Supporting affordable innovation in central and eastern Europe

By Axel  Reiserer

The European Bank for Reconstruction and Development (EBRD), CEE Mobile Capital LLC (spearheaded by Dick Kiphart of KGC Capital LLC), funds advised by Delta Partners Capital Limited, and International Financial Corporation (IFC) – a member of the World Bank Group – are joining forces to support the market expansion of the mobile virtual network operator (MVNO) Virgin Mobile Central and Eastern Europe (VMCEE).

The four partners will equally contribute a total of €40 million of growth capital to develop VMCEE’s operations in Poland and to support the launch of operations in Turkey. The financing will enable a roll-out of mobile broadband products that are unique and affordable. These will target young people and the lower-income population in the region, facilitating the digital inclusion of these underserved market segments.

The MVNO model provides mobile phone services using the existing infrastructure of established mobile network operators instead of building a new network.

Currently, there are more than 600 MVNOs worldwide, of which around 400 are in Europe. VMCEE operations will help to develop the mobile market in central and eastern Europe (CEE). The region has an average MVNO market share of less than 1 per cent, well below the western European average of approximately 15 per cent.

At a time when investment activity in the region is declining, the financing will play an important role in demonstrating how innovative business models can successfully use the spare capacity of existing infrastructure. VMCEE’s business model is also expected to catalyse competition and innovation by expanding affordable access to voice and broadband services, which stimulate economic growth.

Alan Gow, CEO of VMCEE and previously co-founder, CFO and Managing Director of Virgin Mobile UK, added: “Virgin Mobile is one of the most successful MVNO brands globally, with an excellent track record of improving services for customers and generating returns for shareholders. We are excited by the growth opportunities in Poland, Turkey and across the CEE region. Now, with the support of our new shareholders, we look forward to accelerating our growth in Poland and building leading MVNO operation in the CEE region.”

Izzet Guney, EBRD Director of Information and Communication Technologies, noted: “The EBRD is pleased to champion virtual mobile network operations by supporting the expansion of Virgin Mobile in the CEE market. The MVNO business model is at a very early stage of development in the region and we are pleased to see our financing involve strong partners such as CEE Mobile, Delta and IFC. This project is a landmark investment in the CEE communications sector, bringing innovation and strengthening competition among mobile market operators.”

“IFC’s global partnership with Virgin Mobile allows us to support their efforts to broaden their reach and introduce their innovative culture and knowhow to the region,” said Tomasz Telma, IFC Director for Europe and Central Asia. “This project not only provides much-needed affordable high-quality access to mobile services, but also introduces new technologies, creates employment opportunities for young and skilled labor force and promotes competition in the sector.”

The EBRD sees the ICT sector as vital for successful economic transition and a catalyst for economic development. To date the Bank has invested more than €3.3 billion in the sector. Since the beginning of its operations in Poland in 1991, the EBRD has invested almost €7 billion in more than 330 projects in the country