The world of virtual networks: Effortel seeks to enter African market with an MVNO offer
Africa is in two minds about MVNOs: on the one hand, they seem to have taken root in South Africa but elsewhere they provoke nervous reactions from other market players. Mobile Virtual Network Operators (to give them their full name) are the natural next step, particularly in those markets that are highly competitive. MVNOs suit mobile operators who are struggling to gain market share: the MVNO helps build growth and increases the financial contribution to paying off CAPEX. For the investor, an MVNO in the African context probably suits someone who already has a niche customer base, whether a financial institution or a retailer to a diaspora community. Russell Southwood spoke to Effortel’s CEO Arkadi Panitch about why he’s looking at Africa for new MVNO growth.
Effortel’s CEO Arkadi Panitch worked at Orange in marketing before he launched his own company. One of his tasks at Orange was to look into what strategy the company might put together to engage with the idea of MVNOs for the low cost end of the market. He suggested forming a partnership with various retail chains including the French-owned Carrefour. The idea proved to be too “off-the-map” for Orange thinking at the time so Panitch took the idea and formed his own company to do it.
The idea took time to take off but one day he got a call from Carrefour from someone who said:”Let’s talk about it.” Carrefour had reached a point where the sales of food and non-food goods in its outlets was levelling off. So it was looking for services which it sell through its retail outlets. The obvious initial service for all supermarkets was finance, to help customers buy more. But selling pre-paid mobile services also fitted in nicely. It had obvious revenue benefits and less tangible benefits like building brand loyalty.
The essence of the deal was that Effortel provided the telecoms experience and Carrefour did the retail part. According to Panitch:”We brought them the product and made sure that the interface with the mobile operator worked, managing customer care, sales care, back office and part of front office.” The service is branded and Effortel delivered it for Carrefour Belgium with the Dutch group KPN which has a mobile operation in that country.
From the mobile operator’s point of view, it’s about having somebody working with you on developing revenues who knows what they’re doing. Most African mobile operators offer a bewildering array of pre-paid offers but not all have the resources to chase niche markets successfully. As Panitch observes:”It may not fit into their existing processes. They are geared to do mass markets and are focused on managing this. It’s a bit like asking VW to start building customised cars.”
So from the African mobile operator’s point of view it’s about the ability to add business at minimum cost:”They don’t get the retail revenues but they do get wholesale revenues help to cover CAPEX. It’s a pure financial contribution.” Effortel has five MVNOs in four countries – Belgium, Poland, Italy (targeted at a diaspora community) and Taiwan – and has had over 600,000 activations.
”A lot of the customers came from the number one operator and lot from the south of Belgium where KPN was weak. The combination of these two things have made it a good fit for KPN.”
It will best suit an operator who is trying to develop market share who understands the need to outsource business:”It could be the number 3 or 4 operator in a market and they need to fill their network with business and are starving for traffic. Incumbents tend to react defensively and fear cannibalisation. Or they say, we can do it ourselves. Vodafone in Italy decided they wanted to be the best in the business so decided to outsource. But they are the exception rather than the rule.”
The breakeven point for an MVNO operation is quite low in the right circumstances: “Depending on ARPUs and airtime margins, it can be anywhere between 60,000-100,000 subscribers. ARPUs in Taiwan are US$6-7 and those in Belgium are slightly higher than that”. At a global level, MVNO subscribers represent 5% of the market and in some markets take as much as a 15% share.
So what’s the attraction of Africa?:”It’s a huge continent with a lot of possibilities for MVNO business. In Europe, it’s more difficult because operators want to do everything themselves. There are more possibilities in Africa where it will cost less money to start up.”
The best investor candidates will be those who are already running a service business in a niche segment:”For example, it might involve Lebanese or Indian communities where the investor already has clients and it becomes an incremental investment.” The investment needed is in the order of US$0.5 million and in the operations so far launched Panitch says that the payback has come in under a year.
In June last year there was a new story announcing that Kirene, a mineral water brand in Senegal was launching an MVNO with Orange Senegal. This was followed by very rapidly by a communiqué from the regulator ARTP saying that the Kirene offer was not an MVNO (simply co-branding) and that the country’s regulatory framework could not accommodate MVNOs.
Two things are happening that favour MVNOs: firstly, there is intense competition in more liberalised markets and those making less speedy progress need all the help they can get; and secondly, within three years, growth slow down in some markets and operators will need to come up bright new ways of pulling customers away from competitors.