The MVNO landscape in the U.S. is littered with the wreckage of glorious debacles from the likes of Disney, ESPN and Amp’d Mobile, which burned through $360 million in funding before going belly-up in 2007. But the reseller model has thrived in other markets around the world, and MVNOs are expected to reach 189 million subscribers globally by 2015. We are likely to see a second wave of MVNOs in the U.S. in 2012 from several well-heeled players. So what makes this round different than the last? This time MVNOs will be more specialized and will provide a complementary — rather than a competitive — service. And that will benefit network operators who make the right moves.
The software firm Tucows is preparing to launch Ting, an MVNO on Sprint’s network that will debut in mid-2012. Tucows is positioning Ting as a transparent, customer-friendly service that offers more flexibility than traditional cellular contracts. Meanwhile, China Telecom plans to target Chinese Americans and frequent travelers between the two countries with its own branded MVNO early next year, according to a recent Bloomberg report. Trials have already begun with several potential wholesale partners, and China Telecom will choose one network to support its service. Best Buy plans to launch a branded MVNO on LightSquared’s LTE network in the next several months, too. And as my colleagues Kevin C. Tofel and Kevin Fitchard recently discussed, Facebook is well-positioned to join the fray if it chooses.
More than just branding and content
Unlike some failed MVNOs, though, the new guys offer assets that may be more valuable than high-profile media. China Telecom, for instance, can likely market to its niche of Chinese Americans more effectively than any U.S. operator can. Meanwhile, Ting’s strategy of automatically changing customers’ plans based on their usage could appeal to users who often are subject to the onerous overage charges of other carriers. And Best Buy has a massive brick-and-mortar presence that can extend a carrier’s retail reach, making it an ideal partner — and making its MVNO a likely winner.
The newcomers will join a handful of existing MVNOs such as Boost Mobile, Virgin Mobile (both of which are owned by Sprint) and TracFone Wireless. Those existing players have largely thrived by targeting young users with no-frills services and bargain pricing, which is a market that the tier-one operators have often viewed with indifference. The U.S. mobile market has changed drastically in the past few years, though. The high-profile attempts like Disney’s and ESPN’s flopped because feature phones still ruled the day and mobile data was difficult to use. But the iPhone and Android have changed that, of course, sparking a huge surge in data consumption and perhaps prying open the door for data-centric MVNOs. That data consumption coupled with the deployment of 4G networks will fuel the growth of an MVNO market that will generate $40.55 billion by 2016, according to a new forecast from Visiongain.
Another key to the second wave of MVNOs in the U.S. is the availability of new wholesale networks like those operated by Clearwire and LightSquared. While Disney and ESPN targeted the same consumers their carrier partners coveted — specifically, data-hungry users willing to pay for top-line content and services — wholesale networks present an opportunity for virtual operators to market their services without competing directly with the network operator. Best Buy Connect, for instance, sells devices in the retail chain including packaged 4G service on LightSquared’s LTE network and WiMAX service on Clearwire’s network. Similarly, LightSquared recently inked a deal to provide LTE voice and data services for Simplexity, which sells service plans and equipment to consumers from half a dozen carriers and MVNOs.
What it means for network operators
This new MVNO activity could create huge opportunities for third parties who can handle things like billing and customer care for service providers who don’t want to address those areas in-house. But it also gives traditional carriers another chance to leverage the MVNO model that was thought nearly dead a few years ago. Verizon Wireless and AT&T continue to dominate the industry and aren’t likely to participate aggressively in a growing MVNO market. But the new MVNOs could give a big boost to carriers like Sprint and T-Mobile USA (assuming the AT&T deal fails), as well as wholesale network operators.
Those operators will have to determine which business model to embrace, whether it’s forming a joint venture, selling minutes to the MVNO or some combination of the two. Those decisions will be crucial, because to survive in the second era of MVNOs, network operators will need to plan wisely and execute well.