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MVNO Outlook for the Middle East

This document has been created by NEREO BUSINESS CONSULTANTS S.L.. It is not complete unless supported by the underlying detailed analyses and oral presentation.

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THE MVNO BUSINESS Key Relationships

The Mobile Virtual Network Operator (MVNO) business relies on two key relationships...

MVNO

• Agreement at price level

• Quality management (SLAs/KPIs)

• Mechanisms to guarantee the relationship’s evolution (new services, price update procedures,…)

• Value proposition (SAC, products and services)

• Efficient management of the customers retention (churn, SRC, customer care)

Host-MNO End-Users

… which have to be efficiently managed in order to achieve successful development

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Distribution

Cost

Bundling Segmentation

Brand

MVNO

Handset / Aplications

...while MVNO business is mostly a market segmentation game for mature marketplaces.

THE MVNO BUSINESS Alternative market entry strategies for MVNOs

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Tele2/Sunrise - Switzerland

Tele2 acquired by Sunrise Value: 33 million EUR Price per Customer: 63 EUR Year: 2008

Sense/TeliaSonera - Norway

Virgin UK/NTL - UK

Virgin UK acquired by NTL Value: 1,060 million EUR Price per Customer: 318 EUR Year: 2006

Bibob/Telenor – Denmark

Hutchison/CPW - Germany

Allmobility/Vodafone - Germany

Allmobility acquired by Vodafone AG Value: 25 million EUR Price per Customer: 62 EUR Year: 2007

Sense/TeliaSonera - Sweden

Saunalahti/Elisa - Finland

CBB acquired by Sonofon Value: 45 million EUR Price per Customer: 103 EUR Year: 2004

TELE2/VIRGIN - France

Tele2 acquired by Virgin Value: 56 million EUR Price per Customer: 140 EUR Year: 2009

THE MVNO BUSINESS MVNO Transactions – Alternatives for exit strategies

MVNO transactions across Western Europe in the last few years serve to highlight that exit strategies have been successfully achieved by investors….

Hutchison acquired by CPW (Carphone Warehouse)

Value: 52 million EUR Price per Customer: 96 EUR Year: 2003

Bibob acquired by Telenor Denmark Value: 12.5 million EUR Price per Customer: 181 EUR Year: 2009

Sense acquired by TeliaSonera Value: 189 million EUR Price per Customer: 104 EUR Year: 2004

Chess/Sense acquired by TeliaSonera Value: 185 million EUR Price per Customer: 457 EUR Year: 2004$

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Depending on the MVNO operational model and the segment of the target market selected, payback of the investment can be expected usually between 4 and 6 years…

Project Peak-funding • 4-6 Mill. USD

EBITDA Margin (% of revenues)

• 10-15%

CAPEX • 1 Mill. USD

Branded Reseller

• 7-10 Mill. USD

•15-20%

• 2-3 Mill. USD

Service Provider

• 10-15 Mill. USD

• 20-25%

• 10-12 Mill. USD

Full MVNO

Subscr. Ownership • The Client belongs to the MNO

• The Client belongs to the MVNO

• The Client belongs to the MVNO

MVNO OPERATIONAL MODELS Main Business Ratios

5

Source: NEREO analysis

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Countries in the MENA region are awakening to the MVNO phenomenon, with Oman leading the pack…

MVNOS IN MENA Market Situation (I)

Currently, several national markets in the Region are ready for MVNO entrance

Source: National TRAs ; NEREO analysis

ME mobile market comparison (2012)

Market size (subs)

Mobile Penetration

ARPU (USD)

# of MVNO

Egypt Jordan UAE Oman KSA

97.3M

116.2%

5.1

0

8.9M

140%

8.3

0

13.8M

168%

37.5

0

53.0M

184.6%

5.3M

182.5%

8.0

2* 0

17.3

Mobile penetration over addressable market

Penetr

ation G

row

th

125%

10%

Iran Iraq

Egypt Oman Jordan Qatar

Bahrain

KSA UAE

MENA mobile market penetration (2012)

* 5 MVNO licenses were issued and 4 launched. However only 2 are left in an operational mode with the rest shutting down or with insignificant client base

Kuwait

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MVNOS IN MENA Market Situation (II)

Population: 4 million Mobile Penetration: 55% Operators: 2 PALTEL interested in creating MVNOs

Palestine

Population: 83.7 million Mobile Penetration: 116% Operators: 3 Telecom Egypt has been awarded the only MVNO license

Egypt

Population: 6.2 million Mobile Penetration: 140% Operators: 4 2 MVNO licenses with 1 MVNO launched

Jordan

Population: 28 million Mobile Penetration: 185% Operators: 3 MVNO License bids closed in May ‘13. Upto 3 MVNO licenses to be awarder

Saudi Arabia

Population: 2.8 million Mobile Penetration: 182% Operators: 2 Saudi Telecom has recently been awarded the third telecom license Agreements in the branded reseller model can be developed

