MVNOs down, but not out

However, industry experts continue to opine that MVNOs can work. The model is still relatively young, and companies are still figuring out how to make it work. And there are plenty of bumps along the way.

“Mass-market MVNOs with low-priced prepaid offerings have taken a notable share of the U.S. market, and have driven the growth of prepaid services,” says [Alexandra] Rehak [, research director at Insight]. But, she adds, a key challenge for mass-market MVNOs is maintaining ARPU levels and limiting churn. “Prepaid customers generate less ARPU than postpaid subscribers,” she says. “They also switch operators more often, and price tends to be the key factor in their choice. The average monthly ARPU for prepaid services in the U.S.A. is about $27. Maintaining high ARPUs is less critical for MVNOs because of lower capex requirements, but consistently declining ARPUs do not make for a sustainable business.”

For the record, ARPU is Average Revenue Per User. Much to our surprise, Amp’d’s was $100, not the $45 we had guessed (shot in the dark, and missed by a mile). Anyway, companies have to hurdle that low ARPU number in order to succeed. Realistically, they have to hit that magic $100 mark, and then look back and rework the business model to cut costs and turn the $100 ARPU into profit. It’s easy to say, but terribly difficult to execute. One thing, though, that makes us wonder is why all of these MVNOs insist that branding is the way to profitability. We’re no slouches in the marketing department, and it has long been our theory (or, rather, the theory we picked up from highly intelligent people) that branding is way overblown, and simply cannot take the place of other, more effective marketing measures like viral, guerilla, and permission marketing.

“A successful MVNO must have some brand recognition already with their target audience, or that large sucking sound you would otherwise hear is $100 million being flushed into the market to create awareness of a new brand,” says Dean Fresonke, CEO at ClearSky Mobile Media, which supports content for MVNOs.

We think that’s very “in the box” thinking. Just look at the MVNOs we mentioned already in this post. Virgin, ESPN, Amp’d, and Helio. What do they all have in common? You see plenty of their commercials on TV, and in Virgin’s case, their billboards plastered around the city. Boost would be another example, but they were bought by Sprint and are in essence the company’s prepaid service. Now look at a company like Tracfone. How many of their ads have you seen on TV? How many of their billboards have you seen plastered on the side of the highway? “Not many” would be the answer to both questions. Tracfone doesn’t sink hundreds of millions of dollars into marketing; they rely more on word of mouth. Of course, that’s a luxury you have when you are a pioneer in the industry. But even companies like Liberty Wireless keep their operations running with little or no advertising budget (we live in a Liberty service area, and we’ve not seen one of their ads anywhere in any form). So maybe it’s misplaced marketing that is sinking many of these MVNOs. Or maybe that’s the first thing that needs to change before we see a successful run of MVNOs in the US. [Xchange]]]>