Mobile operators that target niche groups and resell minutes and bits from larger carriers are finding the going rough with the latest casualty a much-hyped contender that may shut down next week.
The so-called MVNOs (mobile virtual network operators) don't build their own networks but aim to deliver services the big carriers don't offer. Buying access to the major networks wholesale, they tailor their offerings to consumers with particular interests and needs.
But a brief MVNO rush has hit a wall with the failure of The Walt Disney Co.'s ESPN Mobile and disappointing results for EarthLink and SK Telecom's Helio. Now another high-profile operator, Amp'd Mobile, says it may shut down on July 31. Its customer service operation shut down Monday, according to the Amp'd Web site. The Los Angeles company sought bankruptcy protection in June after about 18 months of operation. It is now for sale.
It's hard for these virtual carriers to compete against big players who dwarf them in money and experience, analysts said. The biggest success stories, such as prepaid providers TracFone Wireless and Virgin Mobile USA, started before the rush and have been concentrated at the low end of the market. But one longtime wireless observer who's just launched an MVNO said the right business model can succeed.
Amp'd launched in December 2005, offering voice calls and multimedia services aimed at customers between 18 and 25. It raised about $350 million in equity investment and boosted its customer base through aggressive TV advertising and promotional events. The company said in April it had nearly 200,000 customers.
According to its bankruptcy petition, Amp'd had big problems with bill collection: In May, it realized almost 80,000 of its subscribers weren't likely to pay their bills. Amp'd did not respond to a request for comment.
Other MVNOs have also run into rough seas. Disney shut down Mobile ESPN last year after a splashy launch during the 2006 Super Bowl, opting instead to license its sports content to other carriers. EarthLink said in its second-quarter financial report Thursday that Helio lost $83.8 million in the quarter on revenue of $33.2 million.
Expectations for MVNOs rose and fell like the Internet boom of the late 1990s, according to analysts and some involved in the industry. Amp'd, ESPN, and others got carried away, said Clint Wheelock, an analyst at ABI Research.
"They focused a little too much on the glitz and not enough on the substance of the carrier business," Wheelock said.
Amp'd put a lot of effort into securing such content as games, TV shows, and music videos but failed to build an adequate billing or collection system, according to a former executive, who asked not to be named. He believes Amp'd was a good idea stymied by mismanagement but said other startups at that time got funding with little more than a spreadsheet.
The sheer economics of the business is punishing, according to Albert Lin, of American Technology Research. The wholesale rates they pay are not attractive, and the revenue that a niche market can deliver generally won't support the MVNO's marketing costs, he said.
But a good business model can still work, said Tad Neeley, a principal at the investment firm Gemini Partners. Neeley is chairman of Telscape, an MVNO backed by Gemini that launched last month. Building on an existing wireline phone service for the U.S. Hispanic community, Telscape offers a monthly plan that includes 100 free minutes of calls to Mexico, Neeley said. The key is to know the target market, get the right distribution channels, and offer a product the big carriers can't, he said.
MVNOs are the ticket to reaching underserved markets in the United States, Neeley believes. Whereas mobile phone penetration in some European countries is over 100 percent, in 2006 the CTIA trade group pegged U.S. penetration at 72.5 percent.
"We need to depend on the MVNO to target demographics that the big carriers can't go after," Neeley said.