In the latest instalment of our regular series, TeleGeography spoke with Eugen Comendant, ACN’s Director of MVNO & Multiplay (Europe), who has lead the build of JOi Telecom, regarding the company’s business model and future plans.
When did you launch operations and who is your network provider?
JOi Telecom has been launched in two markets (the UK and France), on the same day (9 September 2014), on a single in-house-built IT platform. The complexity of building two separate MVNOs simultaneously (contracts, technical interfaces, MNP, logistics, retail offers, marketing and sales materials, website and selfcare, back-end systems, internal processes, reporting etc.) was a challenge, but with the use of agile project methodologies, we managed to turn this challenge into a rewarding success.
In the UK we are using the 3G network of Three UK, and in France we use the 3G network of SFR.
How would you classify your MVNO’s business model?
JOi Telecom would qualify as a Light MVNO. We do not own any core network elements, nor do we use an Intelligent Network (IN). However we do not outsource any of our operations to MVNEs/MVNAs. Having built our own IT platform, we perform activities such as provisioning, billing, collection and customer care in house.
How would you define your key target user market(s)?
JOi is a new consumer brand from ACN Europe. Our offers are post-paid SIM-only, targeting the consumer segment.
In the two markets we operate in, JOi Telecom does not differentiate itself from the main players through its retail offers, but rather through ACN’s distribution model. We are able to create significant numbers for our MNOs by having the JOi Telecom offers promoted through our independent sales network – a complementary sales channel to the array of sales channels employed by our MNOs.
Which MVNOs/resellers/sub-brands do you see as your main competitors?
We compete in the B2C, post-paid, SIM-only space in both the UK and France. Both of these markets are extremely competitive. France especially is characterised by the presence of sub-brands (Sosh, B&YOU, Red) taking on the price-led competitive battle, with the very aggressive Free further eroding the market. Like any MVNO whose business depends on the generated margins, we are looking at avoiding direct price confrontations. Instead, we are focusing on leveraging our strong sales channel, while also streamlining our retail offers to suit this sales approach.
At the current stage of the company’s development, which of the following is most important to you – growing your subscriber base, increasing your ARPU, or increasing your profitability?
JOi Telecom is a one-year-old MVNO, and we are still in the growth phase, and increasing our subscriber base is still the main focus. That however does not mean that other KPIs become far less important. We continuously monitor the quality of subscribers that come on board – their ARPU, their usage profile and their propensity to pay their bills.
Have you had any issues with wholesale pricing and access terms in your market?
It is natural to have long negotiations with MNOs; they want to ensure that they are adding value to their business through the wholesale channel and retain enough control over their MVNOs to prevent market-disruptive activities. Through my experience in negotiating in many European markets, there is quite a difference in negotiating in three-MNO markets compared to four-MNO markets. Thus, as expected, we experienced tough negotiations in France, while we encountered a partnership approach with our counterparts in the UK.
Are you currently able to offer 4G LTE services via your wholesale agreement? Is 4G important to you, or are you focused on taking a greater share of a niche or ‘budget’ demographic?
We managed to reach an agreement for 4G access in both the UK and France. However, every MVNO needs to question whether it is in a position to offer 4G access to its subscribers, and whether that will be a commercially beneficial move. 4G access is, in most markets, given to subscribers at no extra cost. Thus 4G becomes more of a marketing message, rather than a revenue generating item. Profitability being tied to the wholesale cost structure, and equally with the usage profile, launching 4G could mean a significant impact on profitability. Data wholesale cost structures that have a decreasing cost-to-usage ratio are more favourable to MVNOs, which does not mean that they should not be favourable to MNOs as well. With the right cost structure in place, MNOs can generate wholesale revenue in early subscriber usage, while MVNOs reduce cost exposure on outliers. Linear cost curves are less advantageous to MVNOs, and especially less favourable when offering data-intensive/4G services.
In addition, the ability to control and shape subscribers’ data usage in real-time is key to being able to create 4G-appropriate offers, as well as minimising usage/cost exposure. The approach that says application programme interfaces (APIs) and call detail records (CDRs) are for post-paid MVNOs and real-time/online/IN is for pre-paid MVNOs should change with the increase in data usage. With the above in mind, we have decided to postpone opening up 4G access to our subscribers. With the right commercial and technical set-up in place, this will change – something we are working on.
Are you seeing rising competition from MNOs via their secondary, no-frills brands? If yes, how do you intend to defend your market share from these players?
Yes, especially since we compete in the same market space, and especially since these secondary brands are designated to compete on price, and in such protect the MNO main brands from having to compete in those spaces.
Independent MVNOs have a floor to how price-aggressive they can go, which is dictated by the wholesale cost arrangement with the host MNO and the minimum acceptable profitability levels – unless there are other intents in mind, such as increasing a customer base for a subsequent liquidation, or if there is a cross-subsidy from other products in the portfolio. Thus, our approach is to avoid direct price competition, by focusing on our key competency – the ability to acquire customers through our direct sales channel. [TeleGeography note: The company distributes its SIM cards through its parent company ACN Europe, which describes itself as ‘the world’s largest direct seller of telecommunications, energy and essential services for home and business’.]
Do you have a presence in any other sectors or markets? If so, do you plan to link your other operations with your MVNO business in any way?
Yes. Our parent company ACN Europe offers fixed line services, VoIP and double-play and triple-play. And since ACN owns its own VoIP network, utilising this network for terminating international traffic may provide an additional competitive advantage in the future. These are, however, development plans that we have not yet started work on.
Do you believe that the MVNO sector is already overcrowded, or is there plenty of room for niche operators?
With machine-to-machine (M2M) and the Internet of Things (IoT) gaining importance, there is definitely room for niche operators. Additionally, there are many markets outside of Western Europe that have not yet reached maturity, and I am positive that there will be many opportunities for new MVNOs in those markets.
Is your intention to remain an MVNO or do you seek to acquire your own radio spectrum and become an MNO? Briefly, what do you see as the determining factors in that decision?
We plan to remain an MVNO. Our business model is focused around the ability to sell, rather than a desire to become a telco.
With OTT apps increasingly supplementing/replacing traditional calls and SMS for voice and messaging, is there a danger that MVNOs will struggle to remain a valid proposition if markets continue to move towards data?
Much of the current international traffic passes through OTT apps, and since this is a pattern adopted by many users, it may stay this way. The future will likely see voice and SMS traffic transmitted through data networks, via technologies such as Voice-over-LTE (VoLTE). That may happen before OTT apps manage to take a large enough share to affect domestic traffic.
Do you perceive a threat from established MNOs which may look to buy out successful MVNOs in order to protect their market share?
No, our strategy does not involve growing our customer base just to sell it off subsequently.
Do you have any plans for future international expansion?
Yes, we have operations across 18 European markets, and we have so far launched JOi Telecom in only two of them (UK and France). We are already at an advanced stage in terms of reaching MNO agreements in other markets.
What advice would you give to a company planning to launch an MVNO?
Firstly, early preparation is key. And that applies to market analysis, retail offer design and positioning in the market, MVNE/MVNA capability, due diligence and MNO negotiations. Secondly, be realistic on your development capabilities and launch timelines.
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