Bullish MVNO Outlook For Latin America

Virgin Mobile Latin America (VMLA) announced the commercial launch of its mobile virtual network operator (MVNO) services in Colombia, following a month-long trial to selected users. This is the second market in VMLA's regional expansion plans, as it looks to create a presence in every Latin American country. The MVNO trend seems to be picking up in the region and BMI believes there is plenty of scope for operators to have success, although we highlight the importance of a focused strategy targeting niche markets.

We have a bullish view on Virgin Mobile in Colombia ( see our online service, December 19 2013 'Virgin Mobile Aims To Replicate Success), based on its focused strategy, the growing proliferation of 3G and regulatory decisions to introduce asymmetric termination rates and mobile number portability, in an effort to encourage competition. VMLA first launched operations in Latin America after it set up in Chile and has experienced significant success since the launch in April 2012, accumulating 100,000 customers in the first six months of operations. In Colombia, a number of companies offer mobile services as MVNOs already, Uff! Móvil, UNE-EPM and ETB. VMLA's strategy, targeting the youth segment of the population, should allow it to focus on a niche market. it has already begun offering calls charged by the second instead of minute, which will result in lower prices for subscribers.

Focused Strategy Key To Success
Uff! Colombia, VMLA Chile, Telsur Chile Subscribers (Q412)

VMLA's next target is Brazil, where it hopes to launch services in 2013 and has already partnered with mobile virtual network aggregator (MVNA) Datora. Telefónica, through its Movistar unit, has acted as the mobile virtual network enabler (MVNE) for VMLA's operations in Chile and Colombia, providing the MVNO with the network infrastructure. A good relationship between the two companies would allow VMLA to expand into almost any market it chooses, as Movistar's Latin American presence is almost ubiquitous.

Rival MVNO, Uff! reached 350,000 subscribers in January 2013, making it the fourth largest mobile operator in terms of number of subscribers in the Colombian market. Owned by financial institution, Bancolombia, it could also have regional aspirations, by targeting markets where Bancolombia has a presence such as Peru, Panama, Guatemala, El Salvador, Puerto Rico and the US. BMI believes it has the potential to be an outperformer if Uff! can introduce a successful mobile-banking platform that links phones to Bancolombia accounts and could become the most successful MVNO in the region. This does not necessarily imply it will be a threat to VMLA as MVNOs modus operandi is to target specific audiences, rather than whole populations.

Other examples of MVNOs in the region have been less successful, mostly as a result of unfocused market strategy. Telsur, a Chilean wireline cooperative, launched in 2011, but regulator Subtel reports minimal growth for the MVNO at around 3000 subscribers as of Q412, compared to VMLA Chile's 103,000. In Brazil, Porto Seguro, an insurance company, is operating as an MVNO by providing machine-to-machine (M2M) connections to track vehicles owned by current customers. In February 2013 it had just 35,000 customers, implying that its M2M strategy may not be in demand.

MVNO's traditionally target the lower end of the market, offering cheaper price plans to undercut established players. This can have a negative effect on ARPUs in the market, driving them down through price wars and may affect our long-term forecasts. This is particularly relevant in Chile, where 25 companies reportedly applied for MVNO licences in November 2012 and would result in a fierce competitive environment. Its high mobile market penetration and receptiveness to new technology could see Chile emerge as a regional outperformer for MVNOs.


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