!!

DETERMINING THE OPTIMAL MODEL FOR YOUR BRANDED AIRTIME BUSINESS

TAKING THE GUESSWORK OUT OF AN MVNO DECISION

M V N O A F R I C A S U M M I T • C A P E T O W N • 1 O C T O B E R ’ 1 3 • J I R I B A T E K

TODAY’S CONVERSATION

!  Is there an opportunity? –  Yes. The Market is out there…and growing…

–  Established consumer brands are best positioned to take an advantage of it …

–  … and it makes business sense for them to seriously consider it

!  It should be a natural birth … –  Branded mobile business should be an Evolution of, not Divergence from, your core business

!  How to make it (relatively) painless: –  What you should always look for: Key drivers behind a mobile business

–  Impact of real life: Scenarios and Sensitivities

–  The great juggle: Designing MVNO Strategic Framework to influence all key drivers

–  Turning PowerPoint into reality: Deriving an optimal operating model

–  Bird Rand in Hand vs Two in a Bush: Balancing commercial risk and profitability over time

!  Briefly unpacking the benefits of an enablement model !  Concluding remarks

The individualization of Customer Requirements is leading to the fragmentation of the market into much smaller segments

THE MARKET IS OUT THERE… … AND GROWING

Small segment services are an opportunity for established brands, in partnership with MNOs

MNOs!are!not!geared!to!serve!smaller!segments!

•  Tradi3onal!products!not!a7rac3ve!enough:!too!generic,!low!perceived!value!

•  MNO!product!development!process!too!slow!and!costly!

•  Segments!too!small!to!jus3fy!dedicated!MNO!products!

ESTABLISHED CONSUMER BRANDS ARE BEST POSITIONED TO ADDRESS SMALL SEGMENTS

EXISTING DISTRIBUTION

FOOTPRINT EXISTING LOYAL CUSTOMER BASE

EXISTING CREDIT RELATIONSHIP

EXISTING LOGISTICS & WAREHOUSING

EXISTING WELL-KNOWN

BRAND

Brands can bring –  Existing credit relationship and brand loyalty

–  Better understanding of customer requirements

–  Own (non-telecom) products and services

–  Lower customer acquisition costs

–  Lower incremental operating costs

Partnership with MNO(s) is essential –  MNO builds and operates the network

and provides Brand with wholesale

connectivity

–  Brand develops, markets, distributes, sells

and supports the product(s)

COMPELLING REASONS EXIST FOR CONSUMER BRANDS TO PURSUE GREATER OWNERSHIP OF THE TELECOMS VALUE CHAIN

STAKEHOLDER

CUSTOMER

INTERNAL OPERATIONS

PEOPLE & CULTURE

IMPROVE SHAREHOLDER

VALUE REALIZATION

STRA

TEG

IC F

OC

US

ARE

AS

STRATEGIC OBJECTIVES

GREATER CUSTOMER

ENTANGLEMENT

LOWER INTERNAL

COSTS

GREATER KNOWLEDGE

MANAGEMENT & COMPLIANCE

NON TRADITIONAL

REVENUE GROWTH

INCREASED FOOT TRAFFIC

THROUGH TRADITIONAL

CHANNELS

LOWER THE COST TO SERVE

IMPROVED BENEFITS

CREATE A DEFENSIBLE

COMPETITIVE POSITION

EXPLOIT DIGITAL

CHANNELS TO DRIVE REVENUE

GROWTH

IMPROVE CUSTOMER

BEHAVIORAL UNDERSTANDING

REDUCE CUSTOMER

SERVICE OVERHEAD

MARGIN PROTECTION

IMPROVED CUSTOMER EXPERIENCE

BENEFIT CORE BUSINESS

THROUGH DATA

OWNERSHIP OF THE CUSTOMER

BASE

EVOLUTION, NOT DIVERGENCE A KEY DRIVING PRINCIPLE BEHIND MVNO STRATEGY

!  MVNO Value Proposition should be an Evolution of Brand’s core proposition

–  Clear synergies with current business

–  Sales / Service Channel for existing products

–  Enhancement/Extension of current products: location

awareness, use of phone camera, etc.

