Why is Wal-Mart, the world's largest corporation and most profitable retailer, choosing to launch an MVNO in Germany? For so long the retail giant has been touted as a prime example of the perfect MVNO for the U.S. market given its mass market expertise and the fact that it moves its fair share of handsets out the door. Instead, it is partnering with telecommunications distributor Facey Retail Solutions in Germany under the name Mobile Mango.
I suspect there are a couple of factors at play here. One, is the state of the German mobile market, which embraced discount mobile telephony in 2005. Two of Wal-Mart's largest discount retailer competitors in Germany--Aldi and Tchibo--along with a significant number of other MVNOs have flooded the market with no-frills cheap voice and SMS. Competition as a whole has centered on competing for price leadership. Interestingly enough, Germany's mobile market is experiencing a dual and even triple subscription growth phenomenon, meaning subscribers are buying more than one subscription, which is accelerated by these no-frills offerings.
Wal-Mart has faltered quite miserably in the retail market as a whole in Germany since it entered that market in 1997. Problems have included price controls, which prevent below-cost selling, rigid labor laws and strict zoning regulations that have kept it from building extremely large stores like it has in the U.S. In addition, it has faced well-established rivals in Germany like Aldi, which are already operating on razor-thin profit margins. Wal-Mart looks to be bolstering its brand through telephony services, even if mobile services are going to be a loss leader. There are indications that Wal-Mart may establish itself in the triple-play market. Recently, QSC, a provider of wholesale DSL services across Germany, indicated that several non-telecom players with mass-market experience are eager to enter the DSL market. In addition, analysts note that Wal-Mart is already a strong retailer and distributor of prepaid cards and mobile phones in Europe.
Given the unique nature of the German market, it's evident why Wal-Mart has launched in that country. But what incentive does Wal-Mart have in launching an MVNO in the U.S.? Wal-Mart certainly has the branding clout but what is it known for besides being the low-cost leader? The MVNO business requires extensive upfront investment and wholesale wireless minute pricing is not a cost-plus arrangement, meaning retail pricing tends to fall faster than those in wholesale--not exactly a scenario Wal-Mart plays in. Maybe I'll have to eat my words, but I believe the U.S. mobile MVNO market is one the retailing giant will pass on. - Lynnette