The mobile virtual network operator space has been a-buzz lately, with a new MVNO launched, one closing shop, another sold and yet another expanding its service offering beyond handsets into laptop cards.
Following is a look at five areas experts said MVNOs need to address to make a go of the business.
MVNOs are in a bind here, because they need differentiated handsets, but don’t have the scale to persuade device manufacturers to grant them an exclusive, noted mPortal founder and Chief Executive Officer D.P. Venkatesh at a recent Informa Telecoms and Media conference. Even if MVNOs get a unique device, host carriers often require arduous testing before devices are approved for use on their networks, delaying time to market. One option for MVNOs, Venkatesh said, may be to source handsets through their host carrier and work on customizing the user interface and the services offered on the handset. In other cases, MVNOs have chosen smaller manufacturers that may be more willing to work with them.
Also, consumers want choice when it comes to handsets, so offering only one or two devices may not cut it—especially when competing with mainstream wireless carriers that have dozens of devices to offer.
Distribution
Launching an MVNO with one or two points of distribution or Internet-only sales doesn’t help get the product into the hands of enough consumers.
“If people can’t buy your phones, it doesn’t matter how great your services is—they can’t buy your phones,” Venkatesh said.
Richard Gaski, director of program and product management for DBS Communications, described the distribution strategy of DBS’ EZLink Mobile service, which has been around since 1998 and targets urban residents. EZLink relies on a network of dealers and nontraditional retailers, including: beauty supply stores, flea markets, tanning salons, pharmacies, liquor stores, supermarkets, check-cashing businesses, gas stations and convenience stores. The different retailers don’t always offer the same number or type of EZLink’s products, Gaski said. A wireless dealer may be able to offer in-store activation and a handful of phones, while a drug store may have one or two prepaid handsets bundled with minutes, requiring self-activation.
“You really want to try to reach as many customers as possible where they shop,” he said.
Marketing
There is much talk of MVNOs having to compete with the deep marketing pockets of major carriers—but given MVNOs’ niche target markets, they shouldn’t have to market to everyone the way that Cingular Wireless L.L.C. and Verizon Wireless do. Given the tight margins of the MVNO business, lowering customer acquisition costs through very targeted marketing is important, several experts remarked. And as innovative as an application might be, it can be a tough sell.
“Everyone still looks at the phone and what are my minutes,” said Eric Lunn, president of MVNO services for InPhonic. “They don’t think of the data and applications.”
When it comes to marketing price plans, however, host carriers may have veto power, according to Frederic Lavoie, vice president of business development for Canada’s Modelcom—so MVNOs need to be careful negotiating their carrier contracts to allow flexibility.
Knowing the target market
This goes beyond knowing what the customer wants to buy, and should influence every aspect of the business post-launch. From knowing what percentage of customers are likely to call customer service on a given day to what sort of new handsets and features are likely to appeal to them, a tight focus on the target market is what makes an MVNO different.
“You have to be very careful about how big that universe is,” said Matt Johnson, founder and CEO of Visage Mobile, a mobile virtual network enabler. “If you break your segment focus, your company will start looking just like a carrier.”
Helio L.L.C., for example, expanded its offering last week to include a 3G laptop card and software that will allow subscribers to access both 3G networks and the Boingo Wireless Inc. hot-spot network for $85 per month with a two-year contract. Although laptop cards are typically considered a business play, Helio spokesman Rick Heineman said that the MVNO is just seeking another way to provide connectivity for its target customers, who are more than twice as likely as other youths to own a laptop.
“For us, we see that our customer is looking for connectivity,” Heineman said, adding that Helio users relied on multiple devices and programs for “one giant communications experience, and we wanted to enable this.”
Who’s steering the ship?
Overall, industry experts agreed, successful MNVOs need leaders who understand the wireless industry.
“This is not an easy industry, and I think people have been surprised at the complexity of this business,” said industry veteran and strategic advisor Whitey Bluestein. He added that another problem is that MVNOs “tend to look at the world pre-launch and post-launch”—focusing all their energy on getting to launch, and only then dealing with do-or-die issues such as distribution.
Although experts don’t think the entire industry should be written off, they were quick to acknowledge that as with any industry, the MVNO space will have success and failures—perhaps mostly failures. In recent weeks, Mobile ESPN decided to dump its MVNO service in favor of a licensing model for its content, and says it is in negotiations with carriers to license its content. Xero Mobile, an MVNO that wants to target college-age students with mobile advertising and has not yet launched, was recently sold. But the news hasn’t all been about exits from the market. Red Pocket Mobile went public with its offering, which targets Chinese Americans with cheap calls to Asia and menus in their native language.
With the holiday season—full of switchers looking for new service—just ahead, the time may be at hand for more MVNOs to gain traction in the marketplace. At the very least, industry observers agreed, it’s still too soon to write off the class of 2006.
“It would be absolutely insane to write off the whole channel or movement because one high-profile company has shut its doors after eight months, without even experiencing the `golden quarter,’ ” Bluestein said.
