Can We Close The Book On MVNOs Now?

from the or-will-they-rise-again? dept

Back in 2002, there was suddenly a lot of buzz about how MVNOs (Mobile Virtual Network Operators) were going to be the next big thing. The idea was that any brand could start offering mobile phone service just by slapping its brand on mobile phones that would work on someone else's network. Then you could have a company with a huge brand jumping into the mobile phone space, adding various "synergies" (gag) from other business lines, without having to worry about the technical infrastructure of running a mobile network. The problem, which really was sort of obvious from early on, was that no one could explain why anyone would want to buy mobile phone service from a non-mobile phone company. And, indeed, all of the "big brand" MVNOs died rather gruesome deaths.

The second generation of MVNOs were supposed to be different however. Names like Amp'd and Helio weren't building on existing brands, but planned to build up huge new brands by themselves, and would do so by focusing on the high end, offering all sorts of neat phones, applications and services that the big mobile operators were afraid to offer. Actually, the reality was that the big mobile phone operators knew enough to recognize that people just didn't want those things, which is why they weren't offered. Amp'd flamed out spectacularly, burning through $360 million and attracting a negligible number of customers.

And, now, Helio has basically given up the ghost as well, selling off to Virgin Mobile -- about the only mobile phone MVNO that has managed to hang in there. From the sound of it, Virgin basically was doing a favor to Helio, to make its initial backers (Earthlink and SK Telecom) save a little face, rather than just shutting down the service.

So, with this, can we officially declare the era of the MVNO over? Or will we see breathless reports a year or two from now from new analysts in the space claiming a great new market in "branded" mobile phone services?


Reader Comments (rss)

(Flattened / Threaded)

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    buckykat, Jun 26th, 2008 @ 10:12pm

    virgin mobile is actually pretty good. the reasons that they've hung in there are fairly good, cheap phones, fairly good, cheap service, and a minimum of bullshit.

     

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    Griff (profile), Jun 27th, 2008 @ 1:14am

    It's all about the value added

    Virgin Mobile made sense because
    - they have a clue about customer service
    - they are close enough to customers to understand what they want and provide a suitable package of services when the big telcos wouldn't listen to customers and simply wanted to push the stuff they wanted to sell.

    Similarly, Virgin might just about have rescued the NTL cable business reputation from its position as the most hated & most useless customer service operation on the planet.

    They were also the first (I recall) to offer no contract broadband (which I used with no complaints). They are simply good at doing this "customer stuff" better than the rest.

    But starting an MVNO from scratch without any of these strengths makes little sense. It's like creating a new electric supply company (basically a billing company) and expecting to take all of NPower's customers overnight. As it gets easier to switch suppliers, you cannot expect to build a business based purely on signing up all your customers with a limited period offer. You actually need to be good at something.

    Or else there has to be an advantage when combined with some othyer product.

    Hence the supermarket MVNO's could tie in with their stores, their reward points etc etc. Landline & broadband operators could achieve some sort of convergence (and hence economy of scale with billing).

    It comes down to the same time honoured truth that punctured the internet bubble. New technology will never change the fact that you have to do _something_ better than the rest if you want a lasting business.

     

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      DanC, Jun 27th, 2008 @ 9:16am

      Re: It's all about the value added

      Another reason that Virgin Mobile has done well, at least in the U.S., is it's relationship with Sprint and the brands' positioning as the Sprint prepaid.

       

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    LLerager, Jun 27th, 2008 @ 1:35am

    Still huge in Scandinavia

    Here in Denmark it's quite the thing.

    While there are only three nationwide GSM networks (TDC, Sonofon and swedish Telia) there are multiple operators. They are not all branding their phones, and some are actually owned by the companies that also owns and runs the network.

    It doesn't look as if it's going away anytime soon, at least not in this corner of the world.

     

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    Adrian, Jun 27th, 2008 @ 5:00am

    It's still working in the UK

    I know that in the UK there are quite a lot of MVNO's still in existence. Part of their success, is that they offer either better customer service/pricing or both than the major carriers and appeal to certain niche markets, some of which must be profitable. I think it's a lot simpler in a GSM system , with lots of unlocked phones around to do SIM only deals, which make the price of entry very low as well as very simple.

    I not sure if the market regulator in the UK, recognizes that MVNO's increase competition in the market, so make access provisions, that make for viable MVNO's, given that spectrum is effective a government granted and restricted to a few players, this would probably make sense.

    Even though I live in the US now, I still keep a UK cell phone active, because the monthly cost is 0GBP, while I'm not using it, I just pay call charges when I happen to use it on vacation. There is absolutely nothing as good as that in the US.

