The Future of MVNOs - Informa Telecoms & Media

Informa, however, believes that for Latin AmericanMNOs the option of teaming up with low-cost MVNOsto bring price competition to other MNOs is notparticularly attractive. In the prepaid-dominated LatinAmerican markets, the potential negative impact oflow-cost MVNOs on an already flat or declining ARPUis a major concern for MNOs. Latin American MNOswill be more interested in teaming up with MVNOsthat, although helping improve EBITDA margins, canalso bring additional revenues from unaddressedniches willing to use incremental airtime and dataservices (see fig. 4).Fig. 4: Selected operators, EBITDA margin, 3Q11Margin (%)50403020100Movistar(Argentina)Claro(Brazil)TIM(Brazil)Source: Informa Telecoms & MediaTelcel(Mexico)Informa also believes that pricing will be crucial to thesuccess of the higher-value data MVNOs. In additionto the well-known benefits of the MVNO model,higher-value data-focused MVNOs can help provideincremental revenues to offset declining ARPUlevels. Finding the correct pricing levels and models,however, is a tough task. As in the case of VirginMobile in Latin America, data MVNOs will be eagerto add smartphones to their data plans, but withoutsubsidies it can be challenging to meet customerdemand for the devices at the right price.At the same time, MVNOs must be able to negotiategood wholesale rates from MNOs for the data they thensell at retail. In the retail market, MNOs are movingaway from flat rates and toward models where theycharge by actual data consumption, by time or by accessto selected apps. MNOs themselves are still strugglingto find efficient ways to price data services in the retailmarket. When it comes time to negotiate wholesaledata prices, MVNOs face the risk of remaining stuckwith unfavorable conditions, which could ultimatelyjeopardize their business model.Orange(France)Vodafone(UK)AT&T(US)Triple play will remain amajor MVNO driverChallenging fixed-line operators and ISPsshould exploit the MVNO model to develop morecompetitive offeringsMost of the early Latin American MVNOs have been drivenby the opportunity to offer fixed/mobile bundles, especiallyin the most concentrated markets, such as Mexico andColombia (see fig. 5). It is not a coincidence that despitethe absence of a full regulatory framework, both Movistarin Mexico and Tigo in Colombia have taken advantage ofexisting rules allowing telecoms services to be resold tobuild MVNO partnerships with ISPs and cable players. Toerode shares of strong competitors in their respectivemarkets, Movistar and Tigo have established MVNOswith fixed operators looking to add value to their bundlesof voice, TV and Internet service by including mobility.Movistar was the first to pursue this strategy, when itteamed up with Maxcom at the start of 2008. Similarly, Tigoin Colombia has partnered with ISPs UNE EPM and ETB tooffer mobile broadband services to contract customers.For the foreseeable future, Informa expects alternativeISPs, especially in the most unbalanced fixed-linemarkets, to retain a strong interest in the MVNOmodel with the aim of increasing customer loyaltyFig. 5: Brazil, Argentina, Colombia, Mexico, marketshare and concentration, 3Q111009080706050403020100Market share (%)America Movil Telefonica Millicom Telecom ItaliaTelecom Personal Oi Others*BrazilArgentinaConcentration: Herfindahl indexColombiaMexico0.25 0.32 0.51 0.54Notes: The Herfindahl index is defined by the sum of the squares of themarket shares of all firms in the market, where the market shares areexpressed as fractions. An index below 0.01 indicates a highly competitivemarket. An index below 0.15 indicates an unconcentrated market. Anindex between 0.15 and 0.25 indicates moderate concentration. An indexabove 0.25 indicates high concentration. *Nextel, CTBC and Sercomtel InBrazil; Iusacell and Nextel in Mexico; and Nextel in Argentina. TelecomItalia owns 22.9% of Telecom Personal in Argentina.Source: Informa Telecoms & Media6© 2012 Informa UK Ltd. All rights reserved. www.informatandm.com