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More than ten years ago I authored the report “MVNO Opportunities in Latin America,” which recognized that the traditional voice-centric model for MVNOs was not going to be successful in Latin America. It also said that mobile operators looking for alternate revenue sources should be open to the idea of allowing data-centric MVNOs that won’t cannibalize their core business-subscriber base. Since then, Latin America’s first MVNO, Bolivia’s Cotas Movil ended its mobile operation. The operator explained that its decision was based on its failure to secure spectrum from the authorities and draconian conditions imposed by its MNO that impeded the healthy growth of its mobile subscriber base. Since then, most Latin American MVNOs have been launched by established telecommunications operators (UFF in Colombia being the most relevant exception) to include mobile services into their service portfolio.
Everybody understands that a MVNO is defined as a company providing mobile subscription services under its own brand name without having a spectrum license. To bypass this requirement, MVNOs lease spectrum from authorized spectrum license holders (i.e., mobile operators or MNOs) that are seeking to maximize their own spectrum usage. MVNOs are known as ‘the next-generation resellers,’ because they may offer their own value-added services, customer care, billing and SIM cards. MVNOs also present an attractive proposition for MNOs, because they provide incremental revenue to mobile service providers by maximizing RF spectrum capacity and by increasing the attractiveness of the service value chain.
This maxim holds especially true with new entrants and market-lagging operators looking for new ways to increase their network traffic and revenue. But, leaving aside what the theory says about the value of virtual operators, the real game for parties interested in this business model includes dealing with spectrum caps, delayed mobile spectrum auctions, and more importantly the lack of regulatory clarity about the role of MVNOs as mobile service providers. For example, how can a private operator convince a mobile operator in Argentina to host a MVNO on its network when there’s a 50 MHz spectrum cap and the last mobile spectrum auction took place more than 10 years ago? Of course, some may point out the presence of Nuestro Movil on this market but this small MVNO is a delusion created to comply with a political promise to the country’s cooperatives, lacks a clear business model (beyond voice), and since its launch in 2010 hasn’t been able to secure 25,000 mobile subscribers.
Many MVNOs in Western Europe and Asia Pacific have been launched by non-telecom players, which serve as aggregator to the value chain by launching mobile services with specific value-added services targeting a specific segment of society. There two key ingredients for the success of these MVNOs: 1st is the business plan, and 2nd is the brand of the company launching services. But, brand awareness does not translate into success as proven by the demise of Virgin Mobile Singapore or the MVNOs launched by ESPN and Disney in the United States.
Going back to Latin America, it’s highly unlikely that well-established brands like Goya, Inca Kola or Jumex will be able to launch successful MVNOs targeting the consumer market. On the other hand, the door is open for retail providers like Pao de Acucar, Disco or Falabella to successfully launch a MVNO that complement’s their core business: add value and act like a bonus points’ service.
Signals Telecom Consulting has mentioned in numerous occasions that the main barrier faced by potential MVNOs entering Latin America and the Caribbean is the high level of mobile saturation already reflected in most markets. This constraint is more present on the AB quintiles of the economy where the strata’s addressable market is fully saturated. As a result, MVNOs targeting the AB segments of society will: a) experience high subscriber acquisition costs, b) target subscribers from established mobile service providers including the host MNO, and c) have to be able to sustain competitive countermeasures such as price wars from established operators. Furthermore, the region also presents obstacles such as increasingly saturated mobile markets, income disparities, low ARPU, economic slowdown, and lack of spectrum capacity (due to spectrum caps), among other.
All these factors must be considered when launching brand-based MVNOs as the potential addressable market may not justify the investments, especially when the growth expectations are vastly overstated. Just to mention a few examples, several companies targeted migrant communities in the United States or Europe (e.g. Digicel, UTS, Salinas Group) hoping that their brand and/or knowledge of target market segment would be enough to attract subscribers. Unfortunately, these companies were wrong and eventually closed their operations. Other companies like Uruguay’s Antel and Argentina’s Personal shelved their mutual MVNOs projects to opt for better international roaming relations with each other.
After this brief summary of Latin America & Caribbean MVNO marketplace, one thing is clear: there’s a lot of overhype and optimism about the role that MVNOs will play in the region. It’s necessary to understand that they are necessary complements to promote innovation and growth in the telecom sector, but they are not going to gain high levels of market share nor will they promote infrastructure investment in rural areas and they will target high income demographics.
Under this scenario, regulatory authorities must take measures to promote the proliferation of virtual operators. On the other hand, the private sector must try to understand the real growth prospects of MVNO taking into consideration that mobile subscriber acquisition costs are not low and that MNOs would try to retain their most profitable clients. That said, Signals Consulting considers the claim by any potential MVNO of securing 8% to 10% market share in one of the largest seven telecom markets in the region after five years of operation to be almost impossible to achieve unless the virtual operators decides to invest hundreds of millions of dollars in handset (e.g. smartphones) subsidies to gain subscribers.
Jose Otero is president of Signals Consulting. Follow him on Twitter (@Jose_F_Otero) or email him at info@signalstelecom.com.
