, population size and density, and governance." In each instance, the article continues, other countries surveyed with more favourable values for any one of these characteristics also had monthly TCO levels substantially exceeding the crucial USD 5 per month. Instead, "our study told us that the two factors most common among the four countries that had the lowest TCO levels was superior market access and business model innovation," said Mr. Rohan Samarajiva, executive director of LIRNEasia. "In addition to the availability of low-cost handsets and modern wireless infrastructure equipment, a market requires a ‘disruptive competitor’... one who does not play by the established rules."

To summarise, the strategies of these 'disruptive competitors' have, according to the article, involved shifting the operator’s focus to lower income consumers and increasing network utilization. The article continues that this kind of strategy is built on the principle of widening the user base significantly, handling a greater volume of smaller transactions very efficiently, driving down customer acquisition costs and creating an efficient network architecture. All of this is done, continues the article, with the goal of allocating the network’s fixed cost structure over a broader user base while significantly raising more marginal revenue through higher numbers of previously under-served, low-income consumers.

In the case of Bangladesh, my guess is that the first-mover in terms of being a 'disruptive competitor' would have been Grameenphone, famous for its association with the Village Phone microfinance initiative, now replicated in African and other Asian markets, which puts mobile devices in the hands of low-income subscribers in rural areas and enables them to build sustainable businesses. In the case of the other three markets, the identities of the 'disruptive competitors' does not immediately spring to my mind. Perhaps some helpful reader has a view.

Nokia: Low TCO is key in emerging markets - but how to achieve it?

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

Emerging markets to get a deserved look in at a downturn-themed Mobile World Congress

An averagely busy life does not allow for blog entries as long as novellas. I also doubt that posts as long as that would be read from start to finish by equally busy readers. Some topics, though, are worth exploring at length, and I was conscious yesterday of having downed tools before getting close to sharing more than a tiny fraction of what I've learned about the theme I was discussing - how successfully the telecoms sector is reconciling its for-profit commercial imperatives with a desire to improve the lives of poor people in developing countries. What follows today, therefore, is a little more exploration of this broad topic.

A company which got a mention here yesterday was Grameenphone, the cellco which owns the largest share of the mobile market in Bangladesh - 46.75% by December 2008, according to Informa Telecoms & Media's World Cellular Information Service. We considered the idea that the MNO's owners, Telenor and Grameen Telecom, have been at odds, with Muhammad Yunus, the Nobel Laureate behind the Grameen family of companies apparently claiming that Telenor's need to build shareholder value has not always sat comfortably with the social and non-profit agenda of its Bangladeshi partners.

For many, I will be rehashing a very familiar story as I take a look at the form this agenda has taken. Some readers may know the story less well and not be fully aware of how cellcos elsewhere in the world have been inspired by Grameen Telecom/Grameenphone initiatives. The tale is one of my favourite examples of the telecoms industry changing lives for the better so I will indulge myself by repeating it, hoping that there is something new here for at least one reader of this blog.

The most famous Grameen Telecom/Grameenphone project must be Village Phone, an inititative which provides telecoms services to underprivileged people in rural Bangladesh. Prospective Village Phone subscribers must first become members of Grameen Bank and take out a small loan. This loan is then used to purchase a handset and SIM card. Once given a phone, the subscriber is encouraged to provide services to people in the adjoining area. In this way, the borrower repays the debt to the bank and earns a profit. In 2006, I welcomed a representative of Grameen Telecom to a conference I hosted in Dubai. Participants watched a moving video which showed how the Village Phone project was transforming the lives of poor Bangladeshi villages, mostly women.

This model has been replicated elsewhere in Asia and also in Africa. I think the most recent example is that of the Village Phone project launched in Indonesia by the Grameen Foundation, Qualcomm and Bakrie Telecom, a CDMA WLL operator that is seeking to establish a national presence with its Esia brand.

In July 2008, Global Mobile Daily reported on the project, whose name, 'Uber ESIA', means 'joint cooperation' in the Indonesian language, and which is aimed at delivering affordable access to remote rural areas using 3G CDMA technology. Similar to the original Bangladeshi model, the plan is to work with local Indonesian microfinance institutions to enable clients to borrow sums needed to purchase a Village Phone 'business in a box' consisting of a mobile 3G CDMA-based device and charger, marketing materials, tariff posters, business cards and training materials.

