In an industry drowning in acronyms and meaningless catch phrases, few labels are as hard to pin down as the European-derived mobile virtual network operator. Separately the words are familiar and seem to have meaning, but when put together to describe a business model the picture turns cloudy.
One of the more complete definitions of an MVNO was provided by a Yankee Group report released last year in conjunction with Sentori Corp. which stated, “an MVNO is commonly recognized as a wireless service provider from a non-communications industry with a popular brand name that wants to deepen relationships with loyal customers-and make more money-by adding wireless voice and data services to their product and service mix.”
In the United States, a pair of prominent ventures both appear to fit the MVNO model, though only one openly embraces the lengthy label.
Virgin Mobile USA L.L.C. is often viewed as the prototypical MVNO. The U.K.-based Virgin brand name offers services ranging from an airline to music stores, is well known by certain market segments and signed a joint venture with Sprint PCS to offer wireless voice and data services using Sprint PCS’ nationwide network targeted at that market segment, which are all attributes that are similar to the Yankee Group definition.
According to Dan Schulman, president and chief executive officer of Virgin Mobile, an MVNO has a clearly targeted audience, controls all aspects of the customer experience and has a cost structure that includes a lower-than-average customer-acquisition model, all of which Schulman said Virgin Mobile possesses.
Schulman explained that the key to Virgin Mobile’s business is its control of the customer’s experience, noting that the company has its own customer-care and billing facilities separate from Sprint PCS, allowing it to have more “touches” with its customers, and has its own arrangements with handset suppliers.
“We control every aspect of our business except the towers,” Schulman said.
Virgin Mobile also sets itself apart from traditional wireless operators with data content agreements that allow Virgin to offer content and services geared toward its younger customer base.
“Data is a big portion of your differentiating element,” Schulman said, adding that more than 40 percent of Virgin Mobile’s customers use data services.
On the other hand, Boost Mobile L.L.C., which launched a similar prepaid service in California and Nevada using Nextel Communications Inc.’s iDEN network, and which targets the same youth market as Virgin Mobile, is trying to steer clear of the MVNO label.
“Boost is a sales and marketing company,” said Peter Adderton, CEO of Boost Mobile.
Backing Adderton’s assertion is the company’s Web site, where Boost calls itself a “lifestyle-based telecommunications company that focuses solely on developing and distributing communications products for the youth market.”
Adderton explained Boost relies on Nextel to provide nearly all of the back-end for the service, including billing and customer care, and that it leverages Nextel’s relationship with infrastructure provider Motorola Inc. for handsets. Boost claims this arrangement has allowed Boost to lower its operating costs and provide a quicker return on its investment.
“Our payback is a lot faster than an MVNO,” Adderton said.
Further complicating the MVNO picture is the business model similar to traditional wireless resellers, which have fallen out of favor following WorldCom Wireless’ sudden departure from the market last year.
“Carriers that we deal with took a cynical view that a MVNO was a reseller with a different name,” said Andrew Cole, global wireless practice leader at Adventis Corp. “We had to explain that resellers had very thin margins, usually attracted poor-quality customers and were in direct competition with the carriers they partnered with.”
Virgin Mobile’s Schulman agreed, adding it was important when the company was preparing to launch service that “it was critical to not be known as a reseller.”
Despite the attempts to differentiate MVNOs from resellers, some analysts claim that the differences are only skin deep, and MVNOs are nothing more than repackaged resellers.
“It’s all semantics,” said Adam Guy, senior wireless analyst at the Yankee Group. “The MVNO vs. reseller definition is like the difference between a used car dealer and a pre-owned car dealer. There are some differences between the two models, but at the core they’re both selling used cars.”
