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Truphone Goes MVNO But Still Faces an Infrastructure Challenge

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They say that those who fail to study history are doomed to repeat it. That’s why one part of me is wondering why Truphone today announced an Mobile Virtual Network Operator (MVNO) effort with Vodafone (s vod) UK (PDF). The move dovetails with a second Truphone product, also announced today (PDF) — the Truphone Local Anywhere service. Targeted towards the international jet-setter, Local Anywhere offers significant cost savings thanks to local rates for calls made outside of one’s home country. “A single, smart SIM” provides the local numbers and rates, according to the company.

For example, a U.S. resident could call home from the UK for 12 cents per minute on the Local Anywhere service. That same call for an AT&T (s t) customer with international roaming would cost nearly 10 times that amount. I see the benefit if you live in or travel to the initially supported countries — Truphone expects to expand the service this year across Europe, in Australia, Hong Kong and South Africa. So Truphone Local Anywhere makes financial sense — just like having a local Google (s goog) Voice number geographically close to those who call you the most. But what about that MVNO business? How can Truphone succeed where so many before them have failed?

Let’s face it: With the notable exception of Virgin Mobile, very few mobile operators can even say “MVNO” without grimacing in pain. Odds are that this arrangement won’t be profitable in the traditional sense. Truphone isn’t looking to buy cellular service at wholesale and directly resell it at retail to eke out a small profit. Instead of that direct sell method, it appears to be one of indirect sales, in that Truphone hopes the arrangement will increase demand for its services and thus put money in the bank.

At the end of the day, it still looks like a standard yet slightly tweaked MVNO business model — and that’s not a model filled with optimism. In the meantime, it highlights one of the biggest challenges that Truphone and other competing services have to face: lack of control. The company may have an MVNO deal with Vodafone UK, but ultimately, who’s in control of the pipe, the data in it and pricing for it? Not Truphone.

This same lack of control is evident with the company’s VoIP offerings, too. To Truphone’s credit, the company earlier this week discussed its voice services over Wi-Fi vs. those over 3G and noted this very constraint. Karl Good, Truphone’s director of applications, put it this way:

“[U]nlike some of our competitors who have made VoIP calling available over 3G, we will not be doing so until we have developed a solution that will give our users a level of call quality that we are proud of.”

Without direct ownership and a stake in the level of call quality, Truphone simply can’t control the experience. And while I have high hopes for VoIP services — I use them myself on a daily basis — the ultimate issue is that these services are simply here ahead of their time. Voice is indeed a dying business in favor of data, as the numbers clearly show. But voice as data — on your pipe or someone else’s — is currently more advanced than the infrastructure on which it must rely. We’ll have to let history be the judge, of course, but voice isn’t the business I’d want to be in these days.

7 Responses to “Truphone Goes MVNO But Still Faces an Infrastructure Challenge”

  1. Truphone finally does it. I was waiting for this step for two years already.

    And I am still smiling about the power of VoIP since I pulled out my cell phone last week in the airport of Caracas / Venezuela. I found an open Wifi and then made a free (!) call to Peru and then another free call to Germany.

    That’s even cheaper. ;)

  2. I agree truphone provides a unique solution and they appear to be the first in this business. I’m a little disapointed by the DATA Rates close to $1 per MB.

    We are launching this Feb, a similar concept but focused on delivering an integrated solution. Many of the market remains unlock or simply ignorant, in addition we are providing local mobile wifi devices. Our European roll out comming soon.

  3. Kevin, I do not think you have yet fully understood what truphone just pulled off, this is not a traditional MVNO. I rather be truphone than any other mobile operator in the coming years. This will be one of the most interesting mobile operator on the planet (with and without a network of their own). And it will be the first global operator from its outset. Clearly only customers living or operating or traveling in more than one country are target customers, however I guess more than enough people fall into this category. My analogy is Porsche and VW. In this case truphone and (A very large mobile operator).

    *disclosure, Straub Ventures is a founder and early to late stage investor into ((truphone))

  4. From my sources, Truphone wants to be MVNO in many countries to let their customers call others Truphone users and their cells for free! Did you know that?

    I think the MVNO business is a bad idea, but this, it’s a very good idea!