New MVNOs make big promises, but can they deliver?

Sue Marek

Over the past few months a number of new mobile virtual network operators have made waves in the marketplace by promising consumers inexpensive wireless service plans, often at a fraction of the cost of what the traditional operators charge. 

They are able to do this by keeping their costs extremely low--a technique that is easier said than done. For example, T-Mobile USA MVNO Solavei is paying customers referral fees for every three new customers that they sign up to the Solavei service. And Sprint Nextel's (NYSE:S) Ting is offering full-price devices instead of subsidized devices. For those who don't want to pay $500 or more for a smartphone, Ting is also letting them activate old Sprint devices for free in lieu of a new smartphone purchase.

While I champion these new MVNOs for their creative and thrifty business models, I'm also quite skeptical of their claims and their ability to scale their services to achieve success. And I have good reason for my skepticism. I have noticed that many of these MVNOs announce their new service offerings long before they are actually commercially viable--almost as if they are trying to first get validation from the market for their ideas. 

Unlike traditional operators that are extremely hesitant to talk about new services until they are live and launched, these new MVNOs seem to relish providing the media with details of their planned offerings months before they are real. One example of this is FreedomPop, which back in March first started talking about its freemium mobile broadband business model where it would provide consumers with 500 MB of free data per month. The company initially said it would give customers a free case for Apple's (NASDAQ:AAPL) iPhone 4 and iPhone 4S that would allow them to share a mobile WiMAX connection with up to eight devices, including the iPhone.

But then in late July FreedomPop said that it would start selling a $99 WiMAX sleeve for the iPod touch that would operate similarly to the sleeve for the iPhone 4 and 4S and would turn the iPod touch into a mobile hotspot using Clearwire's (NASDAQ:CLWR) network. At that time, FreedomPop still wasn't providing the date for its commercial launch but said it would begin taking pre-orders for the sleeve.

Finally after much discussion FreedomPop launched its service Oct. 1 using Clearwire's network and promised to expand to Sprint's CDMA and LTE networks in the first quarter of 2013. But FreedomPop still couched its launch as a beta test, and said it would initially limit the number of customers and then expand that amount over the next several months.

Then on Oct. 29, the company announced that it was finally moving beyond the pre-order stage and shipping its $99 iPod touch sleeve.

I reached out to FreedomPop earlier this week for an update on the sales of its sleeve and its data service. FreedomPop's Tony Miller responded by saying that the company isn't sharing details but that response to the sleeve had been great and although the company had only been shipping the device for three weeks, it was already almost out of its inventory. Miller also hinted that nearly half of all FreedomPop customers were signing up for some type of paid data services instead of just opting for the 500 MB of free data.

While these early indications are positive for FreedomPop's service, it's hard to tell whether the company will be able to scale its offering and achieve long-term success. If it's still in the beta stage for its service and already facing inventory issues for its sleeve, the company is going to have to quickly ramp up the production to accommodate the flood of new customers who are looking for a mobile broadband bargain.

FreedomPop certainly isn't the first company to have to quickly learn to navigate the sometimes cumbersome wireless ecosystem, and it won't be the last. But new MVNOs may want to be a bit more careful in revealing all their plans before they have their business models in place. --Sue

P.S. We will be taking a short break to celebrate the Thanksgiving holiday. We will be back in your inbox on Monday, Nov. 26.