Research Notes

Brazil can easily develop into the world’s largest MVNO market over the coming years- resulting in Brazil once again experiencing a wave of golddiggers

The Brazilian mobile market is not just one of the world’s largest with a population of almost 200 million people, it is also one of the markets where operators – despite an effective consolidation – are still struggling due to low margins and high SAC, on a market where most customers have a low ARPU.

Strand Consult has worked on numerous occasions in Brazil during the past eight years. During the last three years we have spent a great deal of time with operators, large retailers and the political system, including the national regulator Anatel, to discuss how to open the market to MVNOs. During the past 2.5 years Anatel has been through a process where they have prepared the legislative framework for MVNOs and over the coming months a number of hearings will finalise these legal preparations, whereafter Brazil will join the list of countries that allow MVNOs to launch and do business.

In practice the Brazilian mobile market is divided between four main players (Vivo, TIM, Claro and OI) and all four operators need to increase their customer base and revenue, while at the same time face large investments in expanding their mobile network. Capacity is already a large issue in Brazil – and is an issue that will continue to grow in the coming years as the demand for voice traffic and mobile broadband keeps on growing.

The operators Brazil Telecom and OI have admitted that on a market with decreasing prices and increasing costs of building and opearting future mobile networks, they need a market share that is greater than their combined individual shares. OI’s acquisition of Brazil Telecom is yet another example of consolidation in a country where market players have been consolidating for many years. Companies need to create a business that is large enough to generate a return on shareholders’ investments, both now and in the future. The acquisition of Brazil Telecom is proof that the market price development is one of the driving forces behind the consolidation we expect will continue in Brazil over the coming years.

Future mobile operators need to focus on two things; reducing acquisition costs and being able to build and run a factory large enough to ensure that they will have the most cost efficient factory for manufacturing voice, SMS and data. Operators that believe that they can charge more for their services based on a premium brand are naive and are playing a dangerous game with their shareholders money. Telephony is becoming increasingly commoditised.

Strand Consult knows that the most successful European operators today are those with the most aggressive MVNO strategy, and we know that a number of mobile operators have used MVNOs in combination with effective cost-reducing programs to increase their profitability. One of the best cases is E-Plus in Germany, who reduced their mixed SAC by 56% and increase their EBITDA from 22% to 37% in just 12 months. Today, three years later they have passed an EBITDA margin of 40% and Vodafone and T Mobile’s margin in Germany has decreased from +40% to around 30%. You can read all about our E-Plus case from Q2 2006 here: – there is nothing preventing a Brazilian operator from copying E-Plus in Germany – all the necessary market conditions are present in Brazil.

In Brazil there is no doubt that the combination of some very powerful retailers, the way the retailers do business and the fact that it will become possible to launch MVNOs in Brazil, will result in all the other operators needing to examine how they can use MVNOs as an active part of their distribution strategy and as an efficient tool to reduce their SAC. The big question is how each individual operator will implement their MVNO strategy and the significance this will have on the Brazilian market in the short, medium and long term.

The Brazilian market will become a prisoner’s game; no operator will allow any other operator to have a monopoly on the very large Brazilian retailers – just this battle in itself will be enough to result in Brazilian prices decreasing even further, traffic increasing and an increasing need for further consolidation – or alternatively that operators start to share mobile networks across large parts of Brazil.

In practice we believe we will see Brazilian operators use one of two strategies; a segmentation strategy where they only sign deals with MVNOs doing business in market areas where the operator is not strongly represented (MVNOs as a supplement), or a strategy like E-Plus, where the operator welcomes everyone on their network and combines their MVNO strategy with a number of MVNEs, as an efficient tool to quickly launch even more MVNOs.

You can read more about how operators use MVNEs here:

We believe that Brazil will experience an explosion in the number and types of MVNOs on the market and we believe that the market will come under pressure from a combination of the existing large retailers and many new mobile golddiggers, a scenario reminiscent of what we have already experienced in Denmark, Norway, Germany, Belgium and Holland. At the end of the day, Brazil will once again be a country where many golddiggers will seek to make their fortune. Although some of these golddiggers might succeed in Brazil, we believe the winners are to be found among the large retailers and operators with the most aggressive MVNO strategy.

Today, Strand Consult is well known for our comprehensive reports and workshops, and our report ”How to Succeed in the Second-Generation MVNO Market” is no exception. The report gives an in-depth description of the MVNO market and how it is developing. Did you know that we have the world’s largest MVNO research team?

Many people are talking and writing about the MVNO market, what it looks like and how it will develop, but very few have analysed and described all the facets of this market. We know that the mobile MVNO market is one of the fastest growing segments in the history of the mobile industry.

These and many other issues are thoroughly discussed in our new mobile report How to Succeed in the Second-Generation MVNO Market The report describes and analyses the changes that the mobile operators are facing, thereby helping them to better prepare and adapt to the challenges of the future mobile market. This new report describes in detail all the changes that are currently taking place on the mobile market and points out that the mobile operators’ adaptation process is by no way over – on the contrary, it has only just begun. 
How to Succeed in the Second-Generation MVNO Market

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