Middle East and North Africa: The Next Growth Market for MVNO?

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The emergence of MVNO in the Middle East & North Africa has been slow in comparison to Western Europe and other global markets. However, recent regulatory developments in key markets are creating new openings. Significant opportunity now exists for mobile operators and other businesses to gain first mover advantage while the MVNO market is nascent.

This Viewpoint gives an overview of MVNO progress to date and explores growth opportunities in the Middle East and North Africa.

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  • A new wave of MVNOs with innovative business models is launching in the US. In our latest Viewpoint, CSMG discusses the merits, drawbacks, and likely future of these MVNOs.

    http://www.tmng.com/knowledge-center/insights/mvno-2-point-0
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  • CSMG has published our latest thought study on the opportunities and challenges for MVNO in Africa. Check it out on Slideshare or view it on our website: http://www.tmng.com/knowledge-center/insights/mvno-africa
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  • CSMG will be at the MVNOs Industry Summit Middle East taking place in Dubai next week from 4-5 December 2012. Mike Greening will be Chairman for Day 1 and delivering a presentation on Day 2 on 'Global Learnings with Relevance to the Middle East'. http://www.csmg-global.com/events/mvnos-industry-summit-me-2012
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Middle East and North Africa: The Next Growth Market for MVNO?

  1. 1. MENA The Next Growth Market for MVNO? By Michael Dargue and Tim Heal The emergence of MVNO in the Middle East & North Africa has been slow in comparison to Western Europe and other global markets. However, recent regulatory developments in key markets are creating new openings. Significant opportunity now exists for mobile operators and other businesses to gain first mover advantage while the MVNO market is nascent. April 2012
  2. 2. Cartesian: MENA – The Next Growth Market for MVNO? Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 1 MENA Mobile Market Mobile markets in the MENA region have reached or are approaching saturation. Four countries are expected to reach over 200% penetration by 2015: UAE, Qatar, Saudi Arabia and Oman. Such hyper penetration correlates with a downward ARPU trend as users split usage across multiple SIMs. Price competition in the region has also had an impact on decreased voice spending. Operators are cognizant of future pressure on margins due to increasing competition from potential new entrants, and the continuing predominance of the prepay segment. Figure 1: Mobile Penetration Forecast for Top Four Markets 1 Once market saturation is achieved, MENA mobile operators will increasingly turn towards additional products and services to drive revenue growth. MVNO is a potential revenue growth strategy, especially for those operators seeking to improve market share in specific customer segments. MVNOs can bring experience and capabilities in acquiring and addressing the needs of these segments. Many MNOs across the region are still to define their position with respect to MVNO. A strategic assessment of the threat and opportunity is required to determine the optimum proactive, reactive or defensive stance. MVNO Developments in MENA To date, MVNOs have been relatively limited in number across the MENA region. However, some markets have seen multiple MVNOs launches, principally Turkey, Israel, Morocco and Oman. In Turkey, Avea has brought on various partners under the branded reseller, or “pre-MVNO” model; for example Fenerbahçe, the Istanbul-based football club. True mobile wholesale (i.e. “light” and “full” MVNO) is not yet available in Turkey due to on-going regulatory considerations on wholesale pricing, but models of deeper MVNO / MNO integration are expected to emerge soon. 1 Company Reports; Cartesian
  3. 3. Cartesian: MENA – The Next Growth Market for MVNO? Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 2 Following on from regulatory action taken in 2007, a number of MVNOs have already launched in Israel. MVNOs are forecasted to eventually account for 5% to 10% of the mobile market,2 which would make Israel one of the more advanced countries for MVNO in the MENA region. In Morocco, the state-owned postal service plans to launch the country’s fourth MVNO towards the middle of this year, and has contacted the mobile operators to request a wholesale pricing offer. As a final example, the MVNO model which has seen the highest level of success in the region is Oman; the Ministry of National Economy released figures last year indicating that MVNOs had acquired over 500,000 subscribers by June 2011, representing 12% market share. Figure 2: MVNO Activity across MENA Region3 Regulation The dominant factor driving activity (or lack thereof) has been the timing and extent of regulation. While some countries have not declared any short or long term intentions to evaluate the introduction of MVNO into the local market, other Telecommunications Regulatory Authorities (TRAs) are pushing ahead with MVNO regulation. Two recent examples of the latter include Egypt and Saudi Arabia: (1) The Egyptian Communications Minister recently announced that the first tender for MVNO licenses would be issued by the end of March 2012, where Telecom Egypt is expected to bid. This has now been delayed and is expected in May 2012. 2 Wireless Intelligence; Israel Regulator (MoC) 3 Telecommunications Regulatory Authorities; PrepaidMVNO; Press releases; Zawya; Cartesian Saudi Arabia Egypt Oman Yemen Iran U.A.E. Qatar Bahrain Kuwait Iraq Syria Lebanon Libya Turkey Jordan Israel June ’10 2009 2009 2009 2009 2010Oct. ’10 Turkey LibyaPhone Jan. ’11 MVNO Brand License Model Sub-Brand Key April ’09 July ’09 Sep. ’10 May ’09 Oct. ’10 Nov. ’09 Oman Licensed Licensed T2T Comms Home Cellular Licensed Ituran 3Q11 Rami Levi Israel Additional potential MVNO entrants have been licensed by the Israeli regulator.
