MVNOs Work In Europe, Why Not US?

With the recent flagging of Disney possibly joining the not-so-exclusive gang of failed MVNOs it’s not surprising that the general business model is once again coming under scrutiny in the press. However, BusinessWeek has gone beyond the usual “burning money like firewood isn’t a good business strategy” and compared the fate of US MVNOs with the fate of European MVNOs to try to work out what’s going wrong. “Some 150 MVNOs have been launched in Europe in the last four years and at least a dozen of them have been sold for as much as 20 times the original investment, says John Strand, head of Copenhagen mobile consultancy Strand Consult.”

The difference in business strategy is simple: While the US MVNOs tend to go for a bigger-better-cooler strategy to attract young and hip users their European counterparts have simply offered strong discounts to tempt customers. This means that the European MVNOs can be launched for far less than ones in the US (the example at the start of the article is Telmore, which raised $1 million and was sold four years later for $73 million), although it is a different market: “MVNOs are burning through huge amounts of cash in the U.S. because some operators there subsidize phones, operate their own retail stores, or spend heavily on marketing, sales, and customer acquisition. And they continue to be propped up by big investments even though they are unable to show positive cash flow. “You could say that the MVNO market in the U.S. functions like the guy in the movie Super Size Me. They’re being fed until they are no longer fit,” says Strand.”

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