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Market Update: MVNO 2006 Market Report
By Staff Report |
The recent collapse of Disney’s Mobile ESPN after just a little over a year has caused some industry analysts and observers to do some serious soul searching about the viability of niche markets in general, and youth markets in particular. The Mobile ESPN failure was particularly vexing because of the high visibility of the launch and the cloak of infallibility that surrounds Disney in general.
The major impact of this failure has been for other new MVNO ventures to try to put as much distance between their business models, and ESPN’s, as possible. It doesn’t mean that niche markets for mobile services will be abandoned, just viewed more critically than before. For example, Disney Mobile is proceeding, despite speculation that it might also be sidelined by Disney. Amp’d, Helio, Movida, and TúYo Mobile (IDT) are all proceeding forward without significant changes in their business plans.
Voice is Only Voice
One of the significant differences between MVNOs and facilities based wireless carriers is the markets targeted and how they are approached. Content services can be one of the biggest differentiating factors. Enterprise customers will not be as attracted to ringtone alternatives as they will be to plans that will accommodate the number of minutes they use in a month, but youth want their MTV.
“A voice customer is only a voice customer,” said Fedor Smith, Executive Vice President of Boston based Atlantic-ACM. “We’ve watched that market segment decline consistently.” Smith pointed to an Amp’d press release dated October 19, claiming nearly $100 ARPU (Average Revenue Per User), and $30 per user for content. Cingular quoted its ARPU at $49.76, half that claimed by Amp’d. Content revenues posted by Cingular were $6.32, or just under 13%, less than half the rate quoted by Amp’d.
Amp’d Up
Peter Adderton, the CEO of Amp’d, dismissed the impact of ESPN and was recently quoted saying he could not recall a single failure in ten years, before Mobile ESPN. Other executives of wireless companies, also focused on specialized markets, have said that the ESPN failure does not dim their prospects nor does it put a cloud on niche brands in general. Executives from other specialized wireless services also dismissed ESPN’s stumbles as irrelevant to their prospects or the general concept of niche brands. Investors and analysts are more concerned.
Amp’d has made waves in the industry, hitting 50,000 subscribers in nine months, according to a press release in September. Amp’d is an MVNO, riding on the Verizon network, and has stressed content as its differentiating factor. It sells music downloads, at half the rate of most others, 99 cents, and videos, such as Girls Gone Wild.
Adderton said that the emphasis on content is paying off. “Our voice customers are yielding twice the industry average revenue per user, and we’ve already established that our customers will use and pay for video and original content,” Adderton said in the press release.
ARPU and Data
Other CEOs, particularly those of more traditional facilities based mobile network operators, have been quick to point out that results are not verifiable, since the companies are either not publicly owned, or do not break out specific sources of revenue.
A new book, “Mobile Virtual Network Operators: Blessing or Curse?” published by NERA Economic Consulting, also based in Boston, in September, said that its research showed that there were 42 MVNOs operating in the US by the end of 2005. The book also predicts that there will be 13 new companies by the end of 2006, with revenues growing to almost $30 billion by 2010.
Just Like a Virgin
Virgin Mobile, the most successful U.S. MVNO to date, took more than three years to reach 4 million subscribers, and become profitable. Virgin Mobile is jointly owned by Sprint Nextel and Virgin Mobile Holdings, PLC. From the outset, Virgin has concentrated on the youth market, gearing advertising and service offerings to the tastes of U.S. youths 13 to 18. Services are prepaid, with a wide variety of top up options, from cash at one of the thousands of retailers (including 7-11), PayPal and credit/debit cards. Voice minutes can be bought either by the minute, classic prepaid, or with monthly plans, which are a hybrid of prepaid and contractual plans. Text messages are also offered by the message or monthly.
A unique twist allows customers to earn airtime by watching commercials, taking online surveys and even accepting SMS advertising messages. Virgin Mobile USA recently placed first place in the first J.D. Power and Associates wireless prepaid customer satisfaction study.
Virgin also sells content from ringtones to music to video downloads and games. Mobile TV was announced for UK customers this July. Service started on October 1, and will probably be rolled out in the US eventually. Virgin offers a variety of customizable handsets again appealing to a youthful audience.
Content is King, but Basic Services Also Prosper
Content could be the critical factor in attracting a younger following, if the Virgin Mobile and Amp’d experiences are any indication. “The people who are older are more interested in basic services,” offered Smith. “And are less compelled to go for live entertainment.”
Virgin Mobile is not alone in its prepaid success, Qwest also had a stellar year. Qwest became a Sprint MVNO in 2004, after selling its facilities based wireless operation to Verizon. Qwest moved its wireless customers to Sprint, and achieved profitability in the second quarter of 2006. It currently services over 800,000 customers.
Sprint, which is the largest supplier of facilities bases services for MVNOs, recently reported its third quarter results. Sprint remains the biggest U.S. proponent of the virtual model among network operators. It is the biggest carrier of traffic from MVNOs, serving about 20 other brands. At midyear, Sprint MVNOs accounted for 5.3 million users, or nearly 10 percent of the 51.7 million wireless subscribers carried on Sprint’s network. That was up from 4.6 million a year earlier. Overall revenues for 3Q 2006 were $9.1 billion, up 12% from the same period in 2005. Operating income was also up to $743 million from $689 million in 2005.
Despite the loss of ESPN, which runs over the Sprint network, Sprint’s Vice President for strategic partners told the AP that Sprint was still “very supportive of the MVNO program.” Recent conversations have indicated that Sprint is much more restrictive in accepting new MVNOs, and may have upped the minimums.
2007 and Beyond
It is undeniable that we are near, if not at the saturation point for wireless. The market will continue to grow organically as more people are attracted to prepaid as an alternative to contractual services. This bodes well for MVNOs, but relying on price alone is likely to be a losing strategy, as it is with all telecommunications services. As seen in the Virgin example, offering customized services, handsets and, above all, content, could well be the deciding factor.
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