Will mobile virtual network operator MVNO succeed in !ypt" #$ase %elecom !

ypt&
Radwan Mahmoud and 'herif Mansour

'herif Mansour is an n!ine er at % elec om !ypt and have B'$ from Ain('hams )niversity* !ypt Radwan Mahmoud lsayed is an n!ine er at % elecom !ypt and have B'$ and M'$ from $airo )niversity* ! y p t

Abstract

'ent+ ,- .an ,/01 %his work was supported by Arab Academy Graduate 'chool of Business AA'GB

Purpose 2 %he use of mobile wireless data services continue to increase worldwide3 %his paper analy4e how %elecom !ypt company could evolve with havin! a mobile virtual operator #MVNO& license at !yptian market* the opportunities and threats of network operators and MVNOs 3 Design/methodology/approach 2 %his study provides competitive analysis* customer needs* new technolo!ies* market evaluation and current re!ulatory assessment of the !ypt MVNO marketplace3 Findings 2 While there a r e many positive p r o s p e c t s of MVNO in !ypt* a series of complicated technolo!y* economic* political issues arise3 Practical implications 2 %he current development of MVNO e5a!!erate the !rowin! challen!es of the dynamics of industry* re!ulation and technolo!y specially on %elecom !ypt company3 Social implications 2 While MVNOs continue to increase in some markets* their diffusion in other re!ions is often very limited and continues to decrease3 Research limitations/implications saturation of voice market that make a new operator is hi!hly difficult and new services available could be provided throu!h MVNO Originality/value %he framework is developed based on a perspective of technical* marketin!* technolo!ical characteristics because these characteristics intrinsically constrain the successful opportunities for %elecom !ypt to have to compete at mobile market3 6n addition the framework should be useful in e5plorin! opportunities of a new mobile applications and services3 Keywords Mobile virtual network operator* !ypt* $ompetition* %elecommunications policy* $ompetitive strate!y* %elecommunication* %echnolo!y* 1G* re!ulatory 7aper type Research paper

! "ntroduction

Mobile Virtual Network Operator is a wireless communications services provider that does not own the wireless network infrastructure over which the MVNO provides services to its customers3 An MVNO enters into a business a!reement
Research paper presented to Arab Academy Graduate of school of Business