!  Measurable Commercial Benefits for Core Business –  Growth in core business revenues thanks to own branded

mobile offering: mobile drives foot-traffic to retail stores, etc.

–  Cost savings in core business thanks to own branded mobile

offering: lower customer acquisition / service costs, workforce

management & mobile information access, …

CURRENT'VALUE'

PROPOSITION'

NEW'TELECOMS'SERVICES'VALUE'

PROPOSITION'

IMPACT'ON'COST'TO'SERVE,'

COST'TO'ACQUIRE'AND'OPERATIONS'

Mobile services (Voice/SMS/Data) must be profitable but cannot be the only element of the Branded Mobile Business

KEY BUSINESS DRIVERS BEHIND MVNO VIABILITY

Branded Telecoms Business Viability Drivers

1. Customer Value Proposition: Devices, In-Bundle Services, Out-of- Bundle Tarriffs, Non-Telco Services and Once-off and Recurring Charges

2. Customer Acqusition Marketing, Distribution and Sales Costs vs applicable Once-off Charges; Activation and Dormancy…

3. Customer Usage & Spend actual Voice, SMSs, Data usage vs Bundle Charges, Out-of-Bundle Spend

4. Indirect Revenue: Revenue not directly originating from Customer: Interconnect, Advertising, …

5. Customer Tenure: Length of a committed contractual relationship

6. Customer Retention: Percentage of Customers renewing at the end of their Tenure

7. Incremental Expenses: Incremental cost of setting-up and operating a Mobile Business within the Brand

8. Impact on Core Business: Cost & Revenue changes caused by Mobile Business to the existing (core) business, including savings & incremental costs.

Customer Usage &

Spend

Customer Value

Proposition

Customer Acquisition

Customer Tenure & Retention

Incremental Expenses

MNO Terms and

Relationship

Impact on Core

Business

Indirect Revenue

SCENARIOS AND SENSITIVITIES IMPACT OF KEY DRIVERS ON THE BUSINESS

Customer Usage &

Spend

Customer Value

Proposition

Customer Acquisition

Customer Tenure & Retention

Incremental Expenses

MNO Relationship & Terms, SLA

Impact on Core

Business

Indirect Revenue

!R#100.00M#

!R#50.00M#

R#0.00M#

R#50.00M#

R#100.00M#

R#150.00M#

R#200.00M#

M1# M3# M5# M7# M9#M11#M13#M15#M17#M19#M21#M23#M25#M27#M29#M31#M33#M35#

!R#100.00M#

!R#50.00M#

R#0.00M#

R#50.00M#

R#100.00M#

R#150.00M#

R#200.00M#

M1# M3# M5# M7# M9#M11#M13#M15#M17#M19#M21#M23#M25#M27#M29#M31#M33#M35#

!R#100.00M#

!R#50.00M#

R#0.00M#

R#50.00M#

R#100.00M#

R#150.00M#

R#200.00M#

M1# M3# M5# M7# M9#M11#M13#M15#M17#M19#M21#M23#M25#M27#M29#M31#M33#M35#

+10% ASPU

+10% SAC

+25% breakage

-10%

-0.5% churn

+R8.00/cust

-10% ASPU

-10% SAC

-25% breakage

+10%

+0.5% churn

-R4.00/cust

Customer Usage &

Spend

Customer Value

Proposition

Customer Acquisition

Customer Tenure & Retention

Incremental Expenses

MNO Terms and

Relationship

Impact on Core

Business

Indirect Revenue

A FRAMEWORK FOR A VIABLE AND SUSTAINABLE MVNO STRATEGY

Leverage'Exis,ng'Base'

Be'Original'and'Relevant'

Grow'Your'Core'Business'

Proac,vely'Manage'Risks'

Focus'on'Customers'

Stay'Agile'and'Efficient'

