MVNO Monday Q&A — Fenercell

9 May 2016

In a brand new instalment of the MVNO Monday Q&A, TeleGeography spoke with Hakan Demir, Fenercell’s founder and general manager, to discuss the company’s business model and future plans.

How would you classify your MVNO’s business model?

We can be classified as a branded reseller. We call our business model ‘Enhanced Service Provider’, and it works on a revenue-sharing basis.

How would you define your key target user market(s)?

We are targeting the fan base of Fenerbahce Sports Club, which is estimated to exceed 20 million in Turkey. We also have a sizeable number of fans around the world, specifically in Europe. We are looking for alternative options to address them. We started Fenercell Austria in 2015, as our first step abroad (see below).

When did you launch, who is your network provider, and has this partnership remained unchanged since launch?

We launched on 23 February 2009. Our network provider is Turk Telekom. The main pillars of our partnership have not changed, but we have gradually enhanced the service portfolio and widened the partnership. For example, we launched our enterprise service in 2014, and in 2011 we introduced a similar business model for fixed broadband services.

Which MVNOs/resellers/sub-brands do you see as your main competitors?

Our target market – by the nature of so-called football ‘fandom’ – cannot be directly addressed by any other service provider, so we enjoy the advantage of being able to deliver a unique offer to the Fenerbahce fan base. Indirectly, however, supermarket chains, technology companies and the postal service, with their widespread distribution networks and low-cost brand images pose a threat to our pre-paid segment. Since the MVNO market is not yet developed in Turkey, compared to western Europe for example, the competitors are still the MNOs themselves, rather then the MVNOs.

At the current stage of the company’s development, which of the following is most important to you: growing your subscriber base, increasing your ARPU, or increasing your profitability?

We are already enjoying a high level of profitability, thus the priority is to keep up with this level of profitability, rather than to increase it. The price competition between the MNOs affects us and puts pressure on our ARPUs. We need to offer more data and voice access to maintain the ARPU level, and this costs us more in terms of squeezed margins. It is a volume game at the end of the day; we need to increase the number of subscribers, either through retention or new customers. We put more gravity on whichever route proves less costly.

What do you regard as the company’s biggest achievement since launching services? What have been the key milestones in your company’s development?

The company was launched in a very MVNO-unfriendly market and nobody believed a sports club focused MVNO would be successful. In the first nine months, however, Fenercell reached the 100,000-subscriber mark – which I think is the threshold to sustainability – and achieved a net profit after just 14 months. Renewing the agreement with better terms after the initial five years (for another five years) was a success in itself, considering the MVNO junkyard is no clean place!

What is the size of your current user base and/or market share?

We have registered over a million subscribers under the Fenercell brand.

What are your subscriber targets for the next five years?

Our target for the next five years is to double the number of subscribers on our books. This is the target for organic growth. We have plans to grow into different geographic markets and offer different telecom services as well; we already run a profitable fixed broadband business and we are working to expand into the provision of IPTV services. If your business plan is working successfully, why not to repeat it in the neighbouring environments? And, we also believe in the merits of the ‘one-stop-shop’ and the single invoice.

What was your annual revenue (or revenue market share) for the most recent year, and what are your projected growth targets for the next five years?

This is one thing we are not allowed to disclose. What I can tell you is that our profits have accumulated enough to afford the transfer of a world famous football star…!

Do you consider the government and regulator’s positions regarding MVNOs to be conducive to a healthy market, or are there still significant obstacles?

Not conducive at all. There is legislation for MVNOs, and you can get an MVNO licence, but once you are a licensed operator, you are subject to pay a 15% treasury tax on top of your revenues, which makes running a profitable operation difficult. The wholesale offers from the operators – which the significant market power (SMP) operators announce unwillingly, just to comply with the regulator’s directives – are often higher than the prevailing market prices! That is why we chose to operate on the unlicensed side when we started in 2009, as the first ever pre-MVNO.

