Finding the niche for MVNOs in Latin America

Jose F. Otero, Signals Telecom ConsultingDuring the last several years, the telecom industry's perception of mobile virtual network operators (MVNOs) has evolved gradually. At first, MVNOs were characterized as detrimental to the growth of traditional mobile service providers, since they represented additional competition. Since then, market constraints and the search for new revenue sources are allowing for a more favorable view for MVNOs. These days, they are perceived as being complementary to the host mobile network operator's (MNO's) services, as well as providing an additional revenue source. But even so, the lion's share of MVNOs that have emerged these past few years are in Western Europe or Asia Pacific. Are they viable in Latin America?

In 2002, I authored the report "MVNO Opportunities in Latin America," which recognized that a 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 pioneer MVNO, Bolivia's Cotas Movil, unsuccessfully tried to acquire its own spectrum in order to free itself from the strong constraints imposed by its contract with Nuevatel. Ultimately, the operator decided to end its mobile offering. This example highlights the difficulties of launching a mobile virtual network operator in Latin America, where more markets lack a specific legal framework regulating the MVNO market dynamics. Signals highlighted that, as of 2Q10, Chile was the only country in the region with an approved MVNO specific regulation. Brazil is just the second market that has moved forwards towards the implementation of regulatory parameters that could ignite the emergence of MVNOs.

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.

Latin America Commercial MVNOs 2010

The emergence of MVNOs in Latin America and the Caribbean has yet to be driven by corporations with established brand names in other industries but by telecom operators seeking to become "full service providers"--as Telsur did in Chile and Maxcom in Mexico.

Latin America's unique business characteristics force the review and "latinization" of the current MVNO business models being implemented in other regions of the world. Traditionally, MVNOs in Western Europe and Asia Pacific have been mostly 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. The key ingredient for the success of this type of MVNO is the brand of the company launching services. But, brand awareness does not translate into success as proven by Virgin Mobile Singapore. It will be highly unlikely that well-established brands like Goya, Inca Kola or Pitú will be able to launch successful MVNOs targeting the consumer market.

The main barrier faced by potential MVNOs entering Latin America 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.

Latin America's mobile landscape presents many of the maladies affecting their Western European counterparts--decreasing ARPU, saturated markets, regulatory constraints, etc. But the region also has its own set of problems: income disparities, economic slowdown, lack of spectrum capacity, etc. These factors will limit the number of viable brand-based MVNOs, as the potential addressable market may not justify the investments--especially for voice services targeting the individual consumer. 

But, in the middle of this turmoil one thing that is certain is that the current economic slowdown affecting the region will continue to deter investors that otherwise would contemplate entering a partnership with a mobile service provider to launch service using an MVNO model. This unexpected filter will allow for three main waves of MVNO surge in the region: a first wave, which started with Cotas Movil in Bolivia, characterized by telecom operators interested in enhancing their service portfolio. Then, a second wave driven by non-telecom players--usually companies with a respected and highly recognized brand name--that have identified an opportunity for offering MVNO services to a specific market niche that promises above average returns. And finally, a third wave driven by the future emergence of MVNEs that will allow large national companies in countries such as Argentina, Brazil or Mexico to launch their MVNOs for internal mobile communications and/or M2M applications, potential candidates being Brazil's Petrobras or CVRD, Argentina's YPF or Mexico's Cemex. While these phases start to take shape, as of 1Q10 there were more than 20 companies committed to enter the mobile marketplace by launching their own MVNO like Fecosur in Argentina (scheduled to launch by August 2010) or 3 Genesis in Chile (scheduled to launch by year-end 2010).

Jose F. Otero, President and founder of the international consultancy Signals Telecom Consulting, is a monthly columnist for FierceTelecom writing about the Latin American telecom market.

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