Virgin to boost cellular competition
ANOTHER cellular operator to challenge MTN and Vodacom will next week finally unveil its plans and key staff have been put in place to run the joint venture between Cell C and Virgin, selling a service branded as Virgin Mobile but using the network and infrastructure built by Cell C.
To customers, Virgin Mobile will represent a fourth player in a market recently slammed by the regulatory authority as lacking real competition.
The venture will generate extra income for Cell C and the Virgin brand is expected to attract more sophisticated users not won over by Cell C’s cheap and cheerful image.
Cell C’s customers include very few big spenders, with its users spending an average R120 a month, significantly below the average customer spending of R168 enjoyed by MTN and R147 for Vodacom.
International analysts from Pyramid Research estimate Cell C and Virgin are investing an initial R500m to hire staff, set up a business infrastructure, open contact centres for its customers and create a retail distribution channel.
Because it does not need to build a new network, the venture’s risk profile versus its capital requirements is relatively low, Pyramid says.
Vodacom spokeswoman Dot Field would say only that “we look forward to the competition”.
Virgin Mobile poses a considerable threat to the other players, analysts believe. It should have “a genuine competitive advantage” over its rivals because Virgin has “undeniably the strongest brand”.
In addition to its strong brand, its main selling points will be superior customer service, higher value, differentiated services and pricing simplicity.
“These factors alone may not give it mass-market appeal, but will definitely position Virgin Mobile SA well among the country’s high-spending, quality conscious subscribers,” analysts say.
The new operator should reach its customers very efficiently by marketing its products through specialist stores and its own facilities such as Virgin Active gyms, and by opening Virgin Mobile shops. Tapping into its existing resources will keep its bills down, which is crucial.
Virgin Mobile will be also able to charge a premium because of the strength of its brand, and it will attract and retain customers through its track record of quality service and value for money.
It is expected to make its prices far easier to understand than the current convoluted packages, which baffle customers about which network is the cheapest, let alone which package best meets their needs. But that will be a short-lived advantage, as the Independent Communications Authority of SA is already drawing up new regulations that will force the operators to offer shorter and clearer contracts.
The CEO of Virgin Mobile SA is Sajeed Sacranie, a British banker turned investor specialising in the telecommunications industry. Sacranie once served on the board of Canada’s investment management company, McCarthy Corporation, as a representative of Virgin, which owned a 40% stake.
The chief marketing officer is Tristão Abro, a former Cell C marketing specialist who has also worked for MTN.
Virgin boss Richard Branson has wanted to enter SA’s cellular market since 2001, when he held talks with Vodacom about setting up a virtual mobile network operator. Virgin already runs virtual mobile network operators in Australia, Canada, the UK and the US, but it is illegal in SA, where any cellular operator must hold a licence. The deal devised with Cell C circumvents that by forming a joint venture using Cell C’s licence.
Last year, Branson said his partnership with Cell C would bring a new approach to the mobile market and a refreshing alternative from “the bland offerings of other players”.
Cell C has spent more than R9bn building its operations and is investing another R1bn this year. But it is yet to announce a net profit, despite signing up 3,2 million users.
Globally, 63-million customers have signed up with virtual mobile network operators, up 25% from the previous year. Virtual operators now account for 2,75% of the world’s mobile users, but most are losing money or just breaking even. Virgin Mobile UK, which pioneered the model, is one of the few profitable players.
Pyramid analyst Guy Zibi says not all the virtual players will survive, unless they focus on generating higher margins than their low-end, mass-market peers. That is the model Virgin is expected to follow in SA by chasing wealthier consumers.
Inet-Bridge
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