Are you currently able to offer 4G LTE services via your wholesale agreement? Is 4G important to you?

LTE-Advanced (LTE-A) services launched in Turkey on 1 April 2016, and we have offered 4G from the first day onwards. 4G is very important. We would lose a lot of customers if we were not able to provide it. There has been a very strong campaign for 4G services in Turkey, and the public perception has been set to a level where 4G is recognised a must.

Do you have a presence in any other sectors or markets? (e.g. fixed broadband, energy, retail, e-commerce etc.) If so, do you plan to link your other operations with your MVNO business in any way?

As I mentioned earlier, we offer fixed broadband services under ‘Fenernet’ brand. We run a ‘Smart Stadium’ service (digital signage, stadium-wide Wi-Fi, official fan applications etc.). We also offer e-commerce, basically to support the MVNO offerings, rather than as a separate business line. These business lines all enjoy natural synergies.

Can you tell us about your ‘Smart Stadium’ project? Has this driven interest in Fenercell? Do you intend to expand the scope of the project in the future?

This project originated from a desperate need to provide fans with enough mobile capacity, and evolved into a 360 degree connected stadium. Those fans who originally complained about the network quality and traffic congestion are now sending us thank you letters! I would say that the fans who are happiest with developments here are Fenercell and Fenernet subscribers, because they have access to smart stadium services for free. We are adding new elements to the concept gradually; for example, we have installed decibel meters to measure and boost the cheers. We also plan to install touch screens on the headrests in the VIP sections.

With OTT apps increasingly supplementing/replacing traditional calls and SMS for voice and messaging, is there a danger that MVNOs will struggle to remain a valid proposition if markets continue to move towards data?

OTTs are a major threat for the market, for sure. They have in some senses killed our SMS revenues and are eating into our voice revenues as well. As a content-rich service provider, we feel more inclined on the data side. We are looking at our options either to set up our own branded OTT, or to embed OTT functions into our official mobile app.

Do you perceive a threat from established MNOs which may look to buy out successful MVNOs in order to protect their market share? Conversely, can MVNOs expand their services to multiple sectors and become major players themselves?

MNOs buying out MVNOs is not an imminent threat in the Turkish market, since no pre-MVNOs own their subscribers. But in more competitive, and MVNO-friendly, markets we have observed sizable buyouts, and this will continue. For MVNO investors who feel like they have reached the peak of their potential – or have already plateaued – a sell out for the right price is not always the worst option. I believe there is room for those who would like to expand their success to multiple sectors. We, for example, have an increasing share of revenues from our fixed broadband services (which we call an FVNO) and our smart stadium services.

Do you – or your parent company – have any plans for future international expansion?

Yes, we are already active in Austria, partnering with Telekom Austria. In addition to which, Germany, France, UK, Belgium, the Netherlands, Azerbaijan and the United States are all countries where we have a considerable fan population, and are studying our options.

Finally, what advice would you give to a company planning an MVNO launch in another market?

That is a critical issue and needs to be addressed in detail. Some key points, however, can be suggested:

• An MVNO is not a riskless play. Even though it is ‘virtual’, you can still burn some serious money.

• Pick the right business model according to the market, regulations, resources and the host MNO. There is no ‘one size fits all’ in this game.

• Competing against the host MNO is seldom a good choice. Complementing the MNO’s service mix is generally a better option, for a sustainable, long term operation.

• You will not have the time and resources to develop a brand from scratch. A strong brand is a necessity, but that is not sufficient in itself. You need to find the right niche and find a unique offer.

• Innovation and speed are very important.

• If you do not secure an efficient distribution network you are doomed.

We welcome your feedback about the MVNO Monday Q&A. If you are a senior executive working within the MVNO sector, and would like to be considered for the MVNO Monday Q&A, please email [email protected]

TeleGeography’s GlobalComms Database is now home to the telecoms industry’s fastest-growing collection of MVNO data, covering more than 80 countries and 800 virtual operators. If you would like to find out more, please email [email protected]

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