MVNO in Africa: Landscape, Challenges and Opportunities
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MVNO in Africa: Landscape, Challenges and Opportunities

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MVNOs have had mixed success around the globe. The MVNO market is still nascent in Africa, yet some new MVNOs have launched with a degree of success. While regulatory and pricing challenges exist,......

MVNOs have had mixed success around the globe. The MVNO market is still nascent in Africa, yet some new MVNOs have launched with a degree of success. While regulatory and pricing challenges exist, there is no shortage of interest from potential entrants, and the market is expected to accelerate throughout the next year or so.

Throughout 2012, Cartesian conducted primary and secondary research to understand the state, current and future trends, and likely evolution of the MVNO market across Africa. Key findings were presented at the MVNO conference in Cape Town on 01st Oct 2012.

In our thought study, MVNO in Africa: Landscape, Challenges and Opportunities, Cartesian has drawn upon experience of working with a large number of MVNO projects globally, including recent projects in Africa. We discuss ten major trends: five challenges and five opportunities. We also take a close look at the evolving regulatory situations in selected countries, and discuss success factors for MNOs wishing to take advantage of the new MVNO opportunity.

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  • 1. www.cartesian.com Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or means (electronic, mechanical, photocopy, recording or otherwise) without the permission of Cartesian. Cartesian Ltd. Registered in England and Wales. Registered Number: 03230513 Registered Office Address: Descartes House, 8 Gate Street, London WC2A 3HP United Kingdom Landscape, Challenges and Opportunities Thought Study MVNO in Africa January 2013 — Select Slides— For a full copy of this report or to discuss potential areas of support, please contact mike.greening@cartesian.com
  • 2. 1Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Context In 2012, Cartesian conducted research and analysis to understand the state, current and future trends, and likely evolution of the MVNO market in Africa Interviews • Cartesian interviewed a number of key individuals within the MVNO space, including MVNOs, MNO wholesale teams and MVNEs Secondary Research • Cartesian conducted secondary web research to capture details on recent MVNO launches, failures and success stories Thought Leadership • Cartesian drew on its knowledge base and experience from over 40 MVNO projects • We hypothesised trends and validated with research Outputs • The research and analysis was conducted through-out 2012 • Findings were presented at the an MVNO Conference in Cape Town on 1st October, 2012 • This presentation contains the results of our analysis of Africa, and focuses on 10 key trends in MVNO: 5 challenges and 5 opportunities present in the market Scope of Thought Study
  • 3. 2Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Key Questions Throughout this Thought Study, we address the following key questions: What is the state of the MVNO market in Africa today? What are the main barriers, challenges and opportunities? What should be the key considerations for MNOs? What are the critical success factors for an MVNO launch?
  • 4. 3Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. • Introduction to Cartesian • MVNO Market Landscape • MNO Considerations • Critical Success Factors and Conclusions
  • 5. 4Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Cartesian™ is a specialist provider of consulting services and managed solutions to the global communications, technology and digital media industries Company Overview • Offices in Boston, Kansas City, London, New York and Washington • Onsite and offsite delivery models to suit client needs; partner network of ICs, technology providers and SIs • Clients across six continents include communications service providers, technology vendors/OEMs, digital media, financial companies and regulators • Proven understanding of business strategy and client issues • Expert assessments of operations, platforms, and business processes to support corporate strategies • Аward-winning technology platform and 20+ years experience deploying solutions for CSPs • Industry specialists, focusing exclusively on communications, technology and digital media • Expert operational know-how and project management skills, with proven methodologies across content areas • Several hundred consultants, averaging 15 years of sector-specific experience Capabilities Global Reach Industry Focus 111101000110010110101101001000 011000101101000110011101001001 111001110110101010100110101000 010001010111101100010101001011 110010010110100010110100101010 010111010101010101001011101001 010110100101011010100101101001 110110101010010100101101001011 101001011010001011010010101001 011101010101010100101110100101 011010010101101010010110110100 010100101101001010110101001000
