middle east and north africa: the next growth market for mvno?

MENA

The Next Growth Market for MVNO?

By Michael Dargue and Tim Heal

The emergence of MVNO in the Middle East & North Africa has been slow in comparison to Western

Europe and other global markets. However, recent regulatory developments in key markets are

creating new openings. Significant opportunity now exists for mobile operators and other businesses

to gain first mover advantage while the MVNO market is nascent.

April 2012

Cartesian: MENA – The Next Growth Market for MVNO?

Copyright © 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved. 1

MENA Mobile Market

Mobile markets in the MENA region have reached or are approaching saturation. Four countries are

expected to reach over 200% penetration by 2015: UAE, Qatar, Saudi Arabia and Oman. Such hyper

penetration correlates with a downward ARPU trend as users split usage across multiple SIMs.

Price competition in the region has also had an impact on decreased voice spending. Operators are

cognizant of future pressure on margins due to increasing competition from potential new entrants, and

the continuing predominance of the prepay segment.

Figure 1: Mobile Penetration Forecast for Top Four Markets 1

Once market saturation is achieved, MENA mobile operators will increasingly turn towards additional

products and services to drive revenue growth. MVNO is a potential revenue growth strategy, especially for

those operators seeking to improve market share in specific customer segments. MVNOs can bring

experience and capabilities in acquiring and addressing the needs of these segments.

Many MNOs across the region are still to define their position with respect to MVNO. A strategic assessment

of the threat and opportunity is required to determine the optimum proactive, reactive or defensive stance.

MVNO Developments in MENA

To date, MVNOs have been relatively limited in number across the MENA region. However, some markets

have seen multiple MVNOs launches, principally Turkey, Israel, Morocco and Oman.

In Turkey, Avea has brought on various partners under the branded reseller, or “pre-MVNO” model; for

example Fenerbahçe, the Istanbul-based football club. True mobile wholesale (i.e. “light” and “full” MVNO)

is not yet available in Turkey due to on-going regulatory considerations on wholesale pricing, but models of

deeper MVNO / MNO integration are expected to emerge soon.

1 Company Reports; Cartesian



Following on from regulatory action taken in 2007, a number of MVNOs have already launched in Israel.

MVNOs are forecasted to eventually account for 5% to 10% of the mobile market,2 which would make Israel

one of the more advanced countries for MVNO in the MENA region.

In Morocco, the state-owned postal service plans to launch the country’s fourth MVNO towards the middle

of this year, and has contacted the mobile operators to request a wholesale pricing offer.

As a final example, the MVNO model which has seen the highest level of success in the region is Oman; the

Ministry of National Economy released figures last year indicating that MVNOs had acquired over 500,000

subscribers by June 2011, representing 12% market share.

Figure 2: MVNO Activity across MENA Region3

Regulation

The dominant factor driving activity (or lack thereof) has been the timing and extent of regulation. While

some countries have not declared any short or long term intentions to evaluate the introduction of MVNO

into the local market, other Telecommunications Regulatory Authorities (TRAs) are pushing ahead with

MVNO regulation. Two recent examples of the latter include Egypt and Saudi Arabia:

(1) The Egyptian Communications Minister recently announced that the first tender for MVNO

licenses would be issued by the end of March 2012, where Telecom Egypt is expected to bid. This

has now been delayed and is expected in May 2012.

2 Wireless Intelligence; Israel Regulator (MoC) 3 Telecommunications Regulatory Authorities; PrepaidMVNO; Press releases; Zawya; Cartesian

Saudi Arabia

Egypt

Oman

Yemen

Iran

U.A.E.

Qatar

BahrainKuwait

Iraq

SyriaLebanon

Libya

Turkey

Jordan

Israel

June ’10

2009 2009 2009 2009

2010Oct. ’10

Turkey

LibyaPhone

Jan. ’11

MVNO

Brand License Model

Sub-Brand

Key

April ’09

July ’09 Sep. ’10

May ’09 Oct. ’10

Nov. ’09

Oman

Licensed Licensed

T2T Comms

Home Cellular

Licensed

Ituran

3Q11

Rami Levi

Israel

Additional potential MVNO entrants have been licensed by the Israeli regulator.