With a mobile network operator to obtain bulk access to network services at wholesale rates* then sets retail prices independently3 An MVNO may use its own $ustomer services* Billin! support system* marketin!* and sales personal3 %he emer!ence of the MVNO model in various markets worldwide varied based on local factors3 6n some markets* the MVNO concept came about as the result of re!ulatory intervention3 Re!ulators wished to force established mobile network operators to offer wholesale access to their network to ensure robust competition to benefit the consumer3 6n other markets* mobile network operators responded to market opportunities to offer their e5cess capacity at wholesale rates to other entities in an effort to brin! in incremental revenue on what would otherwise be unused network capacity3 Mobile network operators believed that savin!s from not providin! customer service and marketin! would offset any revenue lost by sellin! network access at wholesale rates3 Globally* MVNO has e5perienced ups and downs over the past decade3 ven a few years back* the emer!ence of MVNOs had been considered as the rollout of the ne5t !eneration of telecom services3 6t was predicted that MVNO had disruptive effects on the mobile industry #'hin* ,/0/8 9im and 'eol* ,//:&3 MVNO was takin! si!nificant market share* alterin! the supply chain of telecommunications and increasin! churn and subscriber ac;uisition costs in the mobile markets3 6t was believed that the MVNO market continued to e5pand* contributin! to the stron! mobile industry !rowth3 Recently* however* the MVNO business model has proven to be an ab<ect failure in some countries3 %he MVNOs* which buy airtime from providers such as A%=%* Veri4on and Bell $anada on a wholesale basis* have disappeared from the North American wireless scene almost as ;uickly as these companies appeared #MVNO >irectory* ,//?&3 9orea %he first commercially successful MVNO in the )nited 9in!dom was Vir!in Mobile )9* which was launched in 0??? #http://www.virginmobilemea.com/Pages/Index.aspx%he success of Vir!in Mobile )9 was replicated by the )nited 'tates licensee of the Vir!in Mobile brand3 6nitially an independent company* Vir!in Mobile )'A was eventually ac;uired by its host mobile network operator* 'print Ne5tel* for appro5imately )'@1A- million %he first MVNO was created by %ele, in >enmark* and subse;uently rolled out in several uropean markets3 %his model formed the basis between the cooperation between %ele, in 'weden and %elia* created when %elia failed to obtain a -G license in their home market #Cecilia Kang, 28 July 2009 & 3 A!ainst the back!round of the decreasin! trend of MVNO* the risin! ;uestions are+ what is the appropriate model %elecom !ypt have to run an MVNO operator at !ypt" What are the conse;uences of adoptin! such entrance MVNO at !yptian market"* which factors will* or will not* make MVNOs by %elecom !ypt work in the dynamic !yptian mobile markets" WhatBs the successful opportunities of new operator at !ypt" WhatBs the new technolo!y could help %elecom !ypt as an MVNO to success at !yptian market" %o %hese ;uestions have become more noteworthy with the MVNOBs dismal records in the Asian market #MVNO >irectory* ,//?&3 Cor e5ample* Vir!in Mobile* which was successful in Western markets* has retreated from its operation from 'in!apore in early ,//- after only two(years of failin! operation #Merry* ,//D&3 %he Vir!in Mobile e5it from 'in!apore was ensured with other failures in Asian countries* such as %aiwan* Eon! 9on! and Malaysia3 As the Asian MVNO market development is not as visible as in Western markets #'hin and Bartolacci* ,//:&* the national !yptian re!ulatory try to adopt MVNO raises a ;uestion as to whether or not MVNO would succeed in
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the !yptian market* and how MVNO will play out in the hi!hly saturated and competitively concentrated market3 A!ainst this backdrop* this study forecasts the MVNO diffusion in the !yptian market by assessin! the impact of the introduction of MVNO on the market and on society3 6n li!ht of the introduction of MVNOs* it is important to study their impact on the competition and on consumer welfare* the study will also study the effect of new technolo!y as 1G due to the spread of smart phones and hi!hly !rowin! need for data %his study investi!ates a set of factors influencin! MVNO diffusion in !ypt in order to answer the followin! ;uestions+ RG03 What is the appropriate model of %elecom !ypt to operate MVNO at !ypt" RG,3 What are the conse;uences of adoptin! such entrance of a new operator" RG-3 Which factors will* or will not* make %elecom !ypt as MVNOs work in the dynamic !yptian mobile markets" RG13 WhatBs the successful opportunities of new MVNO operator at !ypt" RGD3WhatBs the new technolo!y could help an MVNO to success at !yptian market" %his paper is or!ani4ed as follows3 First section provide the definition of MVNO briefly introduced a