Company News Alert - VMCEE Investment Boost Drives Regional Expansion - DEC 2014

BMI View: VMCEE's regional expansion plan, established presence and expertise are important factors in a EUR40mn investment by four organisations. Slowing market growth offers new opportunities to target particular segments of the market, leveraging VMCEE's wide expertise.

Opportunities Abound
Youth Population, % of Total Working Age

Virgin Mobile Central and Eastern Europe (VMCEE) has attracted new investment from Delta Partners, the IFC, the EBRD and CEE Mobile Capital. The companies will invest EUR40mn in the company, which offers mobile services targeted at the youth market. CEE mobile markets are largely mature, offering limited opportunities for growth. MVNOs such as Virgin Mobile fill the gap by offering cheaper services as their operating costs are lower. In markets where we see little organic growth opportunity, MVNOs can target niche consumer groups, in this case, the youth population. This allows mobile network operators to focus on the higher end of the market, which will give higher revenues and ensure long-term investment.

VMCEE has sister companies for Asia, Middle East and Africa, in addition to operations already present across Western Europe. This gives the company scale and a readily available collection of content to offer subscribers making it an appealing choice for consumers. The sizeable youth populations of these countries give VMCEE good growth prospects and we believe the company will quickly become one of the largest MVNOs in the markets where it launches. The MVNO launched in Poland in 2012 and the EUR40mn investment will fund the foray into the Turkish market in 2015, which has the largest youth population in the region.

VMCEE has not specified further expansion plans and its decisions will be driven by the availability of licences in the region. We believe Russia remains on the company's radar, despite little development since VMCEE first looked at the country in 2012. After several years of shifting ownership, the market is more settled, making it a more attractive prospect for VMCEE to invest in. Economies across the region are recovering after the financial crisis and mobile services are widely used, offering considerable potential for expansion.