  4. 4. Cartesian: MENA – The Next Growth Market for MVNO? Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 3 (2) In Saudi Arabia, the Communications and Information Technology Commission (CITC) launched a public consultation on MVNO licensing in January 2012, and announced plans to issue the first three MVNO licenses later in the year. The extent of regulation also varies, for example, the maximum number of MVNOs permissible at any one time: At one end the Jordan TRA has imposed no limits to the number of MVNOs; at the other end, in Saudi Arabia, the recently released CITC consultation document proposed that only one MVNO could be hosted per MNO. Finally, players should also consider the importance of regulation post launch. The recent closure of Virgin Mobile Qatar demonstrated consequences of failing to maintain alignment with the TRA. Potential MVNO Models Looking globally there is a range of MVNO models, some of which have demonstrated greater success than others. In particular, the retail and ethnic MVNO models could be attractive options in MENA. Figure 3: Examples of MVNO Models Retailers have favourable MVNO economics through existing distribution networks and logistic partnerships, high footfall, and often strong brand presence. Internationally, some retailers have nudged up core business revenues by integrating mobile into innovative loyalty propositions. Globally, ethnic and international calling MVNOs have been effective in capturing market share in migrant segments. Significant migrant populations exist in some MENA countries, in some cases outnumbering the nationals (for example, more than 80% of the UAE’s 8 million people are expatriates). Some MNOs such as Du in the UAE have already launched ethnic-focused propositions, but there is still a sizeable opportunity for MVNO entrants. Such asymmetries also create opportunities in roaming, as well as other services such as international remittance. General Retailer Ethnic, International & Roaming Business/M2M Converged / Fixed Providers Low-Cost, No Frills Community Based Select MVNO Examples
  5. 5. Cartesian: MENA – The Next Growth Market for MVNO? Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 4 In addition, M2M MVNOs are expected to drive growth in subscribers and revenue. Requirements for remote security are common in the MENA region, and the level of industry creates opportunity to reduce costs through M2M-enabled distributed automation and control. Finally there are is opportunity for MVNOs to develop differentiated propositions targeted focussed on business customers, from SME to Large Enterprise and MNC, although this segment is much harder for MVNOs to compete where significant price discounting is the norm for larger accounts Key Considerations for Entrants For MNOs, the emergence of MVNO requires a strategic response. A successful MNO strategy will capture opportunity from MVNO entry while mitigating new competitive threats. Potential MVNO entrants need to understand the justification for launch. A key question is whether the goal is to: a) capture telecoms revenues, or b) drive revenue uplift to the core business. Partner selection and assessment is of key importance to both parties. Entrants will need significant support from the host MNO, requiring a collaborative and viable pitch and proposition to address gaps in the MNO’s existing business. Those seeking international expansion opportunities will have to consider their entry strategy carefully. There is wide variation in local market characteristics across the MENA region; business models, propositions, brand and customer segmentation will all have to be analysed and tailored. Cartesian Experience and Support Cartesian has deep experience in assisting MNOs, MVNOs and regulators achieve their objectives. We have worked on over 40 MVNO engagements globally and can support across a number of areas, including:  Strategy and business case support, including detailed cost and revenue modelling  Negotiation support for contracts and commercial terms  Securing funding  Vendor and partner identification, evaluation and selection  Assessment of MVNO policy, regulation and market impact
  6. 6. Cartesian is a specialist consulting firm of industry experts, focused exclusively on the communications, technology and digital media sector. For over 20 years, Cartesian has advised clients in strategy development and assisted them in execution against their goals. Our unique portfolio of professional services and managed solutions are tailored to the specific challenges faced by executives in these fast- moving industries. Combining strategic thinking and practical experience, we deliver superior results. www.cartesian.com For further information, please contact us at cartesian@cartesian.com

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