Source: Unhindered by Talent
Once a barren landscape littered with the carcasses of big-budget train wrecks, the market for MVNOs (mobile virtual network operators) is once again crackling with activity. Karma launched last week with a compelling WiMAX-based service that uses Clearwire’s network and encourages users to make their private wireless modems available as a public hotspot. Republic Wireless last month finally emerged from a series of beta trials to offer unlimited voice and data for a rock-bottom $19 a month, primarily routing traffic over Wi-Fi and falling back to cellular only when necessary. And Ting, which offers metered voice and data plans, emerged earlier this year as the first MVNO to access an LTE network thanks to its partnership with Sprint.
A crowded field in a trying market
Those newcomers (and a small army of other late arrivals) join dozens of others who have survived the harsh environs of the MVNO world. While America Movil’s TracFone unit claims more than 20 million users, smaller players have carved out innovative niches as they try to build their businesses. The TracFone subsidiary SIMple Mobile, for instance, encourages users to bring their own SIM cards and activate service on T-Mobile’s network. And FreedomPop and Solavei use social networks to encourage their users to virally market their services.
But all those service providers obscure the fact that the MVNO model is tremendously challenging. In addition to the added cost of reselling wireless service on other companies’ networks, MVNOs must pay for costly functions like customer care, billing and marketing. And they must compete in a market dominated by deep-pocketed mega-brands AT&T and Verizon Wireless.
Innovation is key, but it’s not enough
Failed MVNOs from Disney, ESPN and others demonstrate that few consumers are willing to pay top dollar for themed content. And that’s even truer now than it was a few years ago because smartphone apps make it so easy for us to find and consume exactly the kind of content we want. It’s crucial, then, for MVNOs to cut costs where they can in order to compete with network operators and with each other. FreedomPop and Solavei hope are looking to minimize marketing and advertising costs, while Republic Wireless is embracing Wi-Fi to minimize the costly proposition of using cell networks.
Whether those cost-cutting strategies are enough to support a business is far from clear, though. Republic’s business model is similar to Free Mobile, an upstart French network operator that is taking a wrecking ball to the traditional cellular model. Free leverages residential Wi-Fi connections thanks to its parent telecom Iliad, and the business accounted for an astounding 60 percent of all new mobile subscriptions in France during the third quarter. Those customers don’t appear to be all that lucrative, however: The business saw its net income fall 45 percent in its first six months due to expenses – including the cost of supporting traffic on its own modest network as well as those of its partners. And it appears that Free Mobile still isn’t profitable.
Profits vs. disruption
What is clear, though, is that Free Mobile is forcing traditional French carriers to lower their prices to compete, as the Wall Street Journal documented in August. I think we’re likely to see some similar shifts in the mobile industry in the U.S. starting next year thanks to all the upstart MVNOs with irreverent new business models. Very few of the new MVNOs will be able to build viable businesses reselling wireless services, but one or two are likely to force the major carriers to rethink their strategies. That alone won’t be enough to ensure the survival of any MVNO, but it might be enough to make mobile a little more appealing for consumers.