Soon-to-launch mobile virtual network operator Xero Mobile plans to use 2 million free handsets and discounted talk time to jump into the wireless marketplace-the catch being that the freebies are in exchange for allowing mobile advertising on the handset. The company is going to do its best to ensure that its handsets end up tucked into the pockets and backpacks of one of advertisers’ most sought-after demographics: 18- to 24-year-old college students.
Xero Mobile’s Chief Executive Officer Peter Lilley said that the company plans to start pre-launch marketing this fall and begin offering handsets and service by January. The MVNO expects to give away 1 million handsets in conjunction with its launch to gain a subscriber base that will allow it to appeal to advertisers, and then give away another 1 million phones later next year. Xero Mobile hopes to sell an additional 3 million handsets by the end of 2007 to have a total of 5 million in circulation.
Lofty expectations considering Virgin Mobile USA L.L.C., which is also targeting that highly coveted college demographic, has signed up just over 3 million customers since its launch in mid-2002.
However, not everyone will be able to get a Xero Mobile handset, according to Lilley, who says that a college identification card will be necessary to get a phone. The MVNO said it plans to skip retail distribution entirely and rely on the Web and representatives at 312 college campuses to help it generate interest through selective marketing and sponsoring campus events.
Lilley said that Xero Mobile is in conversation with carriers, that its advertising technology will work via CDMA or GSM networks, and that the MVNO expects to make an announcement next week about its chosen mobile virtual network enabler. The company has said that it plans to “provide high specification handsets without contract and at notably competitive prices.” Lilley added that although Xero Mobile has not chosen which handsets it will offer for launch, the company plans to eventually have five models available. The entry-level model would be the freebie, and others would be sold at wholesale prices, which Lilley expected would be around $130. He noted that Xero Mobile is not seeking to generate revenue through handsets, and added that company executives were interested in handsets not yet on the market.
“I don’t need the cool handset now, because it won’t be the cool handset then,” Lilley said, adding the company was interested in handsets demonstrated at CTIA Wireless 2006 earlier this month.
Users who sign up for Xero Mobile service must provide a demographic profile of themselves and some of their likes and dislikes and agree to have up to 10 video advertisements per day sent to their devices; Lilley said Xero Mobile plans to send only four per day at this point. Ads would get to the phone in one of three ways; the handsets will have a portion of memory reserved for ad content and information on when ads are scheduled to run. The phone can retrieve the ad via the Internet when it is plugged into a USB port on a PC, or the device could get the ad via the regular cellular network. Lilley said that the phones also would be Bluetooth-capable and able to recognize if another nearby phone has a scheduled ad already downloaded, and could pull a copy of the ad from the other handset.
If the ad is, say, a movie trailer to be played early in the day on a Friday, an “ad received” message would pop up at a specified time. The user could play it immediately or save it for later (perhaps after class). Once the ad was played, the user would see a 10-second count down clock designed to give proof of viewing. If the user clicks a button to indicate that the ad has been accepted within those 10 seconds, he or she would receive a certain number of free minutes.
“If you won’t accept ads, you shouldn’t have our phone. That’s just the deal,” Lilley said.
Xero Mobile announced last week that it completed a reverse merger with publicly traded Desi TV Inc. A reverse merger allows a private company to control a majority of shares of a publicly traded company (typically one with few assets, according to the IPO Bureau), change the company’s name and thus become a publicly traded entity without making an initial public offering.
According to Xero Mobile, as part of the reverse merger, its stock was forward split at a ratio of 25-to-1, leaving the company with about 46 million outstanding shares. A forward split increases the number of outstanding shares without changing shareholders’ equity, so that the 25-to-1 split would multiply a shareholder’s number of shares by 25 but the price per share would be divided by 25.
Xero Mobile said it began trading on April 9 on the Over-The-Counter Bulletin Board, where stocks consistently worth less than $1 per share are traded. However, no trading information was yet available as of the end of last week. Lilley said that going public was part of company’s strategy to raise enough money to get it through to launch. He added that the company has private financial backers but declined to be more specific. He added that company officials expect to be able to launch Xero Mobile for “less than half” of what MVNO Helio L.L.C. has access to; Helio, which is expected to launch this spring, was initially funded with $440 million from parents SK Telecom and Earthlink Inc.
Xero Mobile’s business model resembles that of the Gizmondo hybrid mobile gaming/messaging device, which Lilley and others launched last year in the United Kingdom and United States. The device was discounted for users who agreed to allow several ads per day to appear on the device. Gizmondo Europe went bankrupt in January, following scandals involving some of its executives, though not Lilley.
Asked about Gizmondo, Lilley admitted that “some of what [Xero Mobile] is takes some learning from that period” but that the Gizmondo model never really had a chance to gain traction. “I think for people to say `we tried it at Gizmondo, it didn’t work, it’ll never work’ is actually wrong. Gizmondo closed before it could actually get off the ground,” Lilley said. And, he pointed out, the advertising base is far larger with cellular phones than gaming devices.
“I don’t know how many Gizmondos were in the market, but however many there were will only have been a fraction of how many cell phones there are,” Lilley said.
