Will today's next-generation MVNOs shake up the U.S. market?
América Móvil's U.S. TracFone unit has racked up millions of subscribers over the past few years, especially with its Straight Talk monthly unlimited offering, which last year added Android phones to its arsenal. Yet the company, which operates as an MVNO of all four of the Tier 1 carriers, does not offer any groundbreaking service beyond its cut-rate $45 price tag.
Nevertheless, there is a new breed of MVNOs that are just starting to find their place in the U.S. wireless market. These MVNOs are offering services the major carriers are not yet providing--including family data plans--and are hoping that their points of differentiation take hold with consumers who are looking for something new.
MVNOs in the United States are, of course, nothing new, though the market has evolved considerably since its heyday in the mid-2000s (think Amp'd Mobile and Disney Mobile), and is now more about prepaid unlimited plans than ever before. Today, innovative startup MVNOs like Republic Wireless and Ting are trying to challenge the status quo alongside more traditional MVNOs, including Simple Mobile and H2O Wireless. Yet analysts and even the MVNOs themselves don't think they are going to revolutionize the market in a short period of time. Instead, they are focusing on the gaps where larger carriers' prices and practices frustrate consumers.
"They're not going after a huge chunk of the market," said Current Analysis Weston Henderek. "They're going after niche parts of the market that they think have been underserved by the big carriers and even prepaid carriers."
A quick primer on notable MVNOs:
Republic Wireless, a Sprint Nextel (NYSE:S) MVNO, shot to attention in November 2011 with unlimited voice, texting and data for $19 per month. To reach that price, Republic structures its service to route traffic primarily over Wi-Fi, and to only fall back on cellular if no Wi-Fi is available. In December, the company removed fair-use restrictions on the cellular portion of its service, making it truly unlimited. The firm is still in a beta mode, however, and will reopen to new customers this summer.
Brian Dally, Republic's general manager, said the company plans to double the size of its beta in June and July, and then triple it. There are thousands of people in the beta right now, but Dally said the company's users have been largely happy with Republic's service. Dally called the company's current Wi-Fi-to-cellular calling transfer service "rough" and said the company is working to smooth that transition.
The company hasn't yet said when it will open its offering to the general public. "When the service and the technology is ready we'll open it, and not before," Dally said. "It's not impossible that it could be this year, but we don't know yet. Our community will let us know when it's ready."
Ting, an MVNO run by Internet domain company Tucows that also rides on Sprint's network, exited its beta testing and opened up to the general public Feb. 1. Customers have minutes, text messages and data divided into different buckets. If customers use more than they have paid for in a certain month they are not charged an overage fee, but instead get bumped up to the next usage tier for that month. However, the kicker is that if customers use less than they had thought they would need, they are bumped down to the next lowest usage tier and will receive a credit on their bill for the difference. Users can continuously monitor their usage via an online dashboard. Another innovative aspect of the service is that customers can have multiple phones under one account, sharing pools of minutes, text messages and data.
Ken Schafer, executive vice president of products at Tucows, declined to say how many people are using the service. He said the company started with around 220 users in its beta testing phase, and has since grown that number "right on or ahead of expectations." Schafer said the company does not plan to do much traditional marketing for Ting, and is instead relying on online and social media marketing as well as word of mouth. The service is not targeting a specific age or ethnic demographic like many other MVNOs, he explained.
"It's much more around finding people that find the current large providers frustrating, and they don't understand why these rules and processes are in place," he said. "We're giving people mobile that makes sense. They want something different."
What's next for Ting? Tucows works with 5,000 to 6,000 resellers, including hosting companies, managed service providers, IT consultants and Web design firms. The company is "in a beta phase of letting those resellers sell Ting to their customers. The service will still be branded as Ting but they will have opportunities to offer the service to their customers and benefit from doing so through referral fees and/or revenue sharing agreements," Ting said.
Simple Mobile, which ahs used T-Mobile USA's network since November 2009, is chugging along with its bring-your-own-SIM model. Tim Garrett, Simple Mobile's senior vice president of marketing, said the company has notched 2.5 million activations to date, though he declined to say how many customers are active on its service.