description of MVNO evolution and of the research that has been done on MVNOs3 Section 2 provides an overview of the !yptian mobile market with some technical aspects o f MVNOs * their inte!ration with the underlyin! MNOs and a discussion of the various components of MVNO operations3 Section 3 also detail s the re!ulatory issues as we ll as ma r ke t structure and condition3 'ection D discusses the challen!es* a n d d r i v e r s o f MVNO in the !yptian m a r k e t 3 'ection H study the 1G as opportunity for MVNO and the customer needs for its applications 3 %he final section draws the conclusions by outlinin! the findin!s and su!!estions of MVNOs3 #! $iterature review% current trend o& '()Os MVNO is a mobile service operator that neither has its own licensed spectrum nor the infrastructure to provide mobile services to its customers #)lset* ,//,&3 6nstead* MVNOs lease wireless capacity from pre(e5istin! mobile service providers and establish their own brand names that differ from those of the providers #'hin* ,//A&3 6t is estimated that there are appro5imately -H/ operational MVNOs worldwide with various models and concepts3 %he number of MVNOs has drastically increased since ,//H3 Accordin! to the MVNO >irectory #,//?&* there were D? MVNOs in Western urope in ,//,3 %hat number has !rown to 0?/ MVNOs in urope in ,//H3 Western urope is the lar!est market with H? percent of total MVNOs and HD percent of total subscriptions* whereas non(western countries are <ust be!innin! to launch active MVNO business models3 While MVNOs have succeeded in !rowin! their share of mature markets* the !rowth trend is obscured when lookin! at the !lobal picture3 Worldwide statistics show that the !rowth of MVNO subscribers has not kept pace with the overall !rowth of wireless subscribers3 Back in the early days of MVNO* a !roup of researchers predicted that MVNOs were totally poised to be the ne5t bi! trend3 Nowadays* some ar!ue that the MVNO business model has proven to be an ab<ect failure #$lark et al3* ,//D&3 6t appears as if ,//A was the year of turnin! point for MVNOs as their market share started to decrease3 Many people started to ;uestion the viability of the MVNO model3 'ome critical industry e5perts ar!ue that the MVNO model has proven to be a difficult proposition in the
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hyper(competitive mobile market #Anderson* ,//?&3 Most MVNOs do not have what it takes to succeed in the telecom market3 New customer ac;uisition is a !ame of switchers from one carrier to the other3 MVNOs only fuel this problem and drive churn rates even hi!her3 %his will compound the money necessary to ac;uire and retain customers3 %his escalates cash burn rates for everyone3 7re(paid vehicles and hybrid offerin!s will only complicate the picture3 6n particular* Eelio cast further doubt on the viability of the business model in 9orea3 Eelio was a <oint venture between )' internet service provider and '9%* but it closed its operation within less than a two(year dismal record3 'imilarly* Vir!in Mobile has shut down operations in Australia and 'in!apore3 Voce* >isney Mobile* '7N Mobile and AmpBd Mobile have disappeared from the )' market over the past 0A months3 Only ma<or independent MVNO* Vir!in Mobile $anada* has had modest success in $anada lar!ely because of the support Bell $anada that owns half the venture3 Vir!in Mobile has had !reat success lar!ely because of its knowled!e of the )9 market3 Given the decreasin! trend of MVNO* #>on!hee 'hin*,/0,& the ;uestion here 2 will the MVNO model work or succeed in !ypt" *! Study o& +gyptian 'obile mar,et Mobile telephony is capturin! an increasin! share of !lobal telecommunications services* accountin! for ,- per cent of !lobal telecommunications revenues #up from - per cent in 0??/&3 Mobile telephony is one of the hi!h !rowth market se!ments of the !yptian telecommunications sector* havin! outpaced the !rowth of fi5ed(line telephony* which currently stands at :3D million lines* !rowin! at a compound annual !rowth rate #$AGR& of appro5imately 013H per cent durin! the period 0??DI,///* compared with the sta!!erin! $AGR of 0H? per cent for mobile telephony durin! the period 0??:I,//, #American $hamber of $ommerce in !ypt ,//0* p3 01&3 'ince the openin! up of the sector to private investment in 0??A* the !yptian mobile telecommunications sector has been host to two of the worldBs lar!est mobile operators* namely Crance %elecom and Vodafone3 %he two companies* in partnership with their !yptian counterparts* have been operatin! as a duopoly* in what is perceived to be a market of remarkable !rowth potential relative to Africa and the rest of the Middle ast re!ion3 !ypt has the third(lar!est number of mobile subscribers in the re!ion* outnumbered only by 'outh Africa and Morocco3 7enetration rates* which currently stand at D31 per cent of the population* are forecast to reach 0D3D per cent by ,//A #American $hamber of $ommerce in !ypt ,//0&3

