The MVNO is dying
It was supposed to be a fun and cheap way for people to make cell phone calls, even an alternative for consumers to the bland, expensive offerings from North Americ
a’s national wireless service providers.
Instead, the mobile virtual network operator (MVNO) business model has proven to be an abject failure. The companies, which buy airtime from providers such as AT&T, Verizon, and Bell Canada on a wholesale basis, have disappeared from the North American wireless scene almost as quickly as the companies appeared (with much fanfare I might add.)
Helio, cast further doubt on the viability of the business model this week, when it announced a US$111-million loss last quarter. Helio is a joint venture between U.S. internet service provider Earthlink and SK Telecom. Virgin Mobile has had the greatest success, largely because of its knowledge of the United Kingdom market. Virgin Mobile has shut down operations in Australia and Singapore. Voce, Disney Mobile, ESPN Mobile and Amp’d Mobile have disappeared from the U.S. market over the past 18 months.In Canada, the situation of course is somewhat different. There is one major independent MVNO operating in Canada - that’s Virgin Mobile Canada, which has had modest success here largely because of its time to market and the support Bell Canada which owns half the venture. (Videotron is in effect an MVNO as it resells Rogers service in Quebec though that arrangement will end if and when the company launches can buy wireless spectrum and build its own facilities-based network, which MVNOs don’t own. Primus also resells Rogers service. There are a number of other smaller MVNOs operating in Canada too.)
Virgin Mobile Canada has managed to survive though tales of its woes have permeated throughout the blogosphere and the Canadian telecom market.
Virgin Mobile Canada claims to have over 400,000 customers, which sounds good but further subscriber breakdown details have not been provided.
Telus had a deal with Amp’d Mobile (and a $7.5-million investment in the company - oops!) which ended a mere 3 months after the company entered the Canadian market.
Rogers, wisely, has opted not to enter into an arrangement with any sort of MVNO.
MVNOs were created to help wireless carriers reach customers that were previously thought to be unreachable; it’s also way for the operators to experiment with new applications. It’s also supposed to be a way to create economies of scale for an operator in terms of network utilization. The advantages, in theory, were supposed to outweigh the competitive threat. That’s true but the companies that were created have fallen far short of success for the most part.
Why have MVNOs flopped? There are a number of reasons:
1) The handsets stink. Many MVNOs offer terrible and/or outdated handsets that usually flies in the face of the image projected by the provider such as Amp’d. I knew Amp’d was going to fail when it began to offer its expensive service here in Canada on outdated (to say the least) handsets such as the Motorola Razr, which has largely fallen out of favour with consumers.
2) the cost of a voice minute has dropped sharply making it harder for an MVNO to resell the minutes or make those minutes that are resold profitable.
3) consumer demand for a data-centric MVNO is unproven. There may be a day when MVNOs can build a business based on a data service offering. Data may very well eventually overtake voice in terms of dollar spend, but we are nowhere near that point in time. Data use and uptake is slowed by numerous issues, including the availability of quality content.
4) operational costs are high and margins are slim. MVNOs have to buy content from providers - paying fees to a carrier, in this case to Sprint. In ESPN’s case, the company paid roughly US$20 per month in additional leasing costs to the carrier that were passed on to the subscriber. All MVNOs are middlemen with slim margins, a problem compounded by the fact MVNOs have small addressable markets.
Nonetheless, there are still over 350 MVNOs operating worldwide. Some think the fallout and the high-profile failures I discussed earlier are a by-product of an emerging market and that a number of MVNOs will survive and thrive. Bollocks I say.
What do you think?
Comments
2 Responses to “The MVNO is dying”
Leave a Reply
-
KR In Your Reader
-
My LinkedIn Profile
To date the only sustainable MVNO in N.Am. has been Virgin, partially due to their willingness to operate more deeply in the network operator space than their peers. Wireless telecom is still a business of scale and managing complexity, and unless you do can do both extremely well, an MVNO’s only saving grace is laser-precision customer segmenting at low cost.
Tough to do in N. Am. when the carriers wholesaling to MVNO’s customize their handsets more than any other part of the world. Getting pulled along by the MNO into a more complex market is much harder here than in Europe, for example, where handsets are fully interoperable commodities.
Too many obstacles, too much complexity, not enough control over the business, and yes, Canada, too much competition.
[…] capitalize on the expected pre-paid wireless growth, there is no guarantee Koodo will succeed. The odds of survival for any new MVNO, or quasi-MVNO, are slim. The Koodo mobile service looks a lot like the Fido service from Rogers as well as Bell’s […]