–  Leverage Existing Base: Use the knowledge of

and access to your customers: historical data,

loyalty programme, credit relationship…

–  Be Original and Relevant: Design CVP appealing

to your customer niche: relevancy and value

must compel your customers to switch their

mobile service to you

–  Grow Your Core Business: Make sure your mobile business saves costs and/or grows revenues for

your core business

–  Proactively Manage Risks: Balance profitability and commercial risk; Share/outsource non-core

operational activities

–  Focus on Customers: sales and service are key; constant, proactive evolution of your offering

–  Stay Agile and Efficient: Keep costs low and

decision-making swift

Brand’s Mobile Strategy must positively impact all Key Drivers

MVNO OPERATING MODEL TURNING A STRATEGY INTO REALITY

!  A reliable and efficient blend of

–  Business Processes

–  Relationships

–  Resources and

–  Systems

which enables the Brand to optimally execute on its

strategy

!  Derived from the Customer Value Proposition and

Customer Journey (lifecycle customer experience)

!  Taking into account the Brand’s core business and the

related operating model

The diagram on the left indicates some of the aspects that an MVNO may

need to include in its operating model

BU

SIN

ESS

ELEM

ENTS

CUSTOMER SEGMENTS

CHANNELS & DEALERS

PRODUCTS & SERVICES

OPE

RATI

NG

ELE

MEN

TS

ORGANIZATIONAL DESIGN

BUSINESS PROCESS LAYER

SYSTEMS & TECHNOLOGY

INFORMATION MANAGEMENT

LOGISTICS

ENG

AG

EMEN

T &

CU

STO

MER

EX

PERI

ENC

E CUSTOMER AWARENESS

ACQUISITION

FIRST USE

RECHARGING & PAYMENT

CUSTOMER SERVICE

LEAVING

BALANCING RISK AND PROFITABILITY BLENDING OF TWO COMMERCIAL MODELS IN ONE PRODUCT

!  As a lower-risk approach “retail-minus” commercial

terms can be applied to reduce the commercial risk

of products and services that are new to the

brand’s proposition in the early phases of the

business

!  Once sufficient customer behavioral data has been

collected and business model assumptions

validated, a more profitable cost-plus commercial

terms can be blended into the model to improve

overall profitability and differentiation of the

customer value proposition

Usage&Revenue&curve&over&.me&&

Proposi.on&profitability&curve&

Blending!of!commercial!models!may!assist!in!mi3ga3on!of!commercial!risk!whilst!not!limi3ng!strategic!growth!&!posi3oning!

BRIEFLY UNPACKING THE BENEFITS OF AN ENABLEMENT MODEL

Aggrega3on!of!mul3ple!MVNOs!brings!economies!of!scale!faster!

O"

O"

Volume Discount Points

Marginal!CAPEX,!flat!OPEX!in!startup!phase,!greatly!reduced!risk!of!unpredictable!cost!base!

Predictable Cost Base

Apart from access to scarce telecommunications resources and skills, an enabler can also offer various operational and commercial benefits which aid the Brand in mitigating the

risks during its Mobile Business launch and evolution: –  Best practices, processes and

procedures

–  Predictable cost base

–  Economies of scale

CONCLUDING REMARKS

In conclusion, I’ll leave you with the following thoughts with regards to determining the optimal model for your branded airtime business

–  A mobile proposition should complement and enhance your

existing business

–  The scale of a mobile business implies risk and therefore a clear

vision of the customer value proposition, go-to-market strategy,

key commercials and operating model are a pre-requisite

–  On-going, accurate business intelligence and insight, and the

ability to act on these, are key prerequisites for growing your

business – always evolve

–  A good plan is no substitute for experience, ensure your team

includes experts with local telecoms experience to guide your

business

Leverage!your!exis3ng!base,!distribu3on!footprint!and!credit!rela3onship!

Be!original!and!be!relevant!

Seek!to!benefit!your!core!business!

Proac3vely!manage!risks!

Stay!agile!and!efficient!

Always!evolve!

!!

THANK YOU