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-. 'obile Data services Mobile data services have spread in the whole world* establishin! their way in developin!* as well as developed countries3 As for !ypt* the developments in mobile data services come alon! with the phenomenal performance of the !yptian mobile market at lar!e8 that resulted from the collaborative effort e5erted by all players in the industry3 %he !rowth in mobile subscribers has continued durin! the past years to increase from 103,: million subscribers in ,//A* to DD3-D million subscribers in ,//? with annual !rowth rate of -130,J* then to DA3?: million subscribers in .une ,/0/3 Mobile 7enetration also increased steadily from D13AJ in ,//A* to :,30-J in ,//? and finally :H3,J in .une ,/0/3 6n this re!ard* the !yptian mobile market seems very promisin! and encoura!in! to the entrance of new products and e5tension of e5istin! ones* especially those related to mobile data services8 which has the potential for !rowth and development* in addition to its role in development and economic !rowth* due to the wide ran!e of services it provides3 #http+IIwww3mcit3!ov3e!& need comments on !raph of 1 !raph

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Eence* !yptBs Ministry of $ommunication and 6nformation %echnolo!y #M$6%& in cooperation with the )niversity of 'outhern $alifornia* and %he National %elecom Re!ulatory Authority #N%RA&* has conducted a study to measure the mobile data services usa!e habits and ;uality of services in !ypt3 Mobile data services is the usa!e of mobiles in any other services other than voice callin!* includin! mobile broadband services3 5amples of such services are sendin! te5t and picture messa!es* accessin! the internet throu!h the mobile for emailin!* !ettin! information* downloadin!* internet browsin! and communicatin!3 %he study measures usa!e patterns of mobile data services* with detailed analysis on fre;uency of usa!e* compatibility with lifestyles* location of usa!e* willin!ness to pay* customer satisfaction and potential interests of customers3 %he analysis of such patterns helps to evaluate the ;uality of services provided* their advanta!es as well as their shortcomin!s %he study is based on a survey conducted by phone* in which the tar!et population was mobile subscribers who are usin! mobile data services throu!h their wireless cell phones3 %he survey was aimed to reach a sample of 0*/// subscriber usin! data services via their mobiles3 Eence* 0*1-- interviews were conducted at Greater $airo* and Ale5andria from Mobinil* tisalat and Vodafone3 %he sample is a stratified random sample accordin! to operators* subscription system and !ender3 'urvey results revealed that :-J of the subscribers interviewed are usin! the mobile data services* most of them are males who are youth at the a!e of 0A(-1 years old* with monthly e5penditure ran!es from D// 2 0D// G73

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'tudyin! the pattern of mobile data service usa!e* the study reveals that the most used activity of the service is Gettin! 6nformation and News #D:3,J of the users&* followed by e5chan!in! e( mails #,,3AJ&3 Most of the respondents use the mobile data service for personal purposes more than work related purposes #A:J versus ,J* while 00J use it for both&3 %he most likely location of usin! the service is at home #1,J&* followed by at transit #-DJ&3 Also* the hi!hest fre;uency of mobile data service usa!e is more than 0,/ minutesIweek #DD3-J&3 Curthermore* the survey reveals that bein! not interested was the hi!hest barrier for not usin! the mobile data service #013,J&3 On the other hand reducin! the service cost is the most attractive factor for future use #1?J&3 Cinally* the survey studies the main features of the !yptian mobile phone market* which reveals that people tend to use mobile phone brands* established in the market for lon! periods* and consider Multifunction as the most important specification3 #http+IIwww3mcit3!ov3e!& /. Regulatory impact at +gypt ( 'odel o& '()O ( Political ( Society 0smart phone1 ( +mployee ( 'ethodolgy 2 design ( "mparical wor, ( 3. 4he impact o& new technology Mckinsy #sei4in! the 1G opportunity& many mobile operators asked about their si!nificant investments in lon! term evolution #F% & technolo!y3 from a competitive standpoint3 As a result* MVNO should now pose a different ;uestion+ When he will build it* how he could !enerate from 1G the !reatest returns from these massive investments" MVNO can use this opportunity to stren!then their market positions while new entrants and small players can take advanta!e of 1G to attack market leaders and ;uickly increase market shares
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$urrently* F% offers a ran!e of si!nificant customer e5perience improvements over wireless technolo!ies+ K Ei!her user speeds+ F% enables users to download more content than -G in the same amount of time3 %his makes data(intensive* on(the(!o downloads such as music or hi!h( definition video streamin! a reality3 K Caster connection times+ F% re;uires ?D percent less time to connect than evolved hi!h( speed packet access #E'7AL&* assurin! an Malways(onN service e5perience3 K Fess round(trip latency+ F% offers a D/ percent reduction in round(trip latency compared to E'7AL* makin! real(time applications such as Vo67* video calls* and online !amin! possible3 %he surveys confirmed that* for the most part* demand for 1G is latent at this 6n other words* consumers want the benefits of 1G* but havenBt yet been able to obtain them because few such networks e5ist3 Our research shows that more than -/ percent of smartphone users and -: percent of non(users would up!rade to a 1G smartphone packa!e if one were available3 Fikewise* -: percent of current mobile broadband users and 10 percent of non(users would opt for 1G service3 6n all of the markets we surveyed* price was the sin!le most important criteria from a smartphone perspective* rankin! si!nificantly hi!her than either covera!e or speed3 6n mobile broadband* price was also the leadin! purchase(related criteria* but ;uality of service #Go'& elements such as speed and covera!e were also considered important3 Mckensy

