Research Notes

Bad news for MVNOs that want to do business in Brazil

There is no doubt that one of the markets that is currently being monitored the most regarding which role MVNOs can take is Brazil. In our research note: Brazil can easily develop into the world’s largest MVNO market over the coming years we have described some of the dreams that many market players have had about the Brazilian market. However the problem is that the Brazilian regulator Anatel is in the process of removing the mechanism that has been one of the driving forces on a great number of the markets that have seen the largest MVNO activity – the possibility of operators owning or purchasing MVNOs.

On the one hand the Brazilian market is opening up, on the other hand you have the terms that operators are offering MVNOs and coming in from the right now are the regulations that the Brazilian regulator want to impose on the market. In fact a number of hearings have just been concluded in Brazil, where Anatel explained how they would like the political system to regulate the MVNO market in the future. The purpose of the hearings was to get feedback from the market. Anatel published a proposal that was subsequently discussed at meetings in Rio, Sao Paulo and Brasilia.

Experiences from countries with the largest MVNO activity and where MVNOs have contributed most to market dynamics, have shown that by far the most successful MVNOs were launched by entrepreneurs focused on creating an MVNO that they subsequently could sell to an operator on the same market. Simply put one could say that the MVNO market is often being driven by people who are launching companies they will later sell and the buyer is most often an operator who wants to increase their market share on a high penetration market.

If Anatel believe that they have found a way of increasing competition and avoiding operators’ attempts at monopolising the market, they are wrong. Operators are free to launch new cobranding concepts at any time. Perhaps Anatel is afraid that operators will start purchasing MVNOs – but that is a natural part of the whole ecosystem and the investor’s business case. On a free market there will sometimes be individual market player that choose to leave the market, but that will simply result in an even larger motive for new investors to enter the market, as there will be greater business opportunities, one less competitor and more buyers, compared to the type of market resulting from Anatel getting their regulation proposal passed.

If Brazil chooses to introduce regulation whereby operators are not allowed to own MVNOs, they are not only removing the possibility of market players having an exit strategy, but are also removing the possibility for smaller operators to purchase larger market shares on the mobile market by consolidating with smaller market players. The model they are currently recommending will be a gift for the operator that has the most MVNO agreements when the MVNO market closes.

An examination of the current Brazilian mobile market shows that the market has been created through a great number of consolidations. Today the Brazilian market is dominated by Vivo, Claro, TIM and OI. Over the years a number of smaller and regional operators have merged, resulting in Brazil today having four healthy operators, all playing an important role in delivering modern communication solutions to the millions of people that have chosen to stay away from Sao Paulo. You could say that if the Brazilian mobile market had not consolidated, there would be many poor Brazilians outside the Sao Paulo area that would not have access to modern telecommunications solutions today.

We simply cannot understand that Anatel would want to remove the market dynamics that are created when MVNOs can sell their customer base to an MNO. In fact we cannot comprehend that anyone would want to create special regulations in this area, as the current Brazilian competitive legislation ought to be able to handle any competitive issues that might arise if an operator purchases too many MVNOs.

Take a country like Norway, that for many years only had two operators that shared the market. The third operator on the Norwegian market today was actually created by a consolidation of the MVNO market. What happened in Norway was that Network Norway took on the role as consolidator and via acquisitions and mergers created an operator that built a new mobile network in a record-breaking time and at the same time has achieved positive financial figures.

If Anatel maintains that they want to prevent operators from purchasing or owning MVNOs, we are positive that there will be a significant reduction of competition on the Brazilian market. That type of decision will not only eliminate smaller operators possibilities of purchasing larger market shares, but also eliminate the possibility for new operators to launch in Brazil.

If you would like to learn more about the dynamics that are created when operators can participate actively on the MVNO market, you should purchase our report How to Succeed in the Second-Generation MVNO Market, that not only describes a great number of the largest MVNO acquisitions around the world, but also how Network Norway used acquisitions and partnerships with MVNOs to launch an impressive operator on a market that was a duopoly with no significant competition.
How to Succeed in the Second-Generation MVNO Market

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