MVNO Experiments that failed

It was supposed to be a fun and cheap way for people to make cell phone calls, even an alternative for consumers to the bland, expensive offerings by other means..

The mobile virtual network operator (MVNO) business model has proven to be an abject failure. The companies, which buy airtime from providers such as AT&T, Verizon, and Bell Canada on a wholesale basis, have disappeared from the North American wireless scene almost as quickly as the companies appeared.

Helio, cast further doubt on the viability of the business model this week, when it announced a US$111-million loss last quarter. Helio is a joint venture between U.S. internet service provider Earthlink and SK Telecom. Virgin Mobile has had the greatest success, largely because of its knowledge of the United Kingdom market. Virgin Mobile has shut down operations in Australia and Singapore. Voce, Disney Mobile, ESPN Mobile and Amp’d Mobile have disappeared from the U.S. market over the past 18 months.

In Canada, the situation of course is somewhat different. There is one major independent MVNO operating in Canada - that’s Virgin Mobile Canada, which has had modest success here largely because of its time to market and the support Bell Canada which owns half the venture. (Videotron is in effect an MVNO as it resells Rogers service in Quebec though that arrangement will end if and when the company launches can buy wireless spectrum and build its own facilities-based network, which MVNOs don’t own. Primus also resells Rogers service.

MVNOs were created to help wireless carriers reach customers that were previously thought to be unreachable; it’s also way for the operators to experiment with new applications. It’s also supposed to be a way to create economies of scale for an operator in terms of network utilization. The advantages, in theory, were supposed to outweigh the competitive threat. That’s true but the companies that were created have fallen far short of success for the most part.

Why have MVNOs flopped? There are a number of reasons:

1) The handsets stink. Many MVNOs offer terrible and/or outdated handsets that usually flies in the face of the image projected by the provider such as Amp’d

2) the cost of a voice minute has dropped sharply making it harder for an MVNO to resell the minutes or make those minutes that are resold profitable.

3) consumer demand for a data-centric MVNO is unproven

4) operational costs are high and margins are slim

Nonetheless, there are still over 350 MVNOs operating worldwide. Some think the fallout and the high-profile failures I discussed earlier are a by-product of an emerging market and that a number of MVNOs will survive and thrive.