The company allows customers to bring their own unlocked phones. While Simple Mobile does not sell phones directly to consumers, the company works with a distribution partner, Expansys, to sell a range of Android and BlackBerry devices (a Samsung Galaxy Nexus will set a customer back $600).
Simple Mobile's main value proposition is just that--value. The company offers a range of service plans but its most attractive option may be its $40 plan that includes unlimited talk, unlimited domestic and international text messaging and unlimited Web access at HSPA speeds (the company's $60 plan offers faster data speeds via HSPA+ support).
Garrett said the company has no plans to change its pricing and that its business model is working. "It is absolutely growing and continues to grow," he said. Garrett also suggested that Simple Mobile may offer LTE service when T-Mobile deploys it in 2013.
H2O Wireless, a division of Locus Telecommunications, is a longtime AT&T Mobility (NYSE:T) MVNO that recently shook up the space with the February launch of a "Bolt 4G" service that takes advantage of Clearwire's (NASDAQ:CLWR) mobile WiMAX network, which covers around 130 million POPs. For $50 per month, customers get unlimited prepaid WiMAX data, though they have to pay for a $100 USB modem or $50 hotspot device. Jack Woo, vice president of Locus' wireless business, said that H2O started working with Clearwire two years ago, and that traction for the offering has been "very positive" though he noted that Clearwire's limited WiMAX coverage is an issue.
H2O sells its products at national retailers like Best Buy and regional ones like Fred's in the Southeast. H2O's most popular plans continue to be its $50 plan for unlimited voice and texting with 250 MB of data and its $60 plan, which is has unlimited voice and texting and a 1 GB data cap.
Woo said H2O counts between 500,000 and 1 million subscribers, but declined to be more specific.
Just a niche play - or something more?
To be clear, the above MVNOs aren't necessarily the biggest in the U.S. market (TracFone, for example, counts a whopping 20 million subscribers) but they are the ones that are using the MVNO model to push the envelope of the industry. They're the ones innovating. But what practical effect will they have?
Recon Analytics analyst Roger Entner said MVNOs like Ting and Republic have been successful in pushing the idea that they are providing something that the larger carriers are not. "I think what they are doing is they are a lot smarter in how they interact with their customers or potential customers," Entner said of these MVNOs. "If you look at all of the negative feelings [larger carriers] get from their customers, they are not doing a good job."
Representatives of the MVNOs generally agreed that they do not intend to force wholesale changes onto larger carriers' pricing or policies, but are instead being nimble and providing service to underserved niches of the market.
Republic's Dally said the effectiveness of MVNOs will depend entirely upon how successful the MVNO is in exploiting market opportunities. Ultimately, he said, the market will shift in ways that feed off of larger carriers' weaknesses. For Republic, he thinks the company's online community and focus on Wi-Fi will help change the industry and give people an option beyond traditional cellular service. "The real question is not whether Republic Wireless as an MVNO is going to change how smartphones are serviced and what customers pay," he said. "What's interesting to me is how long is it going to take before the Internet does that?"
Bill Ersey Jr., vice president of sales for Sprint's wholesale division, said MVNOs today still face challenges in scaling their businesses, and have to worry about mundane yet critical factors like inventory and billing. He said Sprint is happy to work with its MVNOs on those issues as they grow. "I think there's plenty of runway and plenty of opportunity for these folks," he said. "I don't want to come across as saying they don't want success. I think they just want to walk before they run."
"You have to pick what's better for you in the long run," Henderek said of the choices MVNOs will need to continue to make. "That doesn't mean that a small, nimble player with a low-cost structure can't come in to leverage the shortcomings [of the larger carriers] and create a solid business model."
Correction, April 3, 2011: This article originally incorrectly referenced how many people are in Republic Wireless' beta; it is thousands of people. Additionally, Simple Mobile does not sell phones directly to consumers, but works with a partner, Expansys, to sell phones.