Make way for the virtual operator – again

A new virtual mobile operator arrives in South Africa this week, addressing a growing need in the market. But it’s not the same story all over again, writes ARTHUR GOLDSTUCK.

It’s a decade since South Africans were introduced to the concept of the mobile virtual network operator, or MVNO, but the country has yet to experience the benefits of the model.

Virgin Mobile, which piggybacks on the Cell C network, buying airtime and data wholesale and repackaging it, launched on a promise of both simplifying the packages and cutting costs. Ten years later, it has gravitated closer towards the positioning of the major operators than to the maverick role it initially envisaged.

Its inability to make a dent in the market – although that was not its primary mission – deterred other potential MVNOs for the next ten years. Now, finally, new entrants are emerging one by one. Mr Price was first major player to raise its standard last year, with MrP Mobile, offering four devices on contract.

And a new MVNO opens its doors or, rather, its website, this week.

Called me&you mobile, it is described by CEO Brett Howell as “South Africa’s first SIM-only network”, and will be a “100 per cent ecommerce, online solution”. More significantly, it will offer voice calling rates as low as 39c a minute. Contracts will be month-to-month, and will not include bundled handsets.

The packages starts at R50 bundles with calls costing 69c a minute, going up to R500, with calls costing a mere 39c. The only other operator’s rate that remotely competes is Telkom’s 29c rate for calls within its own network. me&you mobile’s rate applies across all networks. An unlimited voice-calling bundle, which excludes access to data and SMS access, costs only R300.

Add-on data bundles price data at 25c per Megabyte up to 500MB packages, dropping to 15c per Megabyte for any bigger bundle.

The voice rates in particular raise a key question: how can an MVNO undercut even the operator that is providing it with network access?

It’s a result of a few things that line up nicely for us,” says Howell. “Being an MVNO, we don’t have infrastructure overheads. We are online only, so we don’t have stores. We’re not planning massive above-the-line marketing campaigns, which cost a lot of money and have an impact on what the consumer pays.

Crucially, he says, the flexibility of not having the handset cost built into the tariff allows the virtual operator to offer a lower voice rate, as well as the ability for customers to change their deals on a monthly basis.

It all seems like an obvious approach, but the key to the success of such models is a customer management and billing system that leverages a conventional operator’s network without being hamstrung by its legacy systems. Enter MVN-X, a company started by the former CEO of Virgin Mobile SA, Steve Bailey, specifically to address this need. It provides the platform on which MrP Mobile operates, and will also facilitate the operations of me&you mobile.

MVN-X is a subsidiary of the Ignition Group, which is also the largest investor in me&you mobile. Clearly, the group’s experience of the MVNO market has given it enough confidence to eat its own proverbial dogfood.

Its plans could not have come to fruition at a better time. In just the last month, both Vodacom and MTN announced an increase in tariffs for existing contracts, sparking outrage among customers. It is almost as if Howell had specially requested them to make that move. He does believe, though, that these moves highlight just why there is a need for MVNOs in a market that appears saturated.

Consumers are frustrated, they feel there’s no way out, and there’s lack of choice and flexibility in the market. The increase in tariffs and people feeling trapped in contracts is obviously very favourable to us. We decided on the May 4 launch date more than three months ago, and it’s uncanny how market dynamics have lent themselves to the launch.

Howell does not expect it to be the last of the new MVNOs.

If an MVNO comes to market with a good proposition and it’s received well, we’re only going to see more enter the market in the next 12 to 24 months.

MVN-X is already working with an entity called Smart Mobile, which is due to land in the next few months, while the market is abuzz with speculation about a major bank preparing to enter the mobile industry as an MVNO.

MVNOs aren’t operators that have to serve the whole market,” says Bailey. “They only need to find a niche, a space in the market. This MVNO is about good value and simplicity, not necessarily for the lower end of the market. It’s for people who already have a handset, but who don’t want pre-paid and who don’t want top-up, but they also don’t want commitments.

If you want a shiny new phone and pay over the odds for it, you go to the operators. But the big paradox is, the more you spend on a normal cellphone contract, the more you pay for your phone, because of punitive out-of-bundle rates.

Howell agrees that it’s not about affordability alone: “It’s a low cost operation that provides high value: and people across the market look for value. Our payment system being by credit card and purchasing being online defines our target market for us. Its people looking for value and convenience.

Coincidentally, in the days leading up to the launch of me&you mobile, Google announced that it would launch its own MVNO in the United States. Called Project FI, it is a partnership with major network operators T-Mobile and Sprint.

Howell is delighted: “If someone like Google comes to this market, you know you’re on the right track.