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Summary:

Mobile Virtual Network Operators are quite fashionable these days, but eventually they will prove to a train wreck. How crazy it is? Forbes.com published a seriously speculative and flimsy piece about Apple building its own MVNO. It got Slashdotted, despite the fact there were no facts […]

Mobile Virtual Network Operators are quite fashionable these days, but eventually they will prove to a train wreck. How crazy it is? Forbes.com published a seriously speculative and flimsy piece about Apple building its own MVNO. It got Slashdotted, despite the fact there were no facts in the story. Even Boing Boing, the directory of wonderful web things was gushing about Disney Mobile MVNO. The argument, most people are using – if its good for Virgin Mobile then it must be good for everyone. Not true. Virgin Mobile and Boost Mobile bought protections by offering the piece of the action – aka equity to the network operators!

Sure you can lease capacity on a carrier’s network, set-up shop and market the hell out of your MVNO, but in the end you are beholden to the carrier. Where have we heard this before? In the wired phone business of course! before some dude came-up with the term MVNO, there were hundreds of resellers who would buy wholesale and sell retail. They had razor thin margins and their existence depended on the largesse of the large phone companies. MVNOs are exactly the same, and are very dependent on the carriers that own the spectrum. Essentially, given how phone companies think, if you (i.e. MVNO) get too big for your jock straps, they are going to do a slight squeeze play.

Carlo Longino points out that the best outcome could be a buy out by the network operator. He points to Elisa acquiring MVNO Saunalahti, and TeliaSonera taking out Sense and Chess. How will it play out in the US? Email/Post your thoughts, and you might become part of an exciting new feature of this weblog: reader contributed post!

By Om Malik

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  1. A MVNO Train Wreck Coming?

    Personally, I think that any project that is being taken on without a lot of foresight can end up a train wreck. So if this is the destiny for Mobile Virtual Network Operators, I would not be thats shocked….

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  2. I totally aggree that MVNO’s are just resellers, but I do think very positively about the idea of an Apple-branded mobile reseller.

    Amongst the MAC community, the Forbes piece has created a stir; and while not factual I can see the benefits to Apple and a carrier of going forward. I’ve posted the details at http://www.bitpad.com. I see a lot of Pros, not too many Cons. Nike as an MVNO on other hand may have much less of an opportunity.

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  3. The Forbes piece is not something new. A few bloggers had suggested this as far back as the time when the rumors of an iPhone first emerged. That is just shoddy piece and should not have even been contemplated. irresponsible is what I think, and frankly, the complexity of a MVNO cannot be under estimated. Just my thoughts…

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  4. Except… as Qwest demonstrated, it is possible to roll your customers off one network onto another without killing your business. The operator has outsourced the customer relationship, and that’s stickier than wholesale connectivity. It isn’t easy to swap network providers, as many customers will over time have self-selected themselves to match the original operator’s coverage footprint. But it can be done, and in places like Europe, Japan and Korea where all networks have near-total coverage, it’s a real possibility.

    As for an Apple MVNO, I very much doubt it. Too US-centric for a global brand, too much unfamiliar operational stuff to deal with for a tech product company. If anything, they’ll partner with someone like T-Mobile who is lagging in the market, and happy to take whatever bit-pipe revenue they can get. But not an MVNO.

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  5. Apple may not care about the razor-thin margins of the MVNO business, as they continue to focus on hardware to drive their business. Personally I think it’d be great – I don’t hear many people say “Man, I love my mobile phone provider” – but ask them about their iPod. Apple needs to protect themselves from the mobile industry which obviously wants that music revenue – or, more correctly, the data revenue – particularly from the high-speed networks.

    I think it is unlikely that Apple would launch an MVNO, but they are missing an opportunity in my opinion. Apple marketing and coolness would be a differentiator in the increasingly boring mobile phone business.

    I wrote more about this at:
    http://www.mediathinking.com/comments/133_0_1_0_C/

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  6. You’re absolutely correct that signing on with a cell carrier as an MVNO partner involves a lot of trust on the part of your Virgins, your Disneys, and your ESPNs of the world, but the potential upside is pretty huge if things work out well. We’re not talking about pennies per subscriber here. If the subscriber stays on for more than a year, the profits become highly leveraged.

    You’re right to be skeptical that every company in the world can be a successful MVNO partner, but it really does come down to brand positioning more than anything else. Why does Virgin work? Because it’s a pre-paid model aimed at the youth market who may not have the credit yet for a normal plan. This is a pretty huge market and Virgin’s already strong image among youths has helped them capture it. It’s not looked at as an option “for the poor”, but rather an option “for the hip”, which is exactly what Virgin banked on.

    Now let’s examine Disney and ESPN. I have pages and pages to say about this, but having worked there for the last five years, there’s obviously a lot I can’t divulge. Let’s start with ESPN though. Strong brand? Sure. The strongest ever in the world of sports in fact. Hip enough to cause a large bit of the population to *have* to have an ESPN phone? Maybe. That’s what they are banking on. If the phones offer enough exclusive content to entice the masses, then it will succeed. If not, it will fail. I won’t offer my opinion on how I think it will play out. That’s for the public to decide.

    Now Disney. Strong brand? Again, the strongest money can buy. Their sweet spot is kids younger than the teens Virgin is aiming at. This MVNO will succeed, in my opinion, if the market for cellphones among kids grows as most people think it will over the next few years. Disney is a brand kids and adults trust and that is their unique selling proposition.

    And finally, Apple. I put my thoughts about an Apple phone and MVNO here about a year ago so I won’t repeat everything, but the tests remain the same: is their brand strong enough to create a “must-have” situation (yes) and is the market they have influence over big enough to make it profitable (I think so).

    I think the situation you speak of with every company in the world wanting to be an MVNO partner certainly would fail, but I also don’t think it will happen. You wouldn’t believe how much money it costs to even *research* the feasibility of doing an MVNO deal. It’s enough to keep the little fish from even attempting it.

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  7. “In the wired phone business of course! before some dude came-up with the term MVNO, there were hundreds of resellers who would buy wholesale and sell retail. They had razor thin margins and their existence depended on the largesse of the large phone companies”

    It wasn’t the “largesse” of the RBOCs. They had to by regulatory to lease out components of their network hence the rise of the resellers.

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  8. The future of Flickr

    Yahoo! is thinking about buying Ludicorp.

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  9. Apple Wireless? Could Be Fun

    What if Apple launched its own wireless service? I think this could be fun. In my crystal ball, I see…. A Shuffle phone. It picks phone numbers at random and dials them.

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  10. Interesting post.

    It’s important to understand that Sprint is the rebel breaking the ranks of the cellcos in the US to enter the MVNO business…

    It’s an attempt to build up its traffic to better compete with the number one and two in their industry.

    This article in telecommunications online provides some background:

    http://www.telecommagazine.com/techzones/Article.asp?Id=AR_70

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