On Prepaid, Underbanked, and MVNO’s
What a difference a year makes. Early in 2005 Virgin Mobile USA passed the million subscriber milestone. Their success began inspiring numerous copycats with its example of how a more focused MVNO can do a better job targeting and serving specific subscriber segments than could a large carrier. During a conference I attended at that time, a noted research firm predicted the channel would experience such significant growth that in a few short years more new wireless subscribers would be added by MVNOs than by the direct channels of wireless carriers. By midyear a steady string of press releases ensued, announcing one new MVNO after another. MVNOs were hot; if you had a recognized brand or an established distribution channel you too could cash in on the wireless bandwagon. One began to wonder if the ‘O’ in MVNO stood for ‘Over-saturation.’
What people didnt realize at the time was that the first gen MVNO’s that suceeded (Tracfone, Virgin, Boost) all had one common characteristic . . . and it wasnt that they are all MVNO’s . . . it was that they were targeting a segment of the market that was completely untargeted by the “post-paid” billing model of mobile carriers (cingular, nextel, verizon etc) -> the underbanked.
The MVNO craze that followed extrapolated their predcessors’ success to mean that targeted niche marketing of ANY segment will be sucecssfull. They failed to realize that the reason the first gen MVNO was successfull was because of their prepaid business model was able to attract an audience that was completely UNSERVED by traditional carriers. As an ESPN addict, I already have a phone provided by Cingular. As a result the ESPN MVNO is now competing “@ the margin” for small slice of incremental switchers. Targeting an unserved versus already served market is a hugely different marketing challenge.
If ESPN Mobile is the poster child for diminished optimism on the MVNO model, industry analysts and other MVNO insiders knew for some time that things weren’t as rosy in the MVNO world as the press releases would lead you to believe. The industry was never without its detractors and naysaysers. Public speculation that the bloom had fallen from the rose for new MVNOs actually began at CTIA in April of this year when Sprint- Nextel’s chief operating officer at the time, Len Lauer, announced they turn down a lot of MVNO applicants and will wait three to four quarters before judging the performance of those recently launched. Implying they were tightening the spigot on new MVNOs was significant because Sprint-Nextel is the MVNO channel leader, having launched the most of any U.S. carrier. (Lauer has subsequently left Sprint.)
