Virgin Mobile Plc, the UK’s fifth largest mobile operator, is set to enter the most valuable market in Africa, with plans to run a joint venture in South Africa.
South Africa is a hugely attractive market becuause saturation levels are relatively low compared to western Europe. Only 57% of the South African population of 47 million own a mobile phone.
However, the South African market is dominated by two huge mobile players. There is some dispute over who is the market leader, but Vodacom (Pty) Ltd is co-owned by the local fixed-line incumbent Telkom SA Ltd and the world’s largest mobile operator Vodafone Group Plc. The second dominant player is MTN Group Ltd.
There is also Cell C, a relatively new South African mobile operator formed in 2001. It had 3.2 million customers at the end of December, which puts it some way behind the likes of MTN and Vodacom, each of which has a customer base of roughly 20 million. Cell C has spent more than ZAR 9bn ($1.44bn) building its operations and is investing another ZAR 1bn ($160m) this year. However, it has yet to announce a net profit.
In the UK, Virgin Mobile operates as a VNO (virtual network operator), using T-Mobile’s network for its branded service. Now, according to a report in the South African business newspaper Business Day, Virgin Mobile will next week unveil plans to run the joint venture between Cell C and Virgin, selling a service branded as Virgin Mobile but using the network and infrastructure built by Cell C.
This means that Virgin Mobile will South Africa’s fourth mobile operator, to be known as Virgin Mobile SA, and will inject some much-needed competition into the market. According to Business Day, the venture will generate extra income for Cell C and the Virgin brand is expected to attract more sophisticated users not won over by Cell C’s cheap and cheerful image.
The average month spend of a Cell C is on average ZAR 120 ($19.18) a month, significantly below the average customer spending of ZAR 168 ($26.86) at MTN and ZAR 147 ($23.50) at Vodacom.
Virgin boss Sir Richard Branson has made no secret of his desire to enter the South African market, and held talks with Vodacom to setu p as an VNO in 2001. Virgin Mobile currently runs VNO’s in Australia, Canada, the UK and the US.
VNO arrangements are illegal in South Africa, where any cellular operator must hold a license. However, the deal devised with Cell C circumvents that by forming a joint venture using Cell C’s license.