Virgin and SingTel have launched a joint virtual mobile phone operation.
Following a provisional agreement to create the virtual operator in July, Virgin Group and Singapore Telecommunications yesterday announced further details of the venture. Virgin and SingTel will invest $50 million each, with each firm taking a 50% share in the new company. SingTel will also offer the company up to $450 million in loans; it will provide mobile phone services first in Singapore and later in Hong Kong and Taiwan.
SingTel is already the dominant mobile operator in Singapore; the new Virgin offering will inevitably cannibalize some of its customers. However, as the focus of Virgin Mobile is strongly on low-use personal consumers, the revenue loss will not be substantial. From SingTel’s perspective, the main point of the service is leveraging Virgin’s brand to expand into other Asian markets.
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 capacity on SingTel’s existing network – this explains the comparatively low startup costs. This is the same strategy Virgin has used for its extremely fast-growing UK mobile business, a joint venture with Deutsche Telekom’s One2One mobile unit, which has built a subscriber base of more than half a million in less than a year.
The deal will further Virgin’s plans to expand the Virgin Mobile brand globally. In addition to the UK operation, Virgin last month announced a similar deal with Australia’s Cable and Wireless Optus. In the future, it also plans to move into the US market. Virgin’s brand is valuable in Asia, being associated with stylish megastores and its high-quality airline, so the joint venture is likely to be successful in attracting the price-conscious but style-conscious customers it is targeting.
Virgin Mobile’s strategy of dealing with different operators in different companies could lead it into problems in the future, as the industry consolidates into a small number of strong global players, which could be reluctant to dedicate capacity to a brand they do not control and cannot exploit outside one specific country. However, as this joint venture covers the Virgin Mobile brand throughout East Asia (which is likely to be SingTel’s main market), and is a major part of SingTel’s international strategy, this problem is unlikely to arise. The deal seems to make a lot of sense for both firms in the short and long term.