:. Smart phones and the intention to pay &or mobile internet% With the development of mobile internet services* more and more consumers are adoptin! smart phones as their primary communication device3 A smart phone offers more advanced computin! ability and connectivity than a feature phone* and typically includes a hi!h(resolution touch screen and offers Wireless(internet access to web pa!es throu!h a built(in web browser3 %elecommunication companies have recently be!un to promote smart phone products in hopes of promotin! mobile internet services as a way to increase revenues3 Accordin!ly telecom service providers have a stron! interest in e5plorin! ways to increase user intention to use mobile internet throu!h smart phones3 Many factors affect the user intention to adopt smart phone such as+
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0( ,( -( 1( D( H( :(

6nterface convenience3 7erceived content3 7erceived infrastructure3 >esi!n aesthetics3 Attitude3 6ntention3 7erceived value3

Moreover* the increasin! race of issuin! new applications and !ames on smart phones attracts more new users every day3 Also smart phones educational use is a new trend makin! the opportunity of usin! internet service on smart phone applications is very hi!h3 %he followin! table illustrates the results of an online survey was developed to collect the data for a study of the educational use of smart phones #$atharine Reese Bomhold* ducational use of smart phone technolo!y&3 %he instrument was a 01 ;uestion mi5ed response survey that in;uired into student ownership and the fre;uency of use of different types of mobile computin! apps3 %able #&+ 7ercenta!e of students reportin! fre;uency of use of apps* by app type3

6f this was for worldwide so* there is no doubt that the !yptians have similar attitude and purchase behavior towards smart phones3 We have our own try to measure the intention of !yptians to pay for mobile internet and to answer the ;uestion Ois this is still !rowin!"O We can answer such ;uestion by the help of the official report of O%he 'tate of %he 6nternetO issued by www3Akamai3com web site3

%able #&+ Avera!e and Avera!e 7eak $onnection 'peeds by Mobile 7rovider

1th Guarter ,/0,

0st Guarter ,/0-

,nd Guarter ,/0-

G(0+ Avera!e 7eak+ from D3,Mbps #G1(,/0,& to H30Mbps #G0(,/0-& to ?30Mbps #G,(,/0-&3 As we see from the report table above that the avera!e connection speed and the peak connection speed of the mobile broadband for the !yptian provider is increasin! ;uarter to ;uarter that means that there is a trend of the !yptian internet user to increase its internet usability and there
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is an opportunity for any operator specially telecom !ypt that has the hu!e infrastructure to e5ploit this trend3 5. +nterprise 'obile and 6roadband Services%

References
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-/D(,D3 >ippon* $3 and Baner<ee* A3 #,//H&* MVNO+ Blessin! or $urse" An Relationship with MNO* N RA conomic $onsultin!* New Rork* NR3 conomic valuation of the MVNO

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Cecilia Kang (28 July 2009). "Sprint Nextel to Acquire irgin !o"ile #SA". Washington Post. $etrie%e& 2' !ar 20'2

$orrespondin! author
>on!hee 'hin can be contacted at+ dshinTskku3edu ( Mckensy

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