DUBAI — Mobile virtual network operators (MVNO) could emerge in some Middle East countries over the next three years, despite the fact that they lag behind the West, notably the US, the UK and Denmark, in providing a framework conducive for the existence of such operators, said Karim Sabbagh, a vice-president of management consultant, Booz Allen Hamilton.
Speaking at the TelecomsWorld convention recently held in Dubai he said: "In the region, and looking over a three-year perspective, different countries have varying degrees of MVNO attractiveness along different dimensions."
The countries most likely to see the entry of MVNOs in the future are Oman, Qatar and Bahrain, which display a greater level of regulatory maturity — especially Bahrain, and market competitiveness — notably Oman, which introduced a second mobile operator in 2005.
In mature telecom markets the presence of MVNOs is becoming commonplace where there are high levels of mobile penetration, strong competition and an open and supportive regulatory environment.
An MVNO is a mobile operator that does not own its own spectrum and usually does not have its own network infrastructure. Instead, it has business arrangements with traditional mobile operators to buy minutes of use for sale to their own networks.
There are three types of business models with different objectives and implications for traditional mobile network operators (MNOs). There is the brander reseller MVNO that repackage MNO tariffs and services; no-frills MVNOs that leverage low cost avenues of distribution; and fixed mobile convergence (FMC) MVNOs that combine mobility with fixed services. Successful examples of MVNOs are Virgin Mobile in the UK, Telmore in Denmark and Airtel in India. Sabbagh said that the international mobile market is experiencing a proliferation of MVNOs, with 233 planned or in operation by next year. This figure is expected to grow by another 39 per cent, to reach a possible 350 in coming months.
Not all MVNOs are successful however, namely Virgin Mobile in Singapore, Shell in Hong Kong and DingoBlue in Australia — the latter two shutting down after five months and three years respectively. Sabbagh said that MVNOs in emerging markets could draw important lessons drawn from the experiences of MVNOs in mature markets. The success of Heyah in Poland which targeted Polish youth and offered attractive pricing, and the failure of Virgin Singapore whose business proposition was unclear, shows the importance of an operator having distinct positioning with a clear value proposition, he said. The power of branding, access to an addressable market, employing an effective and detailed business case, making the most of first mover advantage and forming strategic partnerships were all important to ensure success in the chosen market.
However, achieving success in emerging markets may not be as straightforward, said Sabbagh, "but the potential future growth may be substantial," he said, naming China, India and Indonesia as markets that stand out. In mature markets operators must understand the drivers to grow subscribers and capture opportunity; have an excellent understanding of their customer base and understand and utilise branding and marketing exposure. While in emerging markets the availability of some of this information is limited, especially about customers, there is the advantage of limited customer stickiness and opportunities for "niche plays".
But it is ultimately the competitive environment that will shape the success of the MVNO play, said Sabbagh, particularly where there is limited competition and the incumbent dominates. "We define the most attractive or most competitive markets for an MVNO to enter are those where the dominant operator has a lower market share," he said. While such a situation may not emerge in the UAE, it may do so in say Saudi Arabia.
Sabbagh said "the emergence of MVNOs would prove inevitable" in markets where niche demand exists; where at least one MNO is not comfortable with its market share and wants to grow; where there are attractive margins suggesting potential for arbitrage; where demand for converged propositions exists and fixed incumbent and mobile players are structurally separated and competition does not meet regulators' expectations.
The rise of the MVNO in the region is also bound up with Sabbagh's argument that although the Middle East has been later than other regions to undertake the process of deregulation, the process is now moving faster than other regions, such as Europe. "Late liberalisers typically are under pressure to make a rapid transition and the liberalisation path is facilitated by the experience of those who preceded them," he said. Bahrain is a good example of a country that liberalised late but then had a relatively quick period of deregulation.
The reasons for this are threefold, said Sabbagh. Latecomers to liberalisation are faced with more pressure from trading partners to liberalise; laggards are pulled more strongly by the momentum of the global trend of liberalisation; and as more countries go through liberalisation, late liberalisers have the benefit of a much richer experience to draw on in drafting laws and regulations and setting up regulatory institutions.
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