The mobile virtual network operator (MVNO) market is a crossroads for telecom, entertainment and other industries. The idea that a mobile phone can lead to a customer’s wallet and loyalty has a range of companies interested in the opportunity.

MVNOs are more about customers, community and content than they are technology. As a result their offerings need to be focused on specific audiences with a strong customer care component.

Whether an MVNO business model is sensible and acceptable to the marketplace is no longer a question. In fact, those MVNOs that succeed will do so largely because their network operator partners have incentive to help them.

It’s arguable that the major mobile network operators could be opposed to helping MVNOs succeed; much like ILECs are often loathe to work with their CLEC competitors. On the contrary, the ideal MVNO actually complements and extend the network operator’s offering. “I’ve got a $20 million network and I want to fill it up with as many minutes as I can,” says David Bottoms, vice president of strategic partnerships for Sprint PCS, which landed a five-year deal with AT&T Corp. (see story).

“While my retail business does great, it doesn’t resonate with everyone and it doesn’t drive as much traffic as we’d ultimately like to have.” MVNOs are meant to pull additional minutes in from customer segments in which the operator has not succeeded, or in which they simply cannot play.

One of the major issues operators consider with any market segment is risk. Operators are large corporations with shareholders and boards that are both risk averse and careful to protect their numbers.

“Financial markets are tough on operators if ARPU drops, so they cannot take on certain customer bases as a result,” says Scott Blanksteen, director of product marketing for Qpass Inc., a company that specializes in content aggregation and management, and provides much of the infrastructure behind AT&T Wireless’ m-mode offering. The issue is, the large operators are actively chasing markets within their risk threshold, but their networks still need minutes from somewhere else.

Many of the growth markets in mobile are riskier segments like the youth market, the creditchallenged and those who dislike most operators’ billing methods for minute overages. Most such people could not acquire mobile service until the last few years. MVNO subsidiaries and partners can sail into these growing ports - too rocky for the mother ship - and bring back minutes that both increase reportable subscriber numbers and add minutes. For example, of the 972,000 subscribers Sprint PCS added in first quarter 2004, more than half - 558,000 - were added through wholesale partners. In the process of gaining users, the operator deflects the risk and the acquisition and customer management costs to the MVNO.

Another reason MVNOs make sense for operators is their focus on personalization. The large mobile operators generally offer one-sizefits- all packages. Much of the market is satisfied with a generic plan, but a growing number of subscribers want something more personal.

Operators admittedly are not strong when it comes to focused, segment marketing. From Sprint’s perspective, its MVNO partners are “addressing a segment we don’t address with a product we don’t have,” says Bottoms.

As an example, Sprint’s MVNO partner, Virgin Mobile USA LLC, allowed it to “effectively de-risk entrance into the [pre-paid] youth market,” says Bottoms, “they had a brand and shared in the cost.” Virgin targets teens in particular, and is intent on remaining focused in the segment.

“We don’t need to have 20 million customers;” says Howard Handler, chief marketing officer for Virgin Mobile, “we’ve defined a different model to go after a market we thought was underserved.”

One aspect of Virgin’s model that’s different from a major operator comes to light in its successful partnership with MTV. This is a strong example of how the mobile channel is ultimately a way to promote co-branded offerings and sell to a very specific target audience. If a mobile phone is essentially a hand-held POS terminal, Virgin and MTV Networks are teaching kids how to use it and where to get what they want.

This leads to yet another reason MVNOs make sense for operators. They provide an opportunity to gain strength through relationships with larger, non-telecom companies interested in MVNOs - like Virgin, The Walt Disney Co. and other media properties. These companies attract or bring with them more content, their own brand loyalty and, ultimately, more dollars to invest in building future mobile network and application infrastructure. Many such companies may flock to open MVNOs, but they must not underestimate the complexity involved.

If you think the “V” for virtual in MVNO means simple and inexpensive, think again. “It ain’t as easy as it looks,” says Virgin Mobile’s Handler, “it takes a heap of invested capital…and it’s as high risk as any business out there,” he says.

Building an MVNO will take an enormous amount of cash, to be spent on advertising, partnerships, wholesale network and content services and various kinds of software.

A key component driving infrastructure strategy for MVNOs is the need to control data, billing and customer interactions. “An MVNO, as we define it, controls the entire customer face,” says Handler. Virgin owns and runs its own customer database, billing system and customer care relationships.

It also manages its own relationships with handset manufacturers and retailers, which according to Handler “took months or years to make sure we were all aligned.”

MVNE INFRASTRUCTURE Handler’s are the wary words of a trailblazer, but worth taking seriously. After all, Columbus may have found the way to the new world, but plenty who followed him sank in the Atlantic.

What will help some new MVNOs stay afloat is a maturing number of mobile virtual network enablers (MVNEs) and proven examples to follow, like Virgin’s. Though Virgin chooses to own and manage all of its own infrastructure and content, other players may be able to succeed with something more virtual. MVNE offerings range from billing solutions, to content aggregation and management services, to complete turnkey operations.

Liberty Wireless is the second largest MVNO in the United States. It targets a budget conscious audience with a focus on high quality care and what it calls a “pay as you go” billing approach where users can buy minutes in $25 increments that don’t expire for three months. “The pay-as-you- go space is a touch space and it’s a high-touch product…you have to be ready to deal with customer touch points,” says Don Charlton, president of Liberty Wireless. Liberty uses more than 200 agents to remain in consistent contact with its customer base, as well as a number of automated tools to manage interactions and handle billing.

Liberty recognizes its front-office infrastructure is something it can offer to other MVNOs as a turnkey service. “We built a carrier-grade infrastructure, from the management team and technical solutions to billing and customer service support. We leverage 200 agents that serve the customer base full time,” says Charlton. Further, an established MVNE like Liberty already has a stable fulfillment relationship with network providers, another aspect of the MVNO puzzle that is still new, but is becoming easier as operators develop their wholesale businesses.

