When seven-month-old ESPN Mobile went belly-up last year after failing to attract subscribers, people said it was an anomaly, a product of having a big corporate parent (The Walt Disney Co.) unused to running a phone company. But 2007 saw a continuation of hard luck for the MVNO space, with shutdowns at Amp’d Mobile and Disney Mobile, Helio LLC failing to attract additional funding from one of its parents (EarthLink Inc.), and analysts cautioning against the exuberance that marked the space as little as one year ago. What’s going wrong?
Partly, companies seem to be ignoring the business requirements necessary to make the model work. The virtual reseller approach hinges on the ability to create a strong enough marketing brand to profitably attract and retain a highly segmented set of users who have been overlooked by the big network operators. Without a network infrastructure to support and with a wide variety of mobile virtual network enablers out there to support the billing end of things, the idea is to be able to offer more personalized, tailored services than the mass-market wireless companies.
The business also has proven to require much deeper pockets than originally thought, thanks to the need to balance customer acquisition costs, churn, contract terms, bad debt, handset subsidies and the desire to ramp up quickly. And too narrow of a market niche can result in an inability to close the business case; there have to be enough available subscribers to make ROI.
“Mass-market MVNOs with low-priced prepaid offerings have taken a notable share of the U.S. market, and have driven the growth of prepaid services,” says Analysys Research Director Alexandra Rehak. “For example, TracFone Wireless and Virgin Mobile USA have captured sizeable market shares and provided effective competition for MNOs; the two operators accounted for a combined 5.3 percent share of U.S. cellular subscribers and almost 36 percent of all prepaid subscribers at the end of 2006.”
The need for mass-market distribution is evident in the case of Disney Mobile, which is shutting down service Dec. 31, 2007. The kid-focused and parent-friendly MVNO, which runs on the Sprint network, announced its exit from the industry a scant 18 months after launch. The company cites distribution problems as the culprit for the flame-out — most notably, the inability to secure channel deals with large retailers. One issue was the phone’s address book, which requires a representative to program it — a task no big box store was willing to take on, spokespeople said. That left the MVNO with Internet sales, mall kiosks and Sprint dealers, none of which proved up to the task of servicing the target niche.
Some employees also noted that a well-intentioned corporate policy against marketing the service directly to children made it difficult to reach Disney Mobile’s core demographic by eliminating the Disney Channel and most other mass-media awareness avenues from the picture.
“The margin is never going to get any better,” says Dean Fresonke, CEO of ClearSky Mobile Media Inc., noting a 30 percent or less margin is the norm. “So there is virtually no way to spend the money to create a brand, identify a customer base and then sell to it. The successful MVNO has to sell to an existing customer base.”
Disney Mobile is shutting down its second MVNO venture this month. |
Then there’s Amp’d Mobile Inc. The Verizon Wireless-based MVNO was perhaps best known as the hipster virtual operator with 3G content and enhanced applications, such as social networking and Web-mobile integration. Amp’d hoped to capture the tech-savvy teen and twenty-something market, but almost half of its customers weren’t paying their bills. In the quest to add customers, stringent credit checks weren’t performed, leading to a plethora of costly bad-debt subscribers; Amp’d’s creditors finally lost patience and began demanding payment, forcing a bankruptcy. And the Amp’d approach of selling expensive, postpaid service to the notoriously disloyal and often responsibility-challenged youth market left many scratching their heads.
Another MVNO with a postpaid, bells-and-whistles-heavy business model is Helio, whose recent news has been mixed. It announced it will receive up to $270 million in fresh capital from parent company SK Telecom.
But Helio’s other parent, EarthLink, which previously reported Helio as a drag on its finances, has no plans to further fund its MVNO offspring, it says.
The business model continues to be refined. Virgin Mobile went public this fall, with shares at first trading in the target range of $15-$17 per share. In its documents, Virgin Mobile revealed it was serving 4.8 million customers in June. However, its ARPU dropped to $21.68 per month in the first half of the year, and the MVNO has been losing customers at a rate of almost 5 percent per month.
Despite the glum news, service launches continue and there are plenty of success stories. Telcordia Technologies Inc., one of the highest-profile back-office enablers for MVNOs, continues to add providers in the United States as customers, like the successful kid- focused kajeet Inc.
1999
• Virgin Mobile launches as the world’s first true MVNO, in the U.K.
2000
• TracFone Wireless launches, using all major providers
2002
• Virgin Mobile USA launches on the Sprint network
2002
• Boost Mobile launches in the United States on the Nextel Network
November 2005
• ESPN Mobile launches on the Sprint network
• MVNO hype peaks
• Back-office vendors begin to brand themselves as MVNEs — mobile virtual network enablers
December 2005
• Amp’d Mobile launches on the Verizon Wireless network
May 2006
• Helio launches on the Sprint Nextel network
June 2006
• Disney Mobile launches
• Skepticism about the MVNO bubble begins to emerge from analysts
December 2006
• ESPN Mobile closes its doors, failing to gain subscribers
• First real industry jitters become apparent
January 2007
• Virgin Mobile USA reaches 4.6 million subscribers
April 2007
• Boost Mobile reaches 4 million subscribers
May 2007
• Virgin Mobile USA files for an IPO, but debt load in papers is startlingly high
• ESPN re-emerges as licensed content on Verizon Wireless, dubbed “ESPN MVP”
June 2007
• Amp’d files for bankruptcy
July 2007
• Amp’d closes its doors
• Analysts begin to sound death knell for the MVNO model
• Term “MVNE” disappears from lexicon
September 2007
• TracFone reaches 8.8 million subscribers, making it the 6th largest phone company in the United States according to CTIA
• Disney Mobile announces it will shut down, citing distribution issues
• Helio fails to secure further funding from one of its parents, EarthLink
October 2007
• Rumor emerges that Apple Inc. may launch an MVNO
• Virgin Mobile USA goes public at $15 per share on the NYSE, raises $412.5 million, short of its expectations
• Virgin Mobile USA reaches 4.8 million subs
• Sprint Nextel reports it is hemorrhaging Boost Mobile subscribers at an almost 5 percent churn rate
December 2007
• Disney Mobile closes its doors
• To date, there are 30-plus operational MVNOs in the United States
| Links |
| Analysys www.analysys.com ClearSky Mobile Media Inc. www.clearskymobilemedia.com Disney Mobile www.disneymobile.com EarthLink Inc. www.earthlink.net Helio LLC www.helio.com kajeet Inc. www.kajeet.com KDDI America Inc. www.kddia.com/eng/index.html SK Telecom www.sktelecom.com Sprint www.sprint.com Telcordia Technologies Inc. www.telcordia.com Virgin Group www.virgin.com Virgin Mobile USA www.virginmobile.com |
