This case study illustrates how RWH Consulting helped one operator decide how to address this question.
Summary
Robert Harrison of RWH Consulting led a small specialist team to advise the board of an incumbent fixed line operator in Africa on the optimum choice of strategies to allow it to enter the mobile market.
We based our advice on careful assessment of the key parameters of the market and by modelling different market, network and financial scenarios to reflect the different strategic options available. This approach allowed us to determine the strategy most likely to meet the business objectives and to maximise the IRR and NPV, given the market, regulatory and technological constraints.
RWH Consulting used its expertise and experience in the sector to rapidly identify the most promising business scenarios, to identify and test the key market and technical data required for the analysis and to set realistic assumptions for technological and market development.
Situation
The incumbent fixed line operator of an emerging African country had not been granted a mobile licence and the market for mobile voice services was maturing. Government plans were to privatise the operator in the near future, so the approach chosen would have to be one that would help ensure a high valuation of the business.
The operator had been advised that an application for a mobile licence would be treated sympathetically and decided that it needed to take advice on the best business and technical approach to adopt. RWH Consulting was asked to consider the question and provide recommendations. The parties agreed to consider and compare the options of establishing an MVNO, building a mobile network, or simply continuing with existing plans, which included the introduction of broadband ADSL services with the possible complement of fixed broadband wireless access (BWA). Revenue opportunities for a full range of both voice and data services would be taken into account in assessing all options.
The work consisted of three main parts:
- Market assessment and forecasting
- Comparison of technology options
- Financial modelling
Market assessment and forecasting
This step comprised research and thorough analysis of the country’s demographics and existing telecommunications markets to establish the size and nature of the potential market for the services being considered.
The work, which included selected international comparisons with countries of comparable economic development, showed that the voice market was mature and would be difficult to enter without differentiated services and number portability. By contrast the data services market was very immature and well behind that indicated by international comparisons. A previously developed model was used to generate customer and revenue forecasts using a range of service choices, tariff schemes, and interconnect and roaming charges, for various network options and market scenarios, reflecting the different strategic options.
Comparison of Technology options
To ensure the technology comparisons were valid they were based on high level network designs using forecast traffic levels taken from the market model. Designs were produced for different technologies by a network modelling tool which provided operating and capital cost comparisons of different technologies in different frequency bands. This allowed us to consider a range of options under a variety of circumstances. In this case full comparison was limited to available proven technologies to ensure that early launch could be achieved with confidence.
Financial modelling
The financial model took inputs form the market and network models, including forecast revenues, opex and capex, and provided forecasts of cash flow, IRR and NPV. By varying the scenarios and underlying assumptions the forecasts were flexed to reflect the different scenarios.
Conclusions
In this case, analysis showed that while an MVNO would offer the lowest risk approach, it was unlikely to generate significant revenues owing to the difficulty of gaining worthwhile market share. Building a network, although more expensive, would allow significant differentiation especially if it used WCDMA which would provide the opportunity to offer broadband data services complementary to the ADSL offering, and would attract incoming roamers likely to generate higher revenues and margins.
The conclusions and recommendations were presented to and accepted by the board. The operator is now proceeding with the implementation of our recommendations.