As we predicted at the beginning of the year, the industry is beginning to see a shakeout in the MVNO world. Mobile ESPN last week decided to close up shop after nine agonizing months of tweaking and re-tweaking the service. Interestingly, Mobile ESPN's failure calls into question much of the perceived wisdom about what type of MVNOs will be successful in the medium to long term. The prevailing thought has been that those with strong and highly recognizable brands and are able to offer compelling new differentiated services would win. But look at Europe. The "low-frills" MVNO model is thriving there. Germany has more than 30 of these low-frills MVNOs, while subscriber additions in the Netherlands, Belgium and Denmark account for about one-in-five new mobile subscribers.
Granted, Europe's mobile market offers higher tariffs than the U.S. market, but there is a lesson here. Banking a strategy on mobile content is simply a risky play, given the fact that voice services by far continue to dominate in terms of revenue, and MVNOs must charge more for services while counting on a big enough pool of subscribers to make the strategy a viable one. Moreover, entertainment companies setting up MVNOs as part of a strategy to use mobile phones as a channel for distributing services need to get involved in designing, specifying and retailing the handset--all expensive propositions. The extremely tight margins in the MVNO business require companies to make some very tough decisions about how to attract customers and actually break even with a lower number of subscribers. That's why I predict the MVNOs to watch will be the under-the-radar companies that are offering innovative voice services, such as cheap international calling.
Take Red Pocket Mobile. It officially launched last week targeting Chinese-American subscribers with two phones from Motorola. The MVNO says a phone call to China, Singapore or Taiwan costs exactly the same as a call within the U.S., and it offers some unique calling features such as iConnectHome, which allows friends, family or business contacts to dial a local number in Asia and reach a Red Pocket Mobile customer directly, without the need to dial a long-distance U.S. number.
These types of MVNOs certainly aren't as exciting as the highly publicized companies pushing the envelope on mobile content, but they'll actually be the ones to break even first.
On a housekeeping note, my role with FierceWireless is evolving. Editor Brian Dolan is now in charge of bringing you the top news every day, while I will focus on giving you my overall insight of the industry and contributing to breaking stories each week. Stay tuned for some exciting new features that I'll be spearheading. -Lynnette