  • 6. 5Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Our clients are the leaders in the global communications, technology and digital media industries Example Clients Mobile • Fixed • Cable/MSO • Satellite • Cloud & Hosting Service Providers Consumer Electronics • Enterprise • Software & Apps Components • Infrastructure • Intermediaries • Integrators Technology Digital Media • Automotive • Energy • Hospitality Health • Insurance • Retail Media & Verticals Government • Regulators • Industry Groups • Foundations Influencers Private Equity & Venture • Funds • Commercial Lenders Investors
  • 7. 6Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. MVNO Expertise Cartesian has worked on 40+ MVNO projects throughout the US, Europe, the Middle East and Asia • Strategy and business case support including detailed cost and revenue modelling • Negotiation support for contracts and commercial terms • Vendor evaluation and selection, including architecture design • Securing funding • End to End support, including PMO and launch support (e.g. proposition development, distribution, platform deployment) MVNOs MNOs Regulators • Assessment of MVNO policy, regulation and market impact • International regulatory benchmarking and support with preparation of NRA’s regulatory licensing framework • Preparing the MVNO business case, drivers and alternative operational and commercial models • Detailed cost and revenue modelling to calculate MVNO / wholesale commercial terms • MVNO and sub-branding strategy including scenario analysis • Cost modelling to determine wholesale pricing • Identification and recruitment of wholesale / MVNO partners • Development of optimal operational and technical architecture • Internal segmentation analysis • Vendor short-list, assessment and selection Confidential Retailers
  • 8. 7Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. • Introduction to Cartesian • MVNO Market Landscape • MNO Considerations • Critical Success Factors and Conclusions
  • 9. 8Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. MVNO Market Context Globally many MVNOs have launched in the last few years to serve both mass and niche market segments General Retailer Ethnic & International Business/M2M Converged/Fixed Providers Low-Cost, No Frills Community Based Select MVNO Examples
  • 10. 9Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. MVNO Market Share Worldwide The MVNO model is established and mature in a variety of markets worldwide Sources: Cartesian, Nereo, company websites, press releases US • Total: ~10% • Tracfone (21m) South America <1% Africa <1% Oman ~11% ME <2% Virgin recently acquired by Sprint (was second largest MVNO with ~2% market share) Japan • Total: 2% • JCI (largest MVNO) Europe (representative sample, not exhaustive) • Germany, 20% • Netherlands, 14% • Norway, 16% • UK, 13% • France, 10% • Finland, 2.5% • Czech Republic, 0% Hong Kong • Total: 8% Australia • Total: 4% • Virgin Mobile • Boost Mobile
  • 11. 10Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. SMS Mobility African Activity The MVNO market in Africa is still in its infancy – however several MVNOs have rolled out or announced launch over the last five years with some degree of success Sources: PrepaidMVNO.com, TeleGeography, MVNODirectory.com, Company Releases, Cartesian South Africa • Particularly attractive International rates • Uses Cell C network • Launched in 2006 as a JV between Virgin Group and Cell C • Uses Cell C network • 400k subscribers as of August 2012 (80% prepaid) • Launched in February 2011 • Uses Cell C network • Owned by the energy drink manufacturer • Launched in 2009 • Uses Cell C network • Prepaid SIM offering discounted calls to Lesotho and Zimbabwe – ExPat offering • 500k SIMs sold as of September 2010 Senegal* • Launched March 2011 • Sub-brand of Expresso Cameroon* • “SET’ Mobile” was signing on subscribers since December 2011, and went live in July 2012 • 200,00 subscribers • Uses Orange Cameroon network Morocco • Launched December 2012 • Uses Camtel’s Network and positions itself as a data MVNO • In February 2012, state- owned postal service, Poste Maroc, announced plans to launch an MVNO – but has not yet done so African MVNOs • Plans to launch in 2013 • Mobile VoIP / OTT play Madagascar • Primarily an ISP, blueline recently launched a mobile service as an MVNO • Sonatel Group initiative, using Orange network • Launched October 2010 • No longer an MVNO, launched as a roaming MVNO on the MTN network *Note: Senegal and Cameroon has MVNOs operating as sub-brand and resellers respectively, however a full MVNO license is still not on offer from the regulators
