Virtual mobile players rev up engines to conquer Hungarian market

New market taking shape

As of the middle of July, Vodafone clients can buy their mobile internet services from other operators as well. In order to meet growing demand for mobile internet, Vodafone has signed long-term strategic agreements with Btel and Netfone regarding mobile internet services.

Btel, a  Hungarian-owned telecom provider, will offer both its residential and corporate clients mobile internet access in addition to their existing fixed line telephone and broadband internet subscriptions at a favorable price.

IP-based telecommunications service provider Netfone, on the other hand, will sell mobile internet through a cooperation with its cable provider and telco partners. The first partner to join the club is Drávanet, but others will follow in the next few months.

The mobile internet service is to the same as the Vodafone-branded solutions in terms of coverage, speed and reliability. It will be included in the existing packages of the partners, with 1 Gb, 3 Gb and 8 Gb options.

Also in July, Telenor and Red Bull introduced a new brand, Red Bull Mobile, offering three types of smartphone handsets and rates, with which 18 to 35-year-old, extreme sports fans can access exclusive Red Bull content. The brand is still in the building phase, without any communicated user numbers.

Determined to jazz up the Hungarian market and to keep up with the latest trends, Telenor had already established itself among 15  to 26-year-olds by making djuice a separately operating brand back in April 2010. Djuice was launched six years ago on the Hungarian market and has collected over 400,000 customers since then. Now it has established its own sales network, including an innovative concept store. Its ambition is to become the most favored youth mobile brand on the local market within three years, and to acquire the clear majority of the targeted 1.4 million youngsters, djuice manager Balázs Bíró said.

Virtual bytes

The new service of Btel and Netfone is a typical example of mobile virtual network operators, or MVNOs as they are known. They operate according to the classic commercial model, but the operator owning the infrastructure and the frequency license is the wholesaler and its service provider partner is the retailer. Staying in direct touch with the customers, the retailer knows exactly what they want and can offer more services without having to invest huge amounts of money in development. In general, an MVNO is an entity or company that works independently of the mobile network operator and can set its own pricing structures. Meanwhile, the “real” mobile network operator can reach even smaller niches with such an agreement, which it could not cost-effectively do otherwise.

The Hungarian MVNO market is quite diverse: Postafon and djuice are relatively independent as branded resellers, having their own management, billing system, distribution of data traffic and handling customer services on their own.

Red Bull, on the other hand, is a new brand on the palette of Telenor that provides exclusive content and matching handsets; the two firms also have joint marketing plans. The new players are concentrating their activities on marketing and sales to end-users. In this business model, the end-user enters into contract with the original mobile network operator.

The only way ahead

After incumbent Magyar Telekom was not afraid to use in-house synergies and include mobile minutes and bytes in its bills, all the other mobile carriers sped up talks with possible partners as well.

In fact, something had to be done to reinvigorate competition. On the Hungarian market, saturated for too long but refusing to let new players in, the green light for MVNOs was a natural compromise. And alternative telcos have been waiting for the opportunity, since mobile services was the only thing they lacked.

But the Vodafone – Btel/Netfone agreement refers only to data flow, not voice services. Currently it is neither party’s priority to offer mobile voice: data is technically easier for mobile operators to sell and much less complicated for MVNOs to administer. Even Vodafone's previous attempt late last year has been slower to pick up than expected: the Postafon-branded subscriptions have not reached even the target of 5,000 users set for the end of 2009.

What didn't work for fixed line or mobile voice seems to be starting with better chances in mobile internet.

”The market is now mature, and there's a growing demand for mobile internet and accessories, and there are partners that have the necessary technical and business model to sell them,” Vodafone’s head of wholesale Tamás Tábori explained.

Pack'em up

Alternative telco partners had, in fact, much more to do technology-wise than regulation-wise. As a registered internet service provider, they could easily add mobile internet to their portfolio. But technological compliance demands investments, although none of the companies wanted to go into details about this.

Cable companies are usually not famous for their innovation, but for smart packaging, which could revive an existing product. After introducing fixed line internet and voice services in addition to cable TV, they needed something mobile to keep the business marketable. Netfone helps its partners with an online support platform and a solution that allows cable providers to offer the new service within two weeks of registration.

After all, packages are the ultimate things to offer. “In packages, we can lower the profit on each and every element and offer a competitive price,” Krisztián Takács, managing director of Btel said.

The goals are ambitious: marketing efforts first focus on the existing client base switching to more complex packages. Btel has about 20,000 users to convince, in equal proportion from the business and consumer segment, and thinks that 5,000 of them could actually become new subscribers. Netfone currently makes mobile internet available for about 50,000 households through its partners, and has set the goal of marketing the new service to 500,000 and recruiting at least 6% of them to add mobile services to their subscriptions.

Smart targeting

The big players on the mobile market are also optimistic. In some ways, the market is so saturated that it is hard to sell products that have very few distinctive features for clients to latch onto. In other ways, there are many niches that can't be reached cost-effectively. After a thorough consideration of the pros and cons, all three mobile operators have decided to have a go at the new service.

Vodafone already expects to have new clients in the order of thousands within a year. Telenor has great confidence in its djuice brand, which is expected to double its current client base of 400,000 in three years. Without disclosing any numbers, Telenor said it pays a license fee for the use of the Red Bull brand and the two companies share revenues coming from the joint branded packages. Magyar Telekom, on the other hand, while skeptical about MVNOs in general, said the reception of the Paletta packages offering quadruple play has been very good. The two offerings have a couple of thousand new subscribers, without any ad campaign supporting the launch.

Better practices

The MVNO model is not a new thing on the global market and not even a flawless success story. By the time it reached Hungary, service providers were in no rush to establish such a venture, considering the numerous failures. However, increased acceptance of the MVNO business model in emerging markets such as Eastern Europe and Latin America is lending traction to the global MVNO market. According to a recent analysis of Global Industry Analysts, Eastern Europe especially is expected to turbo-charge growth in MVNO subscriptions over the next few years as regulators seek to arouse further competition by awarding new MVNO licenses. A key MVNO strategy that promises to generate substantial opportunities for the market in the next few years is the dedicated focus on niche segments that bring in new revenue-generating opportunities for MVNOs. (BBJ)