The regional chief executive of Virgin Mobile believes it will be virtual operators that bring competition to the Gulf's telecoms markets

Competition has been a sensitive topic in the region's closed telecoms markets where often only two or three players jostle for supremacy.

Last year, a study of the Arab world's cellular markets by Arab Advisors Group ranked the United Arab Emirates and Qatar in the bottom five for competitiveness above only Lebanon, Libya and Syria.

But now with mobile penetration standing between 150 and 200 per cent in many parts of the Gulf Cooperation Council, telecoms regulators may be looking to spice things up.

The mobile virtual network operator model, in which companies operate on the networks of existing telcos to provide differentiated services, is entering a new phase in the region - according to the chief executive and founder of Virgin Mobile Middle East and Africa.

"In terms of this region versus other parts of the world, particularly Europe, Asia and North America, it is still early days," says Mikkel Vinter, who was previously CEO and founder of Friendi before the company combined regional assets with Virgin Mobile South Africa to form the current operation in 2012.

"We had a first wave of MVNO licences which was Jordan and Oman and then there was a little bit of a break and we're clearly now seeing the second wave happening across the Middle East and Africa."

For several years, Oman was the only GCC market to open up to MVNOs with Friendi and Renna Mobile both launching in 2009 on the network of Omantel.

This changed at the end of 2014, when the region's largest market Saudi Arabia opened up with the launch of Virgin Mobile and rival Lebara on the networks of Mobily and Saudi Telecom Company respectively. And now Vinter says the company is seeing opportunities in markets across the Middle East and Africa.

"We're getting a lot of approaches from regulators, from operators that want to talk now," he says. "Nowadays it is not so much the discussion of if it makes sense or if it will happen, it is when and how and on what condition."

This momentum is partly being driven by the surprising success of the model in Saudi Arabia, which was ranked the most competitive cellular market in the Arab World last year by Arab Advisors.

When the new entrants launched in the country, mobile penetration stood at around 170 per cent - leading some to suggest that existing operators STC, Mobily and Zain already adequately served it.

"Given the high level of mobile penetration, MVNOs will have to lure customers away from the mobile network operators, which can be more difficult and costly," noted research firm Analysys Mason, when the MVNO licenses were awarded in 2013.

"The regulator's imposition of a 15 per cent levy on revenue will also make it difficult for MVNOs to achieve a positive earnings before interest, taxes, depreciation, and amortisation - particularly when they will need to make significant investments to cover a large area and address a large population with an extended distribution network and marketing campaigns."

However, Virgin sought to prove the critics wrong. In July, it announced that government-owned Saudi Arabian Investment Company had acquired a minority stake in the Saudi unit, which offers services under the youth-focussed Virgin Mobile brand and expat-focussed Friendi brand.

A few months later, in October, the company said it had signed up its one-millionth customer.

"We've exceeded one million customers in Saudi Arabia so I think that says that it has been successful and some of the sceptics have definitely been put to shame," says Vinter.

Although still a relatively small milestone in a market of more than 50 million mobile subscribers, Vinter believes it and neighbouring Oman are good case studies as to what MVNOs can achieve in the region.

In the sultanate, Virgin's Friendi brand has fewer subscribers but boasts a market share of close to 10 per cent, he says, proving what is possible with the right regulatory framework in place.

Looking ahead the chief executive believes there is more opportunity to deliver in Saudi Arabia, even if adding another one million customers may not be realistic this year.

"That's an ambitious target to deliver on a repeated basis but we do see that certainly Saudi can deliver more growth than what we're seeing now," he says.

More broadly, the company's ambitious five-year plan is to reach 10 million customers in 10 markets in the Middle East and Africa from its current operations in South Africa, Oman, Jordan, Malaysia and Saudi Arabia.

This will require some significant gains, with the company standing at more than two million subscribers today.

"There are a number of markets in both the Middle East and Africa where the regulators are now opening up and we see that adding another five or more operations within the coming years as perfectly doable," he says.

Vinter reveals the company would like to repeat its arrangement with Sanabil in other markets by granting local shareholders significant minority stakes. It previously received $50m of investment from Gulf Investment Corp, an investment company jointly-owned by the Gulf States, in March 2013.

Of particular interest at this point in time is Tunisia, where Virgin is following the licensing process very closely. "We would also like to enter a market like Egypt," he says.

"We see some of the remaining GCC markets as interesting and then also into North Africa."

But less certain for now is where the company will go next in the Gulf.

Reports in 2014 suggested Virgin Mobile was looking to enter the United Arab Emirates after the regulator launched mobile number portability and allowed operators to launch prepaid mobile packages without its permission. However, Vinter insists no discussions are taking place.

"In the UAE, at the moment we're not aware of any licence becoming available," he says. "We always need the regulator in a given market to issue a licence and we are not there yet."

He also mentions the company's brief stint in Qatar in 2010 where it operated on the network of Ooredoo (then Qtel) before being disbanded. However, complaints from Vodafone Qatar that the launch was in breach of its licence terms - stipulating no new entrants for a set period of time - suggest Virgin's return may also be delayed.

In the meantime, one thing remains clear Vinter says, pointing to the extensive infrastructure already built by operators across the Gulf region. It will be new services rather than networks that boost competition in regional telecoms markets. 

© Gulf Business 2016