Earlier examples of the Village Phone model being exported are those of the Grameen Foundation's collaboration with MTN's Ugandan subsidiary (launched in 2003) and with MTN Rwanda (launched in 2006).

This clip (in Dutch, with English subtitles) tells the story of the Ugandan initiative:



Qualcomm's involvement in the Indonesian Village Phone project is further evidence to support a point made in yesterday's post - that telecoms operators are not the only communications services ecosystem participants which can support initiatives designed to improve the lives of poor people in emerging markets.

Another example of this is the 'Village Connection' system developed by Nokia Siemens Networks. I remember this being discussed in an email-only publication to which I was once a regular contributor, the weekly 'Telecoms Vision' newsletter associated with the Informa Telecoms & Media Com World Series. In February last year, this carried an article based on an interview with Rauno Granath, NSN's Head of New Growth Markets. Granath explained that the Village Connection solution, which is comprised of GSM access points located in villages, connected via IP links to regional access centres, was "carrying live traffic in many villages in India." The article stated that the system lends itself to new business models such as operators potentially franchising parts of their business to local village entrepreneurs.

Granath was keen, however, for NSN not to be prescriptive about business models, saying "the Village Connection solution enables new thinking in sharing the responsibilities as well as the business between the new stakeholders, but it doesn't mandate it. I would expect to see a whole variety of ways of working." The article suggested that as different business models emerge, so too could different operator approaches to charging, and went on to discuss other offerings in the NSN portfolio designed to make taking on new subscribers even more viable. An example given was that of improved radio performance and planning through which it becomes possible to allow a reduction in sites, saving money on hardware and, in isolated areas, on power. Also discussed were further ways of reducing power consumption, and thus the Total Cost of Ownership (TCO) for prospective new subscribers from among the poor of the developing world. These included base stations that can work without air conditioning and combined solar and wind power systems.

Another efficiency measure discussed by Granath concerned airtime distribution purely on an SMS basis rather than scratch cards. "It sounds trivial," said Granath, "but when we think about the tens or hundreds of millions of vouchers that operators need to distribute throughout their subscriber base every year, it starts to get big effects."

The article made the point that these are all admirable attempts to make supplying services to rural populations viable but asked the question of whether such potential subscriber additions are really worth the effort for operators. Granath was adamant that "there is still a lot of pure business sense for operators to reach the rural areas, particularly in markets like India where even the rural population is dense." Apart from which, it may be unavoidable if, as Granath pointed out, universal service obligations are imposed by governments.

For more on the Nokia Siemens Networks view on extending service availability in emerging markets, I would heartily recommend a look at the latest edition of the company's Expanding Horizons newsletter. With an editorial co-authored by Rauno Granath, this is a useful round up not only of NSN's activities in this field, but also related material such as an interview with Gabriel Solomon of the GSM Association, who worries that high taxes on mobile communications are threatening to suppress economic and social development in sub-Saharan Africa.

As I continue to tease former colleagues at Informa Telecoms & Media whose Facebook status updates suggest they are gearing up for a week of very hard work at the Mobile World Congress (while I head off for a family holiday in Florida), I was pleased to note that a senior figure at the company is predicting that the effects of the economic downturn notwithstanding, emerging markets will get a look in during the various conference sessions and workshops and in the countless discussions between individual participants.

Mark Newman, the business information and events firm's Chief Research Officer begins his preview of this year's Barcelona show by asking how how exhibiting vendors "can... showcase new mobile Internet devices, mobile applications and next generation mobile broadband network technology while at the same time satisfy[ing] operators' overriding single objective in 2009 - cutting costs as the mobile industry faces up to the global economic downturn."

All very austere. Almost as harsh as my wife returning from a lunch with friends today and sharing with me the news that several people present have either been made redundant or are expecting the axe to fall very soon.

My own view of the downturn, however, is to be grateful for the fact that however long or deep this recession proves to be, none of us living in the developed economies of Europe or North America will experience the levels of absolute poverty suffered by people in what we call emerging markets. I was therefore heartened by the final comment of Mark's MWC preview: "Growth potential in emerging markets has been a regular theme over the last few years and will remain so at this year's event". For me, that's exactly as it should be, especially if we take the view that telcos and vendors making a profit in developing economies is compatible with improved lives for the poor.

Emerging markets to get a deserved look in at a downturn-themed Mobile World Congress