15 Comments

Summary:

When table stakes are $500 million, it is clear making money in the MVNO business is hard. I have been saying this for a while, but now Pyramid Research has crunched the data and come up with the same conclusion in their report, “MVNOs and MVNEs: […]

When table stakes are $500 million, it is clear making money in the MVNO business is hard. I have been saying this for a while, but now Pyramid Research has crunched the data and come up with the same conclusion in their report, “MVNOs and MVNEs: Analyzing the Viability of Virtual Mobile Players.”

  • Virgin Mobile UK is profitable, but the company has been in operation since 1999.
  • Tracfone has been in the market for a few years and sees EBITDA margins at around 10–15 percent.
  • Telmore, a low-cost MVNOs, had even lower EBITDA margins at YE2004.

Their data shows that MVNOs account for 2.75% of the total world’s mobile users and is projected to rise to 3.3% by 2010, reaching more than 100 million subscribers.

Pyramid found that most MVNOs are loss-making to slightly above break-even and believes that there is enough fodder to question the MVNO model, at least in its first iterations. Pyramid concludes that not all MVNOs will achieve profitability and the next 24 months will either make or break MVNOs, particularly the prepaid-focused ones.

They think that the next generation MVNO will do well, because they are focusing on ARPU and better margins. Like Amp’D mobile? Hah, I will in 12 months, repeat myself and say…. told you so.

  1. Patrick Mullen Thursday, March 2, 2006

    “Pyramid concludes that not all MVNOs will achieve profitability” WOW, you mean to tell me that not all new business ventures are expected to make money? Is this what they mean by the new economy?

    Share
  2. If an MVNO is a telco without a network, then it’s not surprising they don’t make money! The ones that do make money are innovative and concentrate on service differentiation, specialising in market segments (Virgin being a good example).
    There’s nothing wrong with the MVNO model, it’s just been generally poorly executed up to now.

    Share
  3. maybe this explains why there is only one MVNO in canada – virgin mobile. of course, it may have to do with the fact the penetration rate is only 52% so the existing carriers may want more time to pick the low hanging fruit before bringing on MVNOs.

    Share
  4. The prospects are better in developing nations with a large upper class customer base. They are the ones willing to pay a higher price for better customer services and high end features.

    Share
  5. I’m sure Virgin Mobile US counts among the most profitable, and largest MVNOs.

    There are certainly too many hare-brained MVNO concepts out there, but like any new business segment, there will be some spectacular failures (ESPN…), and a few gems.

    MVNOs with healthy combinations of outside the industry marketing know-how, wireless operating expertise and a good nose for consumer tastes will find and build good niches for themselves.

    ESPN would be my number one choice for an early exit from this market.

    Share
  6. Patrick Mullen Friday, March 3, 2006

    Tom, I wouldn’t count ESPN out so fast. They do have good demographics. Look for Disney to have a Princess MVNO offering (I would invest in that) that could do well, Trump could come out with one that could be popular (with expected downloaded ringtone of “Your Fired”) and the popular Dick Cheney MVNO (with its ringtone of a shotgun blast, quick, duck.)

    Seriously, could see some strong players from Wall Mart, 7-11 (think phone cards) or companies like that, what is their additional cost of entry? They have built in distribution and customers. Just another product on the shelf for them. Some will do well, some will crash and burn, some will be real fun to watch doing either one.

    Share
  7. Charlie Sierra Friday, March 3, 2006

    Wal-Mart is more interested in entering the consumer banking industy, and the sinkhole of telecom.

    re:MVNO’s

    You guys are all suckers.

    Because MVNOs were never allowed/designed to be of any benefit to anybody but the host carrier.

    MVNO’s are a legal way for carriers to capitalize OPEX, which happens when the host finally rolls these MVNO players up.

    The whole plan from the beginning was this:
    1) We (mostly Sprint) spent way too much money on our network, ie CAPEX.
    2) The revenue, specifically YEILD ($$$/mou), fell much faster than we thought.
    3) Thus, how do we acquire subscribers, ie revenue, with minimal additional (ie. marketing) costs.
    4) BINGO, collect $200, and proceed to GO.
    That’s right we find some sucker (ie. partner) to cover the marketing costs.

    If that’s over anybody’s head, just remember that MVNOs are all about host-carrier finance. OPM (other people’s money) baby.

    The carriers will never do a deal with anybody smart, and vis-a-versa. Just look at the cable deal Sprint just signed. By 2010, the MSOs will build their own network, for pennies on the dollar for what the current players invested.

    Praise the lord for Moore’s Law.

    Share
  8. the carriers will never do a deal with anybody smart and vis a versa just look at the deal spring just signed by the will build their own network for

    Share
  9. Patrick – Agree that MVNOs with great distribution opportunities can really make something happen. ESPN, however, does not qualify as someone with strong retail distribution. Where will anyone buy an ESPN phone? Magazine inserts, online channels and direct mail are tough ways to get customers. Disney stores?

    It’s the same problem an MVNO like Helio faces. With no retail distribution to speak of, how will they sell their phones? Best Buy and Circuit City together don’t even amount to 5% of the total retail channel out there today. Online partnerships (MySpace) are great, but not for selling fancy phones. Agent stores can help, but only if the MVNO is willing to pay through the nose.

    Share
  10. I actually work for a VNO; not a mobile VNO but a proper global data and voice VNO. Actually it’s the first VNO (established 1988) and has always been profitable. When it comes down to it, Patrick has a point about the idiocy surrounding a VNO taking over the marketing of an asset based carrier. How could a company possibly think that they will be able to market a simple commodity such as wireless better than a multi-billion dollar carrier? How could they possibly count on making a higher profit than the asset based carrier when their underlying costs are ultimately controlled by their competitors? When it comes down to it, any VNO needs a VALUE ADD in order to make margin on a specific product. What could be the value add from an MVNO, all marketing gizmos aside? Nada, because the best handsets go to the big carriers first, and an MVNO can’t really add features to a network that they don’t control.

    p.s. I’m quite secure in my own position, considering that there’s a lot more value add to be found in the rest of the global telecommunications industry. Naysayers beware!

    Share

Comments have been disabled for this post