MVNO model a bust

MVNO model a bust

Just a few short years ago the mobile virtual network operator (MVNO) was the hottest term in the wireless industry. Everyone was talking about the MVNO business model and its money-making potential. Companies called mobile virtual network enablers (MVNE) were launched for the sole purpose of helping MVNOs navigate the cumbersome and complex wireless ecosystem. Even long-time wireless firms jumped on the MVNO bandwagon and launched MVNO divisions to help facilitate all the anticipated growth from the MVNO model.

Not a day would pass when I didn't receive a call or an email from a company that was launching an MVNO targeted at teens, tweens, Hispanics, college students, sports fans, convenience store shoppers, etc. Even companies that had existed for years--and I considered to be resellers because their primary business had been selling airtime for traditional wireless operators--started calling themselves MVNOs.

Today the term MVNO is associated with a failed business model. With the demise of two high-profile MVNOs--Amp'd Mobile [1] and Mobile ESPN [2]--the MVNO model is a bust. Virgin Mobile USA appears to be one of the few MVNOs with staying power; however the company has never turned a profit [3]. Virgin is planning an IPO and expects to raise about $506 million.

The MVNO bust reminds me of the demise of the reseller model back in 2002 when then-reseller WorldCom announced it wanted to sell its wireless reseller business and no one wanted to buy it. WorldCom was the largest reseller at that time with about 2 million customers across several operator networks. In fact, WorldCom's then-CEO and President John Sidgmore described the business as "flat-out terrible" because it was fraught with problems, including poor credit customers. WorldCom ended up selling its customers back to the original carriers upon whose network they resided. The original carriers paid for these customers at a discounted activation rate.

I think the lesson from the MVNO debacle is that the wireless business is complicated and competitive. MVNOs thought they could build a lucrative business by targeting specific niches with tailored service offerings but they underestimated the complexity of the wireless ecosystem. And they dismissed the incredible power that traditional operators have with their well-known brands, their intricate distribution channels and their marketing prowess. - Sue [4]