VIRGIN PLANS US$123 MILLION INVEST IN SOUTH AFRICAN OPERATION

Telecoms

Richard Branson’s Virgin Group is going big. The company, whose well-known brands include Virgin Atlantic, Virgin Active and Virgin Megastores, plans to step up its presence in SA dramatically in the next few years.

First on the cards is an investment of more than R750m (US$123 million) in establishing Virgin Mobile, a virtual cellular service provider, in partnership with Cell C.

“If we get the strategy right,” says Virgin Mobile CEO Sajeed Sacranie, “then, within two or three years, Virgin will be in mobile phones, financial services, health clubs, retail, and possibly even low-cost airlines. We consider SA to be a very important market.” It’s on cellular telephony, though, that Virgin will be focusing much of its attention in the short term.

Virgin Mobile, which already has operations in the UK, Australia, the US and Canada, will invest millions of rand in new infrastructure — billing systems, a contact centre and retail outlets. Millions will also be pumped into customer acquisition programmes and advertising and marketing. In fact, Sacranie says this will form a large portion of the planned R750m investment.

The advertising campaign will, however, be targeted. In a dig at MTN and Vodacom, Sacranie says: “Virgin does not just throw money away. We are not trying to own summer. Our approach is very targeted. The way we will create our brand equity is through experiential stuff rather than big yellow or blue and green banners.” Virgin Mobile will employ about 450 staff in SA. Most of these people will work in the contact centre as well as a dozen or so retail stores in the cities.

Consumers will be disappointed to hear that Virgin Mobile has no intention of engaging in a price war with the incumbent operators. However, Sacranie promises that its prices will be “competitive” and that service levels will be the best in the industry. He says SA’s network operators have not paid sufficient attention to customer service. He believes this opens a gap for Virgin to lure away dissatisfied users.

When mobile number portability is introduced — at the end of June, around the same time that Virgin Mobile hopes to launch — it will have a noticeable impact on churn in the industry, Sacranie says. “We will do everything in our power to mitigate the pain [of moving to Virgin].”

Virgin Mobile’s business model is not predicated on number portability, though, he says. It will simply add a “lubricant” to the market. “It’s a brilliant opportunity for consumers to shake the shackles off.”

Service levels in SA are “pretty inadequate — and I’m using an English euphemism there”, Sacranie says. “Consumers want more and the larger enterprises aren’t delivering it. We know Virgin will be able to deliver. We do not have the legacies [that the other operators] have to cope with. Some of the large and respected players in the market . are encumbered by an enormous infrastructure and legacy which will slow them down.”

Within five years, Virgin Mobile wants to have secured 10% market share. That would put it roughly on par with Cell C’s share of the market.

Despite the partnership with Cell C, which Sacranie describes as “very strong”, Virgin Mobile regards the network operator, SA’s third and smallest, as a direct competitor.

The deal with Cell C is similar to agreements that Virgin Mobile has reached with mobile carriers in the other markets in which it operates. In the UK, it piggybacks on T-Mobile’s network. In the US, it uses Sprint. In Australia, it has a deal with Optus. “It’s a partnership of infrastructure, not of anything else,” Sacranie says of Virgin Mobile’s relationship with Cell C. “The Cell C brand is entirely separate to ours. You will not see the Virgin and Cell C brands next to each other anywhere. That is a categorical statement. We are competitors.”

Other than its own retail outlets, Virgin Mobile will sell its products through third-party retail stores, including New Clicks’ Musica chain. It will not use mass-market retailers as the brand would not “not sit comfortably in that environment”, Sacranie says.

The company will adopt an approach similar to the model it adopted in the UK, where it initially started selling its products only through its own music retail outlets. “That gave us a footprint of about 250 retail stores in the best possible UK high streets. Later, we also sold [our products] through Carphone Warehouse, and other major retailers of mobile phone services.”

Virgin Mobile will target both the postpaid and prepaid segments in SA, though the company won’t go after the mass market of prepaid users — those who spend relatively little on telephony. Rather, it will go after customers who tend to place more telephone calls than they receive. “We are going to target average to above-average users of cellphones,” Sacranie says.

Though it won’t dramatically undercut the call charges of the other operators, the company will reward customers’ loyalty, particularly by giving them easy access to other Virgin brands, including Virgin Active and Virgin Atlantic.

Sacranie stresses, however, that Virgin has no intention of creating a loyalty scheme. “It’s not about that. It’s about ease of use and ease of access.”

It’s all about creating a broad Virgin experience that will make consumers feel good about the brand, Sacranie says. Go to the gym, for example, and you could have your phone charged while you work out. Or someone might show you how to set up your phone to receive e-mail.

Virgin Mobile will also create a strong association with music. “We will use music to reach our customers and we will reward our subscribers with access to great music.”

Sacranie says that Virgin Mobile could introduce the V Festival, or a similar such event, to SA. The V Festival, often simply referred to as V Fest, is a popular music event held annually in the UK. He also hints that Virgin could launch its Megastores retail chain in SA at some point.

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