Virgin territory

How Friendi Group cemented its position as the region's leading MVNO
Mikkel Vinter is CEO of Friendi Group.
Mikkel Vinter is CEO of Friendi Group.


Friendi Group, the first company to launch an MVNO in the Middle East, has come a long way since the launch of its first operation in Oman in early 2009.

Just three years ago, the MVNO concept was new to the region and there was debate about whether or not they would take root. With competition between telcos then at an earlier stage in many Middle East markets, the idea of MVNOs was also viewed with suspicion by many operators, who saw them as a potential source of disruption.

But last month, a transformative deal between Dubai-based Friendi Group and Virgin Group vindicated the MVNO strategy in the MEA region, and also Friendi’s strategy for expansion.

In June, the two companies announced that, subject to local authority clearances, they would merge their regional telecom operations to create a combined entity called Virgin Mobile Middle East & Africa (VMMEA), which will develop and operate mobile telecommunications businesses across the region.

Put simply, the deal will see Friendi Group take over Virgin Mobile’s South Africa business and also gain exclusive rights to the Virgin Mobile brand in the Middle East, Africa and a few countries in South East Asia. In return Virgin, which currently holds a 55% stake in Virgin Mobile South Africa, will acquire shares in Friendi Group.

The new combined group will manage the current operations of Virgin Mobile in South Africa and Friendi Group in Oman, Jordan and Saudi Arabia, creating a regional mobile telecom player with more than 1 million customers.

“Virgin and Friendi Group have complementary brands across their respective demographic targets and both are focusing on providing great customer service and value for money,” the companies said in a statement.

The new group, which will be headed by Mikkel Vinter, CEO of Friendi Group, has plans to launch in more markets across the Middle East and Africa, and is targeting a regional customer base of more than 5 million subscribers by 2015.

Speaking to CommsMEA, Vinter, says that the deal will benefit both parties. Virgin has a strong brand but its South African MVNO has experienced significant problems and has a history of making a loss. This is a situation that Friendi Group, with its proven track record in Oman, should be able to help rectify.

“They [Virgin] obviously have an amazing brand but are very busy,” Vinter says. “We are based here, know the region, have been here for five-plus years now and have a good set of local partners. We have a good understanding of the environment and have three live operations of various sorts in the region.

“They have an amazing brand and they saw in us a management team and some MVNO craftsmanship and regional insight that they liked,” Vinter adds.

While Virgin Mobile’s performance in South Africa has been poor compared to its operations in other parts of the world, the South African operation has been undergoing a turnaround in the past few months.

The company recently announced the departure of its CEO, Steve Bailey, and the appointment Anton Landman as chief financial officer. Landman also took on the role of acting CEO while a suitable candidate was being found as a permanent replacement.

Vinter says that Virgin Mobile South Africa has made much progress in recent months, and is on track to become profitable in 2013. “We are seeing already there is a new management team coming in and there are a lot of activities happening to improve things. Historically it had been running with big losses but now it is EBITDA neutral. The business is just about breakeven now on a monthly level so that is a huge improvement compared to six months or a year ago. We expect that, probably by next year, it will be profitable.”

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Integration strategy

While Virgin Mobile undoubtedly has a strong brand, with some 15 million customers globally, Friendi Mobile has also become a solid brand in its own right in the Middle East. Vinter says that following the completion of the deal, the two brands will co-exist and will even be introduced into each other’s markets where it is deemed that the brands could be complementary.

“What we’ve agreed with Virgin is that we’ll run a two-brand strategy where it makes sense. We will keep Friendi in markets where we are but we will also have the option to introduce Virgin and Friendi in new markets. We have some opportunity to mix and match; one MVNO with two brands sharing resources like the call centre.”

Vinter adds that this approach has already proved successful in Oman, where Friendi launched a sub-brand called Halafoni, which is aimed at the youth population. “One of the aspects that gave Virgin some comfort in this two-brand approach, which is a bit unusual for them, is that it is already tried and tested. We have the business processes and the systems already set up to do that.”

Asian expansion

Friendi Group’s deal with Virgin was followed closely in June with news that the Dubai-based firm had cemented its plan to expand in Asia. Indeed, Vinter says that his company aims to launch an operation in Malaysia by the end of the year after signing an agreement to form a joint venture with a local partner in the country.

Friendi Group signed an agreement with Malaysian sovereign wealth fund, Kumpulan Perangsang Selangor Berhad, as its local MVNO partner in the country. Friendi, which already runs MVNOs and brand licencing agreements in Oman, Jordan and KSA, will have a majority stake in the Malaysian venture, according to Vinter. “The company has been formed, we have secured a licence and we are moving forward. We have a majority stake. With a little bit of luck we will launch later this year.”

The new venture will be run from a new Friendi Group office in Kuala Lumpar. The operation will be headed by Jonathan Marchbank, a former COO of Virgin Mobile in the USA, an MVNO with more than 5 million customers, according to a recent statement from Kumpulan Perangsang Selangor Berhad.

Sound model

While the MVNO model remains relatively new to the MEA region, Vinter is confident that attitudes to the concept are now changing, with Saudi Arabia due to auction three MVNO licences this year, and Egypt also reportedly planning to offer a licence.

“It seems like regulators are coming round to the idea of MVNOs a lot more now,” Vinter says. “There was a first wave with Oman and Jordan licences and now we have a bit of an evaluation period. It’s a big thing that Saudi and Egypt are going down this path. Once this happens it will be going mainstream and we expect it will grow further.”

The development of Friendi Group mirrors the development of MVNOs in general the region. Indeed, the company has been present at – and has arguably helped to drive – most of the major MVNO developments in the region.

Following its launch in Oman in 2009, Friendi Group entered Jordan in June 2010 and also launched as a brand in Saudi Arabia, in conjunction with Zain KSA, in 2011. Friendi Group’s operation in Oman, which has a market share of 8%, is now profitable. Vinter says that the Jordanian and Saudi Arabian operations are yet to break even, although he expects them to reach profitability in a similar time-frame to the Oman operation. “It is a function of time. What we typically see is that the time from launch to profitability is somewhere between 18-24 months depending on the market.”

Across its footprint, and including Virgin Mobile South Africa, Friendi Group now has more than 1 million subscribers, according to Vinter.He also sees plenty of room for further expansion. “We have a few new markets in the pipeline.”

He confirms that the company is actively looking at the upcoming MVNO licences in Saudi Arabia and that Egypt is also a “market which we find very interesting”.

“A number of North African markets, after the process of government change, are looking at their whole business sector and obviously telecom as well. In Middle East and North Africa, and also other places in Southern Africa, there are things happening.”

MVNOs – analyst’s view

There is certainly plenty of room for the MVNO model to grow in the region, with only four or five countries in the region having adopted the concept.

Josep Que, a partner at Dubai-based telecoms research and investment firm Delta Partners, described MVNOs as being “almost non-existent in most markets” of the Middle East and Africa when compared to continents such as Europe. Oman and South Africa are the standout markets, with both countries having four to five MVNO licencees.

“In these two markets you can find not only some international brands like Virgin Mobile and Red Bull Mobile but also regional companies like Friendi.

“Jordan and Cameroon also have MVNOs, but overall in the MEA region there are around 15 active MVNOs, representing less than 2% of all currently active MVNOs in the world,” he says.

Que adds that in most countries there is no specific regulation regarding MVNOs. As such the existence of these players not only requires a positive business case and investors, but also the willingness of mobile network operators (MNOs) to host partners with this business model.

“Some of these mobile operators miss the opportunity to see MVNOs as a partner that will complement their businesses by targeting niche segments where the operators aren’t very strong,” Que says.






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