Milind Kangle is looking forward to the end of February. By then — if plans go well — Lycamobile, the fast-growing company of which he is CEO, should have launched its most ambitious expansion yet: the US, its sixteenth country for low-cost international mobile services.
But February 2013 will be memorable for another reason, says Kangle, speaking to Global Telecoms Business at the end of January. “February is the end of our financial year, and for the first time we’ll be crossing the €1 billion mark.”
Sales are growing fast, he adds. In the year ending February 2012 Lycamobile’s turnover was €630 million, says Kangle. Since then it has doubled, he says: “Our run-rate is now around €1.2-€1.3 billion.”
But if the next project succeeds as well as he hopes, the US development will grow Lycamobile still further. “The US entry will double our turnover to €2 billion in the year March 2013 to February 2014,” predicts Kangle.
Lycamobile already offers low-cost international pre-pay calling as a mobile virtual network operator in 15 countries — 14 of them in Europe, from Portugal to Poland, but also including Australia. It has MVNO contracts with a variety of network operators, including Telefónica and Vodafone, all negotiated country by country.
Cheap calls are the focus of the company’s offer. According to the company’s websites, customers in Spain can call people in Argentina, Brazil, China and Romania for one euro cent a minute. Customers in Denmark can call friends and family in India, Poland and Turkey for one øre a minute — about three quarters of a euro cent.
Free calls to China
Australian customers have an even better deal: the company is charging A$0.29 for connection costs but then no further cost per minute for landlines in a range of countries, including China and India — though mobiles cost a couple of cents a minute on top of the 29 cents.
A sixteenth deal will enable the US expansion for Lycamobile, but it is being achieved without huge capital expenditure, says Kangle. “We are going in as an MVNO and that means we don’t have any of the capital investment that a mobile network operator would need.”
However, Lycamobile is investing heavily in the support services, including data centre facilities, SIM cards and a distribution network for the US.
The company will be using two existing outsourced call centres, in London and Manchester in the UK, to service calls from US customers in English and Spanish. It is recruiting 1,000 people in the US, “largely merchandising staff, responsible for ensuring our point-of-sale visibility”, he says. “All the bits are in place for the launch.”
Quality of service
But what is the demand for an MVNO in the US, in what is already a highly competitive market? The US still has relatively low penetration compared with some developed countries, “and that is an opportunity for us”, he suggests. “And the quality of service in general in the US is poor. The vast nature of the country means [mobile] is not as ubiquitous [as it could be].”
US operators tend to have “a one-size-fits-all proposition”, he says. “They’re not able to differentiate. But we differentiate for international calling.”
Immigrants and expatriates in the US market tend to be served by the prepaid phone card market, says Kangle. “We know that there are 15 million potential customers, but we’ve narrowed our target market to 10 million.” Among them are two million from India, he adds. “Our marketing is very focused.”
The company will be using TV channels aimed at particular communities in the US — including Star TV and Sony TV, both targeted at south Asians — to promote the new service. “TV is clearly important, but we won’t just be using TV. We’ll be working with events, the press, radio and universities. We will sponsor a number of religious and cultural events. It’s about getting close to our customers.”
Many potential customers have already heard of the company, he says. “Our target market understands the Lyca brand. The Indian diaspora has friends and family in the US,” says Kangle. “Half of our acquisitions come from word of mouth.”
That’s helped by the fact that the company is more than a normal MVNO in each of its markets. “We are a full MVNO, with our own network codes, our own HLR [home location register] and our own SIM cards,” says Kangle. “This gives us full control of the customer experience.”
In particular, Lycamobile offers free on-net calls — calls between Lyca customers anywhere in the world. It can do that only because its systems keep track not only of all the numbers assigned to its customers worldwide, but also of all former Lyca numbers that have been ported to different operators.
“We are able to manage the costs because we can identify ported numbers from our central platform. We can do a global on-net play and we can use our own least-cost-routing network to minimise the costs.”
The US operation will be providing voice, text and data, working on HSPA+, “what the US market calls 4G”, but is in fact 3G. “We’ve tested our service and it works fine,” says Kangle, a few weeks ahead of the official launch.
Which operator will be providing the infrastructure? Kangle wouldn’t say, but sources in the industry tell Global Telecoms Business that it is likely to be Deutsche Telekom’s T-Mobile USA. Only it and AT&T provide GSM-family 2G and 3G services nationwide in the US.
Their rivals Sprint and Verizon Wireless both operate CDMA networks. While MVNOs are both feasible on CDMA — and, indeed, Sprint is a major infrastructure provider to MVNOs in the US — Lycamobile standardises on GSM worldwide.
Two aspects of Lycamobile’s strategy means it is in a position to negotiate competitive deals across its operating countries. First, it negotiates deals in each country, choosing between all operators that are in a particular market — rather than getting a bundle of cross-border deals from one of the larger groups. It uses Telefónica’s O2 in the UK, for example.
Because it has its own HLR and numbering ranges it can move service from provider to provider. The last country where it did not have such an arrangement was Italy, but that has just changed. “We have a new network partner in Italy, Vodafone,” says Kangle. “We have just migrated from the service provider model. Now all [countries] are full MVNOs.”
Balance of power
The company has “done four migrations” from one provider to another, he says. “I like a good balance of power between the MNO and the MVNO.” He adds that “we want good relations with our MNO partners”.
For its mobile network operator partners, Lycamobile provides a good deal, he says. “With wholesale billing, it’s pure ebitda because it doesn’t attract any cost. It’s incremental revenue.”
Having true MVNO status means also that it’s up to Lycamobile to arrange — and pay for — its own international wholesale connections. “We are obsessed with quality,” says Kangle. “Our technicians are empowered to block any [international] carrier which does not give the right quality, and move to a more expensive carrier. They do not have to refer to the management team or the board for that decision. People come to Lycamobile for value, but people want great quality.”
If he’s right when he says that the company is heading for €2 billion turnover within a year, what will Lycamobile do with the money? “Revenue is not margin,” he smiles. “And our revenue is not as big as the mobile network operators’. We buy access and add value. We have to maintain our own distribution and our technical platform, and we have to operate in the languages that our customers choose.”
But, he accepts, “the economies of scale mean we’ll deliver margins”. Even with Lycamobile having to buy SIMs and airtime and wholesale connections it “creates sustainable margins and cashflows”.
So the company has looked at areas in which it wants to invest “to serve the needs of our customers”. International expansion is not over: the company has identified 25 countries where it would like to be operating by the end of the 2013-14 financial year, including the US and existing markets. Kangle says he is “closing deals” for those extra nine and is also looking further afield.
“There are active discussions going on in multiple markets”, he adds. Where? “It doesn’t make sense to enter a tiny market.” The company is looking at Latin America and looking at Asia, he says. But Canada will be the next focus after the US launch.
But at the same time there’s an expansion into related services. Lycamobile customers don’t just phone their friends and family overseas: they visit them, and they send funds to them. “We have built 20 strong partnerships with airlines,” says Kangle. “When a customer leaves their home country to travel to their destination, uses their mobile, sends money back, and then travels back home, we try to cover the whole journey.”
Lycamobile has its own branded prepay MasterCard, and customers who use that to top up their pay-as-you-go phone accounts get 10% extra. “our consumers have a high degree of trust for the Lycamobile brand,” says Kangle — and on that he plans to build as the company expands.
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