Sprint, T-Mobile execs explain the MVNO explosion

Carriers welcome MVNOs by helping with billing and marketing, but it's still a tough undertaking and consolidation is likely
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The mobile virtual network operator business is booming again, with new MVNOs launching nearly every week. But unlike the MVNO craze of the 2005-2006 era--highlighted by high-profile failures like ESPN Mobile, Disney Mobile, Amp'd Mobile and Helio--analysts believe that today's MVNOs have a better chance of success thanks to operator support ranging from customer service to billing and even device procurement.

"Carriers are making the offerings more competitive, they have opened up the networks," said Weston Henderek, principal analyst for wireless services at Current Analysis. "In the past, an MVNO had to drive a certain level of volume to make it. It was an expensive and very big undertaking."

Today, MVNOs can be successful with a seemingly tiny number of customers. For example, Ting parent company Tucows announced the MVNO currently counts around 25,000 total customers, and that the business is on track to cross the break-even threshold in the fourth quarter of this year.

Wholesale appeal

Operators are hungry for these MVNO partners, particularly the smaller Tier 1 operators such as Sprint (NYSE:S) and T-Mobile US (NYSE:TMUS), because MVNOs can help them to grow their market share. Matt Carter, president of Sprint wholesale and emerging solutions, said MVNOs offer a good economic return for the company. "It's a good strategic play for us," Carter said in an interview. "It's another army to help us garner more subscribers on the network."

mvno t-mobile Doug Chartier

Chartier

Likewise, T-Mobile sees MVNOs as a way to expand market share and reach into markets where it might not have visibility. "We analyze every opportunity," said Doug Chartier, senior vice president of MVNO and partner brands at T-Mobile US. "Is it a segment that T-Mobile wants? What is the offering?"

For example, a new Sprint MVNO called Defense Mobile promises to bring LTE connectivity along with a host of affinity services--including integrated mobile banking--to active-duty U.S military members, veterans and their families.

Carriers often use MVNOs to reach segments of the market that are not as profitable to them, or that may dilute their core brand, said Susan Welsh de Grimaldo, director of mobile broadband opportunities at Strategy Analytics. But operators have to be careful and make sure that the MVNO is profitable and won't be a drain on the network.

Carter said that there is some worry about MVNOs overloading the network, but it's also in Sprint's best interest for MVNOs to use the network because it means more profits for Sprint. "It's a balancing act," Carter said. "In a perfect world, the MVNO uses enough network to create a contribution to the organization without being detrimental. That's the holy grail."

T-Mobile's Chartier said his company is not concerned about traffic congestion. "We see a lot of opportunity and growth in this business. We are not worried about network congestion."

Nevertheless, Chartier admits that the potential for network congestion depends on the customer segment being targeted. For instance, he said that for many customers 3G speed offers a good value. "A lot of customers don't need the latest, greatest speeds or smartphone," he said. "They just need something that they can affordably talk, text and have some data."

Indeed, many T-Mobile MVNOs, like Solavei and Ultra Mobile, offer specific amounts of data per month and then throttle users' speeds if they surpass that amount.

Back office assistance

One way that Sprint and T-Mobile are helping make the MVNO business a success is by enabling many of the back office functions that the MVNOs of the mid-2000s had to do on their own. For example, Chartier said that T-Mobile offers a couple of different options: For traditional MVNOs, the company will provide just network access and the MVNO will handle the billing and logistics. For partner brands, which Chartier compares to a brand licensing arrangement, T-Mobile offers reverse logistics, carrier billing, marketing support and even distribution.

sprint matt carter mvno

Carter

Likewise, Sprint's Carter said that there is now a lot of collaboration between the carrier and its MVNOs. "We provide customer care, billing and even help them with the procurement of devices," Carter said. "It's a lot easier for the MVNO to hone in on what they are better at doing, like marketing."

Indeed, Sprint has announced a number of iniatives aimed at helping MVNOs get started. In May the carrier launched its Custom Branded Device Program to give Sprint MVNOs greater access to unbranded Android smartphones from Sprint and Boost Mobile device inventory, with volume pricing included. And in 2012 Sprint announced its "Single Source Enablement" program that the company said includes "turnkey wireless solutions and support enabling any business to become a wireless provider."

Sprint will also help with marketing if the MVNO wants that type of assistance. Because of this, Carter said that he can't talk to his Sprint colleagues about what he's working on with the company's MVNO partners because the MVNOs are often competing directly with Sprint. That separation "enables our customers to compete confidently in the market," Carter said.

Risky business, nonetheless

Today's high-profile MVNOs like FreedomPop, Republic Wireless, Solavei and Ting offer innovative service plans, marketing techniques and, in some cases, devices that they hope will draw consumers to their offerings. But even with the innovative plans and the support, analysts caution that it's still a risky business and there will likely be consolidation and/or fallout in the future. "There are a good number of them that will not survive very long," Welsh de Grimaldo said. "It is hard to create any lasting and compelling differentiators."

Likewise, Current Analysis' Henderek cautions that MVNO offerings are becoming so compelling that they may start challenging the host carrier's postpaid base, which is not something operators will want to occur. "The MVNOs and prepaid providers are now in a competitive position and can challenge some carriers and appeal to a broader segment than just the credit challenged," he said. "They may start getting customers that would have opted for postpaid."

But that doesn't worry Sprint's Carter. "Are you enabling them to steal subscribers from you? If we didn't do this, someone else would," he said. "So you might as well eat your own. You should cannibalize yourself."