  • 12. 11Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Trends Impacting MVNO We see a number of major challenges and opportunities for the launch of MVNOs in Africa Challenges 2 3 5 4 MVNE Infrastructure Other Barriers Distribution 1 Regulation Low ARPUs & Price Volatility NRAs Opportunities 6 Lack of Competition 8 9 10 Technology Platform Play (M2M) Key Segments Smartphones and Data 7 Big BrandsLOGO
  • 13. 12Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Barriers Regulatory issues, low ARPUs and high interconnect rates are viewed as the main barriers to launch of MVNO in Africa Lack of MNP, 2% Other, 4% High Interconnect Rates, 15% Low ARPU, 31% Regulatory Issues, 31% Lack of national consumer brands, 8% Resistence by MNOs, 9% Source: African Telecoms News Survey, Blycroft 2012 • Low ARPU is considered a significant barrier to MVNO in Africa • Regulatory issues are also perceived to be holding back the emergence of MVNO • High interconnect rates can prevent MVNOs from offering competitive off-net calling, especially as call volumes are unpredictable • Resistance by MNOs may be due to competing strategic priorities or simple fear over competition Barriers to Launch of MVNO in Africa Q: “What is the biggest obstacle to the launch of MVNOs in Africa? (173 respondents)
  • 14. 13Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. -26% Price Volatility Price volatility is also big problem for MVNOs, which typically do not have the financial reserves to engage in price wars Price Changes in Selected Africa Markets (07-11) Source: GSMA, Cartesian 19.08 15.51 14.00 13.00 11.94 11.92 10.35 9.07 7.63 7.00 7.77 4.00 8.67 4.52 4.00 5.45 0 5 10 15 20 25 AverageARPU($) 2007 2011 Prices in South Africa have also seen a very sharp decline over the last two months • Prices have fallen by as much as 26% per year in some markets • MVNO margins are usually very finely balanced – a decrease in revenue of as little as 12% (Kenya) can completely destroy the business case • One way an MVNO can protect against this is to have wholesale prices linked to a retail price index in the contract • Nevertheless, MVNOs do not typically have the financial reserves to engage in price wars • Some level of pricing stability will be required for long term success of MVNO -21% -12% -22%-8% -14% -18% -20% % = CAGR
  • 15. 14Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. MNOs need to assess the potential risk (and wholesale reward) from MVNOs entering the market MVNO Strategy Development • What is the net impact of each MVNO on customers, revenue and EBITDA? • Which partnering strategy would give the optimal return for the operator? • What operational model would best support its MVNO strategy? • Who are most likely entrants? • Which customers are they going to target? • Which would be their preferred host operator? 3 Potential MVNO Entrants • What wholesale impact would the MVNO have on: ‒ Revenue ‒ EBITDA ‒ Churn and subscriber volumes • If the operator hosted the MVNO would it gain additional wholesale business? 2 Potential Impact to Wholesale Business of Hosting MVNO • Which customer segments are at risk from each MVNO? • If the operator lost their expected share in the target segment what would the impact be on: ‒ Customers ‒ Revenue ‒ EBITDA 1 Impact to Operator Existing Business of MVNO Launching Overall Net Impact for Each MVNO Entrant
  • 16. 15Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. When considering investing, MVNO entrants in Africa should be realistic about the prospects of success and be aware of the key success factors Key Success Factors MVNO Investment KSFs 1. Ensure regulatory approval / sign-off before committing significant investment 2. Develop a compelling MNO pitch to increase chances of securing a deal 3. Develop points of differentiation that cannot easily be replicated (e.g. customer service) 4. Understanding mobile economics to negotiate a win-win commercial contract 5. Build in pricing re-negotiation and exit clauses into the contract 6. Keep the operations lean (minimise the cost base) 7. Avoid high customer acquisition costs (e.g. subsidies, giveaways, etc.) 8. Do not over invest in CAPEX intensive assets and ensure pay as you grow payment models are in place for MVNE partners 9. Use existing and / or innovative distribution channels
  • 17. 16Confidential and Proprietary — Copyright © 2014 Cartesian Ltd. All rights reserved. Descartes House 8 Gate Street London WC2A 3HP UK Two Financial Center 60 South Street, Suite 820 Boston, MA 02111 USA 8260 Greensboro Drive Suite A-30 McLean, VA 22102 USA 7300 College Blvd Suite 302 Overland Park, KS 66210 USA 400 Atrium Drive 1st Floor Somerset, NJ 08873 USA For a full copy of this report or to discuss potential areas of support, please contact: Contact Information Mike Greening Vice President mike.greening@cartesian.com +44 (0) 7739 570829 www.cartesian.com