Kuwait

Bahrain

Population: 1.3 million Mobile Penetration: 158% Operators: 3

Population: 7.9 million Mobile Penetration: 168% Operators: 2 Agreements in the branded reseller model can be developed

UAE Oman

Population: 2.8 million Mobile Penetration: 183% Operators: 2 2 MVNOs operate in Oman

Source: National TRAs ; NEREO analysis

The Middle-Eastern market is likely to follow similar trends to those of more mature markets, so MVNOs are likely to become common in the near future

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MVNOS IN MENA MVNO Opportunities

Pro

duct

and S

erv

ices

Diffe

rentiation

Regulation readiness for MVNOS

Branded Reseller

UAE

Kuwait

Palestine

Service Provider

Full MVNO

Egypt

Oman

Jordan

Currently several MENA countries can be addressed from different operational models…

Different entry strategies & business models exist and can be used to start up MVNO operations in many countries of the MENA region

KSA

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OMAN – A SUCCESS STORY Launch of MVNOs

The OMANI TRA licensed 5 MVNOs to resell mobile products to customers in 2009…

MVNOs were licensed at a stage when there was healthy competition with both operators having comparable network market share

Omani mobile market evolution (2005-2008)

Subs

Marketshare

Subs

Marketshare

Mobile market situation in 2009

Subscribers in 000s; % network market share

Nawras was granted the 2nd mobile license in 2004 and started operations in 2005

Nawras was quickly catching up with Omantel in terms of subscriber numbers

The Omani TRA decided to permit the service provider model and invited applications for license

5 licenses were granted and allowed to sign with any of the 2 MNOs

4 MVNOs were eventually launched; 2 each with Omantel and Nawras

All of the MVNOs initially targeted similar market niches; low-income expats

Source: Omani TRA; Nereo Analysis

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OMAN – A SUCCESS STORY MVNOs growing

Mobile Resellers have grown rapidly and have been able to garner a market share of 11.2% in only 3 years…

The Omani experience shows that with the right MNO support, MVNOs can prosper and complement the MNO

Omani mobile market MVNO situation in 2012

June 2012;Subscribers in 000s; % network market share

Resellers

Source: Omani TRA; Nereo Analysis

Out of the 4 MVNOs launched, there has been rationalisatino and 2 MVNOs are currently relevant in Oman, Friendi Mobile & Renna Mobile. Both use the Omantel Network

Omantel has intelligently used the MVNOs to recoup market share lost to Nawras till 2008. Omantel has a current network market share (including resellers) of 60.1% from 53.0% in 2008

Each of the 2 successfull MVNOs has their own market niche and offer all mobile services, voice as well as data

Friendi, the MVNO market leader with around 7.6% of the total mobile market, targets the Asian and Indian subcontinent expat market

Renna, with around 3.6% market share, targets the arabic-speaking expats and cost-sensitive Omanis

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KSA BECKONS KSA market situation

The Saudi mobile market is one of the biggest mobile markets in the Middle East…

High penetration, market size and high ARPUs make the Saudi market ripe for the entry of MVNOs

Saudi mobile market

2013 Q1; Subscribers in 000s; % network market share

Current Mobile market situation

There are 4 Mobile Operators in the Saudi mobile market; STC, Mobily, Zain and iDEN operator Bravo. Zain is the latest entrant launching operations in 2008

The Saudi market has considerably high ARPUs especially taking into account the market size and penetration

Visitors coming for Hajj & Umrah play an important part in pushing the market penetration close to 200%

STC and Mobily are the main competitors with Zain trailing far behind even 4 years after launch

The Saudi TRA is currently conducting the process of awarding MVNO licenses. Bids have been accepted and the licenses are expected to be awarded in Aug 2013

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NEREO has an extensive experience in the mobile telecoms space worldwide….

ABOUT US NEREO – Telecom Practice

Assistance in the valuation of a local GSM operator

Technical assistance for defining Mobile Termination Rates

Assessing the feasibility of MVNO business for a Saudi company

Valuation of a fixed and mobile telecom player

Negotiating a MVNO agreement in Oman for a Bahraini Telecom Firm

Assistance in the development of a Private Placement Memorandum for a Kuwaiti Firm

Entry strategy within the Spanish market for one of the leading pan-European mobile operators

Providing support to one of the Spanish MNOs in connection with regulatory issues

Carrying out Due Diligence processes on European MVNO’s for a Middle-Eastern client with aims of acquiring said operators

MVNO strategy in Spain for a well known American Media and Movie Company

Assistance in the acquistion of a TV Broadcast Infrastructure Provider in Spain

Developing the entry strategy within several European market for one of the leading pan-European mobile operators

Developing the entry strategy into the Spanish market for a German MVNO

Consultancy for multinational IT firm for SMS Premium services within the Spanish market

•Assistance to a multinational IT firm in topics related to Mobile Number Portability

MVNO strategy and negotiations for an ethnic MVNO

Defining the MVNO strategy and Negotiations with Host MNO for an Islamic MVNO in Malaysia

Commercial & Technical Due-Diligence for acquisition of an Omani MVNO

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