Virgin Group has launched a mobile phone service in Australia.
Richard Branson’s Virgin Group and mobile operator Cable and Wireless Optus launched their joint-venture contract-free mobile phone service in Australia on Tuesday. Virgin is avoiding a lot of the financial risk associated with the mobile sector – instead of building a network and buying expensive licenses, the company is renting space on Optus’ existing network. As a result, the 50-50 joint venture is being launched with a total investment of only A$200 million (US$104 million). The service will be very price-competitive for particular types of customer.
This is the same strategy Virgin has used for its extremely fast-growing UK business, which has built a subscriber base of more than half a million in less than a year. Further international expansion is planned – it also plans to launch services in Asia with SingTel Mobile and eventually in the US.
Initial prospects for the business look good. Virgin is a well-recognized brand in Australia, known for value for money services such as its Virgin Blue cut-price airline. The business should repeat the UK operation’s success in gaining customers in the short run; people are happy to switch mobile operators if they think they can make major cost savings. The main problem is more long-term. Optus is considering selling its mobile unit, and Japan’s NTT DoCoMo has been suggested as a potential bidder. It may have less use for the Virgin brand.
Similar problems could arise in growing the business in other international markets. While it will in many cases be easy to rent 2G capacity and build cut-price operations with little capital investment, and while the Virgin brand is undeniably powerful throughout the world, it is harder to see a place for the company in the long term, as the consolidation in the mobile telecoms market leads to a small number of strong global players.
As the industry consolidates, Virgin’s partners are likely to end up owned by different global giants. There may be a conflict of interest for the global operators acting as wholesalers to Virgin in different markets – they could be reluctant to dedicate capacity to a brand they do not control and cannot exploit outside one specific country. If this is the case, plans to expand the operation and to offer 3G services may run into trouble.
