Sailing too close to the wind

IctQatar’s order for Qtel to close down the Virgin Mobile brand by August was a drastic measure, and potentially a blow to innovation in Qatar. However, upon closer examination the case the regulator makes for taking the action appears largely justified as Qtel appears to have been pushing the limits of what could reasonably be considered a brand extension exercise

Qtel failed to bring Virgin Mobile into the guidelines laid out by the regulator despite a number of requests and ongoing monitoring of its activities

The announcement of the launch of Virgin Mobile Qatar last May took the market by surprise, and as could be expected, resulted in the second licensed mobile operator Vodafone Qatar crying foul from virtually a day after the brand’s introduction. Discussions around the development of virtual operators in the Middle East were ongoing, with markets including Jordan, Oman and Saudi Arabia associated with their impending launch. Virgin Group boss Richard Branson had been quoted in the past as saying he was keen to expand the Virgin Mobile brand beyond its current markets, which included the UK, South Africa and Australia, and the brand was no doubt given all manner of incentives to bring its brand to the Middle East with Qtel.

From very early on, ictQatar was unimpressed by the manner in which Qtel described and marketed the Virgin Mobile service, suggesting it created ambiguity as to whether it represented a third licensed player in Qatar or in fact what it was, a brand extension of Qtel’s.

IctQatar found it necessary to issue a statement shortly after the launch of Virgin Mobile Qatar to affirm that only two licensed telecom operators were permitted to provide services in the country. This followed the regulator having issued orders to Qtel requiring certain changes in the marketing and presentation of Virgin Mobile services be made, just days after the brand’s launch.

“IctQatar does not object to licensed telecommunications operators using innovative practices to provide different products and services to the public,” commented William Fagan, the then-assistant secretary general and executive director of the Regulatory Authority at ictQatar. “However, ictQatar does not want the public in Qatar to be misled in any way about who is actually providing these services. To be clear, there is no third licensed mobile operator. There is also no licensed mobile virtual network operator (MVNO).”

It is this ongoing ambiguity over the true nature of Virgin Mobile Qatar’s presence in the market, and Qtel’s limited response to rectifying it, which would ultimately lead to the demise of the brand. That combined with the tenacity of Vodafone Qatar, which having paid US$2.12 billion in 2007 for the country’s second mobile licence, was in no mood to see its market prospects diminished by the entry of a well-known third competitor of any nature.

In its official decision to order the closure of Virgin Mobile Qatar, ictQatar stated that its position had been taken after a long investigation by the regulator into conduct by Qtel that started from the non-compliant launch of Virgin Mobile services in Qatar, with the regulator having found that:

1. Qtel Virgin Mobile services were marked to the public by Qtel in a manner that was misleading or deceptive;
2. Qtel had engaged in anti-competitive conduct and an abuse of dominance; and
3. Qtel failed to comply with orders and instructions ictQatar had issued to Qtel to correct its conduct concerning the marketing of its Qtel Virgin Mobile services.

The regulator documents a series of requests made to Qtel throughout 2010 for the telco to correct the positioning and marketing of its Virgin Mobile services to limited or no response.

In a decision dated December 13, 2010 ictQatar found that Qtel had not fully implemented all aspects obliged by the July 22 decision for Qtel to correct its marketing of its Virgin Mobile services.

“On January 18, 2011, in response to Qtel’s ongoing failure to fully comply with ictQatar’s instructions, ictQatar issued a cease and desist order, requiring Qtel to stop enrolling new customers in its Qtel Virgin Mobile-branded service until Qtel could certify that it was in full compliance with ictQatar’s orders, decisions, and instructions,” documents from ictQatar and viewed by Comm. stated.

Taken together, ictQatar explained that its decisions on December 13 and January 18 constituted final warnings that anything less that full compliance with its directives could subject Qtel to severe sanctions.

For its part, at the end of January Qtel claimed it was in compliance with all its obligations with respect to all previous orders and decisions. IctQatar thought otherwise, arguing that the telco remained non-compliant in a number of areas:

• While Qtel had ceased enrolling new subscribers for Qtel Virgin Mobile services in most retail outlets, in major retail outlets, there are still some third party providers who were selling Qtel Virgin Mobile branded SIMs to new customers in Qatar;
• Qtel had not marked all advertising and marketing materials with appropriate labelling or amended printing to show that Qtel Virgin Mobile was a Qtel service;
• Some materials displayed the Virgin Mobile logo only without the required Qtel logo in the same place in an adjacent position;
• Recharge cards display solely the Virgin Mobile logo without reference to Qtel; and
• Information and materials presented to the public were not being correctly represented as being a Qtel service. Customers purchasing the new SIMs were given the impression by the vendor that they were purchasing something from Virgin Mobile and not a Qtel service.

IctQatar goes as far as stating that Qtel was aware that its marketing of Qtel Virgin Mobile-branded services has not been in compliance with the Telecommunications Law since the time of its launch in May 2010. The regulator’s hardening stance culminated in its decision to order the closure of Virgin Mobile branding by August 4, with Qtel offering no challenge to the instruction.

Given Qtel’s reputation as a professionally managed, pragmatic telco, many questions abound as to why, after 10 months of chances, it was unable to fully comply with ictQatar’s requirements. The telco has confirmed it intends to automatically migrate all existing Virgin Mobile customers to Qtel’s Hala service, allowing Virgin Mobile customers to retain their distinctive ‘333’ mobile numbers as well as any existing mobile balances.

In light of the case made by the regulator, it appears that the closure of Virgin Mobile in Qatar comes more as a triumph of positive regulatory governance rather than the impediment of innovation.