     

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    Derek Kerton (profile), Jun 27th, 2008 @ 11:52am

    Not Exactly

    This may be a good observation of the big MVNO efforts in the US market, but around the world and even here, there are many examples of successful MVNOs.

    Also, most of the big MVNO failures were due to willful ignorance of two big problems: 1) Customer acquisition costs are very high. 2) Building a national brand is VERY expensive.

    Many of the globally successful MVNOs have been low cost providers. Not sure if that will always be the case, but it's an easier niche to attack. If you want to attack a high-end customer, you have to get a $500 phone in his hands. If you want to address the budget niche, you could just sell a SIM card in a retail location you already own like Tesco supermarkets in the UK (see http://www.tesco.com/mobilenetwork/).

    So even carriers that had a lot to offer (AMP'd and Helio) got foiled more by high costs than by the fact that nobody wanted what they had. People do want the good services and devices, and are willing to pay (see: Phone, i) but without a great awareness and brand like Apple has, what hope was there for the Helio Ocean phone? When analysts said "You can't buy the kind of publicity the iPhone has, even before launch." they weren't kidding. And the MVNOs couldn't buy it.

    Another problem some MVNOs faced was WTF marketing. ESPN has a bit of an ego issue. They thought that their brand was so strong, they wouldn't have to cut any corners or subsidize anything. ESPN set their original prices so high for the phone and the plan, that they basically killed themselves.

    Am I just making excuses despite the fact that there have been no successes? No, Virgin is a success here and in other nations, but there are more worldwide, and even right here in the US:

    - Tracfone is a successful MVNO
    - Blackberry.net operates VERY profitably reselling service that actually travels over the Mobitex network. In fact, this RIM-owned MVNO was the ONLY way to get a Blackberry from 1999-2003.
    - devices like the Amazon Kindle operate on an MVNO basis. Sprint is totally invisible to the Kindle user. The user pays Amazon for books, and gets EV-DO delivery. That makes Amazon an MVNO. Expect to see Kodak, Canon, and maybe MP3/music device makers doing similar.
    - Heard of OnStar? Or the lesser-known Mercedes-Benz TeleAid and Toyota’s Lexus Link? All MVNOs running on analog cellular networks with Verizon, and now upgrading to digital.
    - Attaching an MVNO to hardware seems to be working (OnStar, RIM, Kindle, iPhone-ish, Omnisky)
    - The M2M wireless space is largely populated with MVNO services. Also enterprise grade asset tracking solutions like those from Qualcomm.
    - Kajeet (and a number of other MVNOS) is still in the running here in the US, but faces the marketing cost challenges we discussed.
    - 3UK was basically an MVNO when it launched, because most of its users were connecting to a fallback 2G network
    - before 2005, there were lots of examples of successful VNOs in the DSL space, like Covad or Northpoint (the rules changed in 05 which killed this good competition)
    - Qwest, the Baby Bell, operated an MVNO on Sprint's network, though I'm making your point since it was unprofitable and they now just re-sell VZW.
    - Fixed operator Embarq also offers an MVNO for mobile

    You see, there were lots of MVNOs before the term MVNO even existed, and there are a bunch now that people don't think of as MVNOs, like OnStar. There are many more, just see this nice list of MVNOs: http://www.mvnolist.com/ . In the USA, you can see that there are many MVNOs you never heard of, and the strikeout font shows those that have closed shop, which are a minority.

    The point is, this game isn't over yet. Perhaps it's impractical for the high-profile MVNOs to succeed, but high-profile flame-outs don't mean the whole sector is toast.

     

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    Rafael A. Junquera, Jun 29th, 2008 @ 6:00pm

    There are succesful MVNOs

    Tracfone in the US is a very succesful MVNO owned by mexican America Movil. Their business model is based on prepaid users.

     

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    Scott Shaker, Jul 7th, 2008 @ 11:08am

    MVNOs

    Well I don't know about the rest of the world, but I LOVE my helio and I especially love ALL that comes with it! I can't seem to find phone company that offers all that Helio does PERIOD...... let alone for a great price. So if paying to much big companies who don't appreciate me as a consumer and dictate as opposed to listening to me is cool, well than I guess I'm just about the most uncool fella around! I don't understand why people refuse to expect more from the phone companies? It's just crazy? They have been ripping us off for years with all the stupid plans and minutes/internet/messaging/pic messaging/e-mail fees....
    Anyhow I hope it's not the end or it'll be the beginning if bad times....for me that is.

     

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