(2) In Saudi Arabia, the Communications and Information Technology Commission (CITC) launched a

public consultation on MVNO licensing in January 2012, and announced plans to issue the first

three MVNO licenses later in the year.

The extent of regulation also varies, for example, the maximum number of MVNOs permissible at any one

time: At one end the Jordan TRA has imposed no limits to the number of MVNOs; at the other end, in Saudi

Arabia, the recently released CITC consultation document proposed that only one MVNO could be hosted

per MNO.

Finally, players should also consider the importance of regulation post launch. The recent closure of Virgin

Mobile Qatar demonstrated consequences of failing to maintain alignment with the TRA.

Potential MVNO Models

Looking globally there is a range of MVNO models, some of which have demonstrated greater success than

others. In particular, the retail and ethnic MVNO models could be attractive options in MENA.

Figure 3: Examples of MVNO Models

Retailers have favourable MVNO economics through existing distribution networks and logistic partnerships,

high footfall, and often strong brand presence. Internationally, some retailers have nudged up core business

revenues by integrating mobile into innovative loyalty propositions.

Globally, ethnic and international calling MVNOs have been effective in capturing market share in migrant

segments. Significant migrant populations exist in some MENA countries, in some cases outnumbering the

nationals (for example, more than 80% of the UAE’s 8 million people are expatriates). Some MNOs such as

Du in the UAE have already launched ethnic-focused propositions, but there is still a sizeable opportunity

for MVNO entrants. Such asymmetries also create opportunities in roaming, as well as other services such

as international remittance.

General Retailer

Ethnic, International & Roaming

Business/M2M

Converged / Fixed Providers

Low-Cost, No Frills

Community Based

Select MVNO

Examples



In addition, M2M MVNOs are expected to drive growth in subscribers and revenue. Requirements for

remote security are common in the MENA region, and the level of industry creates opportunity to reduce

costs through M2M-enabled distributed automation and control.

Finally there are is opportunity for MVNOs to develop differentiated propositions targeted focussed on

business customers, from SME to Large Enterprise and MNC, although this segment is much harder for

MVNOs to compete where significant price discounting is the norm for larger accounts

Key Considerations for Entrants

For MNOs, the emergence of MVNO requires a strategic response. A successful MNO strategy will capture

opportunity from MVNO entry while mitigating new competitive threats.

Potential MVNO entrants need to understand the justification for launch. A key question is whether the goal

is to: a) capture telecoms revenues, or b) drive revenue uplift to the core business.

Partner selection and assessment is of key importance to both parties. Entrants will need significant support

from the host MNO, requiring a collaborative and viable pitch and proposition to address gaps in the MNO’s

existing business.

Those seeking international expansion opportunities will have to consider their entry strategy carefully.

There is wide variation in local market characteristics across the MENA region; business models,

propositions, brand and customer segmentation will all have to be analysed and tailored.

Cartesian Experience and Support

Cartesian has deep experience in assisting MNOs, MVNOs and regulators achieve their objectives. We have

worked on over 40 MVNO engagements globally and can support across a number of areas, including:

Strategy and business case support, including detailed cost and revenue modelling

Negotiation support for contracts and commercial terms

Securing funding

Vendor and partner identification, evaluation and selection

Assessment of MVNO policy, regulation and market impact

Cartesian is a specialist consulting firm of industry experts, focused exclusively on the communications,

technology and digital media sector. For over 20 years, Cartesian has advised clients in strategy

development and assisted them in execution against their goals. Our unique portfolio of professional

services and managed solutions are tailored to the specific challenges faced by executives in these fast-

moving industries. Combining strategic thinking and practical experience, we deliver superior results.

www.cartesian.com

For further information, please contact us at [email protected]