July 29 (Bloomberg) -- Virgin Mobile Mexico calls its customers “rock stars” and charges for airtime by the second, not the minute, so you can “dump your boyfriend for less.”
In truth, the sassy marketing messages are designed to persuade young wireless users to break up with billionaire Carlos Slim’s America Movil SAB, which has seven out of 10 of the nation’s mobile-phone accounts. With backers including another billionaire, Richard Branson, Virgin Mobile Latin America Inc. debuted its operations in June in Mexico, its third market in the region after Chile and Colombia, where it’s been adding a total of more than 100,000 subscribers a month.
What Virgin doesn’t have is a network. Instead, it resells wireless minutes it buys on a wholesale basis from another carrier, Telefonica SA. While that model has been successful in other parts of the world, resellers in Mexico have struggled to make inroads against America Movil’s dominance. Virgin is betting that young users, who have grown up in a digital world and crave a constant connection, represent a large market that competitors haven’t tapped.
“No one in Mexico had signed up to serve the young market,” Jose Otero, an analyst at Signals Telecom Consulting, said in a phone interview from Bogota. “The options you had in Mexico were: ‘All you can eat.’ ‘I’m willing to serve anybody.’ Now you’re seeing new services, new apps, and there’s a competitive pressure.”
Virgin Mobile Mexico aims to lure as many as 1 million users in its first year, Chief Executive Officer Cecilia Vega told El Economista last month. Though it will initially be available in Mexico’s biggest cities, it seeks to gradually expand across the country, said Vega, a former marketing executive at MetLife Inc. who Virgin said is the first female CEO of a wireless company in Mexico.
The company declined to make Vega available for an interview or to comment on its subscriber figures so far. An America Movil press official didn’t respond to requests for comment.
Virgin Mobile Latin America started operations in Mexico just a month before President Enrique Pena Nieto signed a telecommunications overhaul into law. The bill seeks to ignite competition and lure foreign investment in an industry that’s been controlled by a handful of local billionaires for decades.
The law makes it easier for a new entrant like Virgin to compete, since it will force America Movil’s Telcel unit to share its network infrastructure -- the largest in Mexico -- with other operators. It also removes barriers for customers who want to switch carriers by ordering wireless companies to sell unlocked phones under prepaid plans, Otero said.
Virgin will also go head-to-head against Telefonica, Grupo Iusacell SA and NII Holdings Inc.’s Nextel, which together account for about 30 percent of the mobile-phone lines in Mexico.
Wireless resellers, also called mobile virtual network operators or MVNOs, have thrived in countries like Spain and the U.S., where America Movil’s TracFone unit is the biggest prepaid phone company. In Mexico, they have fallen flat so far.
Landline carrier Maxcom Telecomunicaciones SAB and cable company Megacable Holdings SAB have both resold Telefonica’s wireless service under their own brands for years, packaging mobile-phone plans with landline phone, Internet and TV service. Maxcom had fewer than 40,000 wireless lines at the end of March, and Megacable has said it has only a small amount of customers.
Virgin will also have plenty of challenges. While charging by the second instead of rounding up to the nearest minute could save consumers money, Virgin’s rate of 3 centavos a second equals 1.80 pesos (14 cents) a minute, compared with Telcel’s fee of 98 centavos a minute. Its data charge of 2 pesos a megabyte is also double Telcel’s rate. The bet is that consumers will pay more for a different customer-service experience that includes perks like 2-for-1 movie tickets and reduced taxi fares.
Virgin also has to educate consumers on their new rights under the law, including the ability to unlock phones to switch to other carriers, said Valeria Romo, an analyst with Banco Monex SA.
“When you analyze Virgin’s strategy, they’re not selling phones. They’re an entirely prepaid service and the fees aren’t as competitive,” she said. “Their model is: Switch with us. But I don’t think Mexico’s youth is as aware of how you can affiliate if you don’t own a phone already.”
Virgin has been positioning itself to take advantage of the new law, placing “unblocker” trucks outside of popular shopping malls and parks across Mexico City, inviting customers to bring their phones and get them unlocked for free.
Most Mexicans already have a mobile-phone line, which may also make it tougher for Virgin to gain ground, Otero said. About 34 percent of Mexico’s 119 million citizens are 15 to 34 years old, Virgin’s target customer base, and more than nine out of 10 are mobile-phone users, according to Osbaldo Franco, a research analyst at eMarketer Mexico.
In places like Mexico with heavy phone use, a niche reseller can make the market more competitive, said Eulalia Marin-Sorribes, a London-based analyst at Pyramid Research.
“In more advanced markets, with higher penetration rates, it becomes more important to offer services in an efficient way,” she said.
Other operators are taking notice of this nascent market. Last month Telefonica introduced Tuenti MX, a service aimed at its “hyper-connected” younger segment of clients, operating independently from its mainstream Movistar brand. The company released 5,000 free SIM cards while it tests the service. It aims to end 2016 with about 1 million clients. Tuenti will be commercially introduced in August, a press official said.
Slim is responding to Mexico’s new laws with a plan to break up his wireless and landline companies in Mexico by selling assets to a new company in the market, potentially making competition even tougher.
Virgin Mobile Latin America has attracted a wide group of investors. Besides Branson’s Virgin Group, backers include Hermes Growth Partners, founded by former Telefonica CEO Juan Villalonga; venture-capital firm ePlanet Capital; and Imb. El Coigue, the holding company of Chile’s Grupo GTD. A round of funding earlier this year brought in a new investor, a subsidiary of Singapore’s state-owned investment company Temasek Holdings Pte, bringing the company’s total funding to more than $140 million over the past three years.
The company has also received assistance from the World Bank’s International Finance Corp., which agreed this year to boost its credit line to $41.5 million to expand its Mexican operations. A fund managed by LAP Latin American Partners also participated in the agreement.
The goal is to recruit customers like Hector Velazquez, a 23-year-old messenger in Mexico City, who said he tried both Virgin and Tuenti after he grew tired of dropped calls and unjustified charges on his Telcel bill.
He was attracted by Tuenti’s combination of services, which includes unlimited use of social media applications such as WhatsApp and Twitter, and by Virgin’s more casual take on customer service.
“Virgin has operators that are so relaxed, you don’t even feel like you’re talking to a company, but with a buddy,” he said. “There’s more energy in the new companies. With the others, you feel like you’re talking to a robot.”
Still, Velazquez returned to Telcel after seeing cheaper deals that also allowed him more voice minutes.
“You want to be connected, but also in contact with the world,” he said.
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