The market is still embryonic but the outlook is positive
Typically, regional MVNOs have been the domain of existing telecoms companies keen to offer converged fixed/mobile bundles. Only last year, we started to see some interesting launches of non telecoms MVNOs. First, in late 2010 Colombian TV group RCN launched Uff, an MVNO offering cheap long-distance calls to fixed and mobile numbers in the main countries where the Colombian diaspora lives. Then, in mid-2011 we finally saw the first retailer launch, when Costa Rican electronics and furniture retailers Grupo Monge and Casa Blanca debuted Fullmovil. MNOs have finally started start to look with interest at the wholesale model, and initial figures are encouraging. For example, Uff in Colombia is already a sizeable MVNO with close to 250,000 subscribers at end-2011.
Opportunity for MVNO-led price arbitration is low
In traditional MVNO markets, such as Europe, North America and Asia, MVNOs have historically targeted the prepaid market with a low-cost proposition and then tried to move to more-affluent customers. For Latin American MNOs, the option of teaming up with low-cost MVNOs to bring price competition to other MNOs is weak. International experience shows that the wholesale business can bring to MNOs significantly higher EBITDA margins than retail, by reducing subscriber-acquisition cost (SAC) while only slightly lowering ARPU. However, in the prepaid-dominated Latin American markets, such a potential negative impact of low-cost MVNOs on already flat or declining ARPU is a major concern for MNOs. Latin American MNOs will be more interested in teaming up with MVNOs that, although helping improve EBITDA margins, can also bring additional revenues from unaddressed niches willing to use incremental airtime and data services.
Highly concentrated markets will be more receptive to MVNOs
Just looking at the top-four markets of Brazil, Mexico, Argentina and Colombia, it is realistic to expect that the comparatively more concentrated markets of Mexico and Colombia will see at least in the short-medium term more activity than the more balanced markets of Brazil and Argentina. The difference in the approach that MNOs are taking in these four countries toward MVNOs is in the first instance dictated by local competitive dynamics. Players other than dominant incumbents tend to be more open and proactive in negotiations with MVNOs in an effort to shift even marginal market share to their networks. It is therefore not surprising that VMLA already has an agreement in place in Mexico and Colombia, with second-placed operator Telefonica. In Mexico, for example, distant second-placed Telefonica has struggled for some time to target high-value data customers through its Movistar brand. Using the Virgin Mobile brand represents a viable alternative option to target the growth segment of young data users.
There is scope for regional MVNOs
Brazil and Argentina have more-balanced national markets than Mexico and Colombia, but in these countries, as much as in Mexico and Colombia, the competitive landscape varies significantly depending on the geographical area. Regional differences might provide an opportunity for local MVNOs, as MNOs seek to gain market share in specific areas. The launch of the MVNO Nuestro in 2009 by Argentinean operator Personal is an example of this strategy. The operator, which led the market in the north of the country, needed to gain market share in the south, where Claro was strongly positioned. It therefore established a MVNO partnership with a local fixed-line local operator, the Federation of Southern Cooperatives, which was eager to add mobility to its bundles.
MVNOs should address the long-distance market to reach the Latin American diaspora
Several emerging Latin American economies, including Brazil, Mexico and Colombia, have negative net migration rates. The offering through MVNOs of low-cost international calls to nationals with family or friends living abroad shows some strong potential. This model, which has been successfully debuted by Uff in Colombia, also has the potential to target add-on services, such as international credit transfers. Especially in Mexico and Brazil, where internal migration to economics hubs is significant, there is also an opportunity for national long-distance MVNOs, for example targeting the large North-Eastern community living in the urban areas of Sao Paulo and Rio de Janeiro. The viability of this kind of national long-distance MVNO is however challenged by the high mobile termination rates (MTRs), which remain an important revenue generator for MNOs in all Latin American markets.
Pricing will be crucial to the success of higher-value data MVNOs
In addition to the well-known benefits of the MVNO model, higher-value data-focused MVNOs can also help provide incremental revenues to offset declining ARPU. Finding the correct pricing levels and models, however, is a tough task. As in the case of Virgin Mobile in Latin America, data MVNOs will be eager to add smartphones to their data plans, but without subsidies it will be tough to meet customer demand for smartphones at the right price. At the same time, MVNOs must be able to negotiate good wholesale rates from MNOs for the data they then sell at retail. In the retail market, MNOs are moving away from flat rates and toward models whereby they charge by actual data consumption, by time or by access to selected apps. MNOs themselves are still struggling to find efficient ways to price data services in the retail market. When it comes time to negotiate wholesale data prices, MVNOs face the risk of remaining stuck with unfavourable conditions, which could ultimately jeopardize their business model.
Inevitably, competition, concentration and regulation but also socio-demographic trends, such as the proportion of the youth population and migration rates, will determine the extent to which the MVNO model will be feasible in each country. What is clear is that across the region there is significant potential for the development of higher-value MVNOs, whereby value is created by niches of users willing to increase their spending to receive highly relevant services, be it data services or better value long distance calls.
A more detailed version of this analysis is available on Informa Telecom & Media’s Americas and Mobile Operator Intelligence Centre.
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