Charlton also admits, however, “content will be a major differentiator in the MVNO market.” This is an interesting and not entirely defined aspect of the MVNO business. For companies like Virgin, content isn’t an issue because it creates and delivers its own.

Charlton says “access to (the large mobile wholesalers”) data content is lagging, and there will be some rationing of service. Retail won’t give up the goods to wholesale right away when they come up with something good.”

While Sprint PCS denies such an attitude, T-Mobile USA Inc., AT&T Wireless and Cingular Wireless LLC declined to comment for this article. Alternative to the operators’ potential offerings, and lacking Virgin’s depth, MVNOs do have developing options for content. From the get-go, applications have never been lacking. There are literally thousands of content-application developers. The challenge has been to understand and access them all in an easy way.

Qpass has had great success and provides a complete content management infrastructure for AT&T Wireless, Cingular, Nextel Communications Inc., ALLTEL Corp. and four other operators. More than 140 content aggregators link into Qpass, providing access to thousands of developers and applications for any MVNO - not just for the large operators that use it today. More importantly, Qpass is something of a bellwether for the increasing maturity of the MVNE market and a sign that more enabling solutions are on the horizon.

There likely will be as much bad money as good thrown into the MVNO game. Some entrants are simply bound to fail in developing or executing a reasonable strategy. “I think we’ll see a good half-dozen known names launch MVNOs in the next year … but there aren’t that many brands out there where you’ll hear their story and say “wow, that’s a smokin’ idea,'” says Sean Mallon, vice president of sales and marketing for Sentori Corp., a billing solutions provider with expertise in content and MVNOs. Beyond a great vision, any player entering the MVNO game must be prepared to take care of customers - and their problems - on a daily basis.

Given the experience of companies like Liberty and Virgin Mobile, the MVNOs that prove successful seem likely to win for three primary reasons. First, successful MVNOs will target segmented audiences that don’t threaten their network partners’ retail businesses, but promise to add minutes to their networks. Second, they will not underestimate billing and customer care, nor will be so virtual they fail to maximize their customer relationships. Third, they will use content, in addition to platforms like television, radio and the Internet to create compelling communities of interest that will, in turn, encourage usage and brand loyalty.

Edward J. Finegold is general partner, Stylus Telecommunications LLC, which helps communications service providers find the commercial B/OSS solutions that suit their specific needs and provides support for marketing, sales, business development and strategic planning for solutions vendors and integrators. He can be reached at [email protected]

An MVNO By Any Other Name …

An MVNO by any other name would still be resale. “My opinion is that if you are big enough and important enough, MVNO is a polite way of referring to resale,” says David Bottoms, vice president of strategic partnerships for Sprint PCS, noting negative connotations of early resale. “If you are big enough and significant enough, you’re the size of a Virgin or AT&T or Qwest or folks like that, I am happy to call you whatever you want me to call you.”

Sprint Corp. has deals with all three of these large companies and Bottoms expects more marquee names to join the MVNO crowd later this year. But where does that leave the small guy? Deals with mobile operators are notoriously highvolume and necessarily out of reach for stand-alone resellers.

But what about niche players or CLECs that are seeking to add wireless to their bundle of local, long distance and Internet services?

“We try to understand the economics from the reseller’s perspective [and ] what’s their motivation for being in the business,” says Bottoms. “If they are a CLEC and they want to add wireless to the bundle, there is value to be gained. They are able to get more money from customers, lower churn or be more competitive and get a higher share of decisions than they otherwise would.”

Indeed, research from Yankee Group shows Bell wireless/ wireline combinations are winning SMBs back from CLECs. “If CLECs do not respond with similar offers, they will begin to lose market share with in the next nine to 19 months as RBOCs ramp up their marketing campaigns,” writes Yankee Group analyst Steve Hilton in a March 18 research note.

The research firm says likely partners are standalone wireless operators Nextel and T-Mobile. “Independent wireless companies are more likely to enter resale arrangement with CLECs than the wireless operational units at RBOCs,” writes Hilton.

Sprint, for example, has several resale deals with niche providers serving prepaid and ethnic markets with bundled services, says Bottoms.

Another alternate is to work under a contract held by another reseller like Consumer Cellular. The company rides AT&T Wireless’ network to offer retail services as well as its new National Wireless Wholesale Service, which launched Jan. 1.

The program picks up on a deal the company forged with ASCENT, the industry association that was acquired by CompTel last year. After the merger, the wholesale program was spun out. The framework is identical, says David Gusky, who created the ASCENT program and now leads a similar program for Consumer Cellular. About 10 contracts are in place with some providing service and others in trials, he says.

Gusky told PHONE+ in a May interview the company was confident its deal with AT&T Wireless would survive the acquisition by Cingular. It also will expand the footprint for Consumer Cellular’s service, he says.

By falling under Consumer Cellular’s contract, CLECs dont need to meet high-volume commitments to receive wholesale discounts. In addition there are no minimum contract periods or activation fees charged to wholesale customers. By adding such charges at retail, resellers can further enhance their margins.

In May, Consumer Cellular added a handset fulfillment program to support its partners, overcoming one of the more onerous parts of the business. “What we found to no surprise was the most companies are not familiar with wireless handsets,” says Gusky. “We sell the handsets at cost to the reseller and they can price them however they want.”

Equipment orders are placed at the same time new service is initiated through the company’s wholesale Web portal; handsets are shipped within 48 hours. In addition to the handset price and shipping costs, Consumer Cellular charges a stocking fee.

“Once they reach critical mass, they can buy them independently,” Gusky adds.