US MVNO Troubles are overblown

by Aaron Huslage

The bankruptcy filing by US MVNO Amp'd over the weekend was very high profile, sad and, to many of us who cover the industry, not all that surprising. Amp'd had amassed a reported 200,000 subscribers and burned through hundreds of millions of dollars to build a broad-market MVNO. It hasn't worked very well and it appears that Amp'd has found it time to pay the piper.

According to this post on mocoNews the bankruptcy filing lists over $100 million in debt owed and less than that in assets. Amp'd is the classic story of overreaching in a nascent market. They made a big bet and lost. In their press release they state that they plan to continue operating while restructuring their debt. I assume that they will emerge a smarter company for it.

This is a very high profile failure, to be certain, but it is not the end-all and be-all of the US MVNO marketplace. In fact many US MVNOs are doing quite well on a small subscriber base with well targeted marketing plans. The fact that Amp'd overreached was its downfall, not the fact that it was an MVNO in a market that doesn't understand or want them as many in the blogosphere have commented in the past few days.

MVNO success appears to not come from spending millions of dollars on high-profile ad campaigns targeting huge audiences and acquiring "premium" content. It comes from careful investment, market research and targeted marketing. The most successful MVNOs have been based on these principles.

For example, Virgin Mobile USA has almost 5 million subscribers and revenues of over $1 billion dollars anually. They do very targeted marketing (most of it in store, very little on TV or Radio) and have grown phenomenally. They have been losing money on a planned basis in order to grow to this size, but they are sustainable and plan an IPO in the near future.

There are more success stories than failures in the US MVNO market. The failures to date have mostly been by prominent companies (ESPN Mobile most notably) who have spent money without good planning. The MVNO game is pure arbitrage of wholesale minutes at this point. MVNOs are not allowed to innovate with new network-layer services, so they are stuck with handset development. The market is vital and continues to grow. We just never seem to notice.

2 Comments

Peter Cranstone
2007-06-04 14:12:24
Aaron,


The problem with Virgin is they still don't have positive earnings. The IPO won't change it.


Peter


2007-06-06 19:36:14
Aaron,


Virgin Mobile is *not* an MVNO: it's a JV between the carrier (Sprint) and a marketing entity (Virgin). The carrier has a vested interest in seeing it succeed, while they couldn't give a hoot about the pure MVNOs, which are gnats their own salesforce compete with.