Altech Autopage Cellular, SA’s biggest independent cellular service provider, has backed away from plans to launch a mobile virtual network operator (MVNO) after giving serious thought last year to the idea of launching one.

Altech CEO Craig Venter said as recently as September 2011 that Autopage Cellular was considering launching an MVNO or bidding for radio frequency spectrum to build its own fourth-generation (4G) mobile network. The company has decided against both options, at least for now, says Autopage Cellular CEO Boyd Chislett.

Cellular service providers are coming under increasing margin pressure from upstream network providers that are keen to cut their costs as competition intensifies and as termination rates — the fees they charge each other to carry calls between their networks — come down through regulatory intervention.

Altech had been considering launching an MVNO, becoming the second such provider in SA after Virgin Mobile, which piggybacks off Cell C’s network. Chislett says the company has done a “lot of work understanding the broad telecommunications industry and our relevance as a service provider over the next few years”.

Once it became clear that its large network partners, Vodacom and MTN, were likely to renew the company’s service provider contracts, the allure of launching an MVNO diminished. “What the design of those agreements will look like over the next five years is something we are unpacking with them now,” he says.

Autopage Cellular, which has more than 1m customers on its books — most of them post-paid subscribers — plans instead to bolster its presence in the retail market, opening new stores and offering “end-to-end” communications products and solutions to retail consumers and small and medium enterprises.

“We assessed the alternatives seriously, including launching an MVNO and entering into other partnerships in the industry,” says Chislett. “My view is that outside the UK and Germany, the MVNO strategy at a cash-generative level has largely been unsuccessful. For us, it’s become less attractive.”

Chislett says Altech Autopage Cellular has “come to the conclusion” that it can’t compete with the big players in the infrastructure space. Rather, the company wants to emulate the successful model employed by the UK’s Carphone Warehouse, which has managed to “dominate” that market without owning large tracts of infrastructure and spectrum. “That model can be replicated quite strongly in the SA market,” he says. “That is why we are focused heavily on distribution, on our own stores and franchise stores, and on other retail distribution opportunities.”

Altech announced on Monday that Autopage Cellular had acquired sister company Technology Concepts as part of a strategy of offering converged communications products and services.

Chislett says the merged entity will continue to invest in Technology Concept’s network, but adds that there is less point in investing in a network “when you are dealing with price erosion in the retail and small and medium-sized business market”.

“We will continue to invest where it makes sense but will not invest for the sake of investing,” he says. “We will look to connect small and medium enterprises seamlessly, utilising our network and the various products we have managed to build up over time, but that doesn’t mean you need to throw huge money into building a network. The network is good. What we have to do is get customers on that network. Hopefully Autopage will assist in that from a distribution perspective.”

Instead of focusing on big investment in infrastructure, the newly merged company will rather pitch itself as a one-stop-shop for consumers and small businesses. “We now have a network of more than 60 business partners we are training up and they will be our support services on the ground across the country,” Chislett says. “Instead of spending millions on bandwidth and capacity, we’d rather use partnerships [to go to market].”

Similarly, the company is unlikely to bid for spectrum to build its own network. “Truth be told, it’s an expensive exercise and what do you do with it? We’d rather play a strong role in the distribution space and let the guys with the deep pockets play in the infrastructure game. The likelihood of us playing in the spectrum space is quite remote, and remote by design.” — Duncan McLeod, TechCentral