The Rise of the MVNO
For the foreseeable future, resellers known as Mobile Virtual Network Operators will have a lot
more to do with driving wireless-service growth than will the fixed-facility carriers, especially
when it comes to data services, say Fedor Smith and Judy Reed Smith.
The U.S. wireless industry continues to experience significant growth. According to the Cellular
Telecommunications Industry Association (CTIA), annualized service revenues jumped from $87.6 billion
in 2003 to $102.1 billion in 2004—the second highest growth in annual revenues on record.
As has been the case in all forms of telephony, however, wireless industry growth is being driven by
declining prices per minute. The average price per minute fell from 10.1 cents in 2003 to 8.5 cents in 2004—
almost the inverse of service revenue growth—according to Atlantic-ACM estimates. This trend toward
commoditization of the core product (airtime) is driving innovation and customization as providers pursue
value-added revenues. Hence, while revenues per minute have declined, revenues have steadily increased for
six years. In 1998, the average local monthly bill was $39.43, according to the CTIA. In 2004, it was $50.64.
Enter Virtual Mobile Network Operators, or MVNOs, which are at the center of the next growth phase in
the wireless sector. MVNOs are essentially resellers—repackaging, rebranding, and rebilling primarily
prepaid wireless services. An MVNO, or prospective MVNO, typically possesses access to, and name
recognition in, a specific market niche, which enables it to leverage its brand to drive diversified revenues,
such as those from a wireless service. And, when looking at trends in the wireless industry toward
customization, it becomes clear why MVNOs are well-positioned to drive wireless growth. In short, MVNOs
are all about customization.
Case Studies
The best-known MVNO to date is Virgin Mobile. Virgin Mobile USA launched its youth-targeted prepaid
service in July of 2002 and in only two-and-a-half years boasts 3 million users. Partnerships with MTV,
Comedy Central, and Universal Music have helped make the provider a leader in the rapidly growing youth
wireless market. Working off Sprint’s nationwide network, Virgin enables users to perform most standard
data functions through VirginXtras, and even offers some 3G capabilities to Virgin customers with the
AudioVox Flasher V7 handset.
Hoping to capitalize on the expanding content demand of young consumers, Amp’d Mobile is
launching this fall in select markets. Amp’d will employ Verizon’s new EvDO network to distribute a
variety of custom and licensed content to higher-end phones from Kyocera and Motorola. Amp’d’s
extensive body of content and feature-rich handsets are targeted at older teens and young professionals who
want more than just custom ring tones and cute desktops.
Demographic targeting is a trend MVNOs and some recent entries have focused on. Take a staple of the
prepaid calling card industry; the Hispanic market. Some 40 million Hispanics live in the United States,
and two cellular brands have sprung up to better service this niche. Movida announced in February that,
through a partnership with Sprint and Wal-Mart Stores, it would launch a prepaid cellular service offering
Spanish customer service and specialized Hispanic content offerings. It will face competition from Viva
Liberty, which will also employ Sprint’s network to offer one-touch international dialing and products
tailored to meet the demands of Hispanic consumers.
Other major brands are poised to jump into the wireless industry as MVNOs. ESPN, for example, is set
to leverage its content to serve sports fans. ESPN, like its competitor Fox Sports, already offers certain
services to users of all major wireless carriers, but the ESPN MVNO will leverage the brand’s strength to
sell top-to-bottom cellular service to committed sports fans. Sprint will host the ESPN cellular service,
which will offer scores, live game updates, and select video clips to subscribers.
Earthlink is launching a new MVNO service with Korea’s dominant cell provider, SK Telecom. This
service will be customized to the needs of Earthlink’s tech-savvy customer base. Unique among other
offerings, the Earthlink/SK Telecom joint venture is a postpaid high-tech offering seeking to compete against
the major providers based on early access to technology not offered by the major U.S. players.
Keys to Success
These companies, along with other potentially successful MVNOs, have more than simple brand
recognition—their brands withstood the test of time. Novelty brands are not well-suited for MVNO offerings
as their customer bases are likely to fade out as the brand or fad goes out of style. The music group
Hoobastank, for example, would be a less-than-ideal franchise around which to build an MVNO, at least at
this stage of the band’s career. The Beatles could be a different story. So could The Grateful Dead or
Journey— any music act that has developed a significant, die-hard fan base. Better yet would be a brand
with power in the music industry independent of any specific act or what’s hot at the moment. (Hence,
Virgin’s success.)
The same applies to a variety of pop culture scenarios—especially when age is factored into the
equation. Launching an MVNO around Harry Potter would be risky because of the age of the bulk of the
series’ fans. Star Trek, on the other hand, would be an entirely different story. Deploy some phones that look
like “communicators” with built-in Klingon-English dictionaries and you’ll have a fat base of customers for
life.
As with all modern offerings, convenience should not be overlooked. For example, American Airlines
customers could book travel via their phones, use their phones for automated check-ins and to check on
flight status, and for mile-for-minutes (or vice versa) rewards. Credit card companies could offer services
incorporating pay-via-phone functionality for retail purchases. Movie theater chains could offer automatic
notices of movie schedules with one-click (or button) advanced ticket purchases. The potential here is
endless.
Many of the services and benefits listed above can also be achieved via partnership, and it is reasonable
to expect that many brands will seek relationships with major wireless providers for customized packages
that deliver commissions (or other forms of added revenues from the relationships) without the need to
operate their own wireless telephone operations. However, in cases involving brands with greater loyalty
power than major wireless providers that also have distribution abilities, the MVNO solution is both
attractive and strategically sound.
Fedor Smith is Director of Strategy and Judy Reed Smith is chief executive at Atlantic-ACM, an international
strategy consulting and research firm based in Boston that has been tracking prepaid payment systems and
their users since 1992.