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If you’ve been following my writing on the why, how, and reasons to get into the MVNO space, I’ve talked about various pain points that need to be solved in order to be successful:
- having a differentiator
- establishing a distribution strategy
- knowing your target market
- being well-funded
- trying to compete on price alone
- being prepared to be in this for the long haul
Despite many household name brands that checked off most of these boxes, the MVNO highway is littered with quite a few entrants that most telecom folks would have bet on their success.
Why did they fail? Was it one or more of the bullet items above, arrogance that the brand name alone would drive new subscribers, failure to properly know your market, a combination of all of this……. or was it something different altogether that prevented people like ESPN, Disney, AMP’D and others from being the next Tracfone, Boost Mobile or Metro?
Let’s dive in.
Mobile ESPN And Disney Mobile: Case Studies
Mobile ESPN and Disney Mobile both have the same corporate parent. They have recognizable brand names. Obviously well-funded and one would say a good differentiator. What went wrong?
First, costs. ESPN used the Verizon network; Disney was on Sprint. Whatever led to that decision was a costly one as negotiating two agreements and trying to load subscribers on both instead of just one led to a lot of expense. Better cost negotiations may have been seen with only one agreement. Subsequently, there were two separate organizations that provided separate customer service, billing, handset acquisition, etc. If they had used just one carrier or stayed with two carriers but cross-trained their employees to handle both brands, significant cost saving would have been realized.
Second, one part of the flawed marketing plan was that ESPN tried to force a handset to their targeted market. I spoke to Adam Wolf, President at NWIDA (www.nwida.org) who remembers the ESPN failure. Wolf said, “ESPN had one phone that was able to use their Sports services, and at $400, the Sanyo MVP was simply too expensive and lacked other features that the 18-35 demographic wanted.” This was still when Smartphones were barely getting started, and while the phone eventually became free with a rebate and two-year commitment, it was too late and it failed to move the sales needle as well. A later model, the Samsung Ace, a look-alike to the Motorola RAZR, replaced the Sanyo MVP but this did not help attract subscribers.
Disney met the requirements to be a successful MVNO, a target market, a differentiator, a captive audience, a distribution network and a lot of money. Operating on the Sprint network, it provided applications that let parents monitor and limit their children's phone use through the Family Center suite of features that included applications to help parents manage their family's mobile phone experience like setting spending limits and when the phone could and couldn't be used. It also had a GPS to locate the kid's phone.
So, what could possibly go wrong?
To start off, both ESPN and Disney were part of public companies. Yes, Cricket, Boost and Metro are all part of public companies but all three, as well as Simple Mobile (now owned by Tracfone and possibly soon to be owned by Verizon) began as entrepreneurial start-ups with the mindset of creating a brand from the ground up and targeting demographics that weren’t being served by the carriers. In addition, the core business of these companies is telecommunications – not the case for ESPN/Disney.
What do public companies need to deliver? Immediate and quarterly results to keep their shareholders happy.
With the goal of pushing content to their subscribers and providing real-time scores via alerts, ESPN forecasted 240,000 initial subscribers and in reality ended up with about 10,000. Disney did not fare much better in the US market. In September 2007, Steve Wadsworth, President of the Walt Disney Internet Group stated: "The MVNO model has proven, as we've seen with other companies, to be a difficult proposition in the hyper-competitive U.S. mobile phone market…..”
Mobile ESPN ceased its US operations in December 2006 and Disney followed suit in December 2007. ESPN initially licensed its content to Verizon, and as Smartphones took off, made it available to all. Both tried to re-create themselves and have found some success in overseas markets.
What About Amp'd Mobile?
With regards to Amp’d Mobile, I had to go back into the archives of June 2007 when Amp’d declared bankruptcy. After launching a mobile content driven offer only eighteen months earlier, pundits stated that Amp’d had three problems; relaxed credit requirements to their target market (18-35 year olds) which led to a lot of non-paying customers, issues with billing, poor customer service, and a 7%-8% churn rate. Amp’d allegedly raised $360 million to support its efforts and burned through almost all of that cash. While they did put on 150,00-175,000 subs, they couldn’t make them stick and with the poor customer service and non-pays. Possible a pre-paid only offer would have solved the financial issues (89% or their base was postpaid) but it is critical to look at how your company serves customers after the initial sale. (What were they thinking? Amp'd Mobile's mad credit strategy | VentureBeat)
An expensive lesson learned? I think so. Former Amp’d Mobile CEO Peter Adderton has done very well with Boost Mobile both when he started in the US (and later sold to Nextel Communications in 2003) and in Australia where he still serves as CEO.
TPO Mobile: What Works Elsewhere Isn’t Guaranteed to Work in the United States
Let’s cross the ocean and talk about an MVNO start-up in the United Kingdom called The People’s Operator (TPO).
TPO launched in 2012 with the goal of giving a quarter of its profits to charity and allowed customers to donate 10 per cent of their bill to a good cause of their choice. Positioning themselves as an ethical mobile network operator, TPO said that their service gives “subscribers the opportunity to support good causes, charities/nonprofits, "progressive organizations" or "ethical groups" of their choice” (https://en.wikipedia.org/wiki/The_People's_Operator).
TPO had a differentiator that supported a distribution strategy that was based on acquiring customers through viral networking and online communities. Backed by Wikipedia leader Jimmy Wales, the company saw good success in the UK and decided to expand its operations into the US market. It launched in the Summer of 2015 on both T-Mobile and Sprint and for a majority of reasons, failed to gain any type of foothold in the market and closed up shop in the Fall of 2018.
Former TPO US Vice President of Operations, Doug Sadowski, recently told me that the main reason for TPO pulling the plug in the US was “hemorrhaging of money in this market.” Sadowski continued, “while TPO was successful in the UK, they needed to build an organization in the US that knew the mobile market. They tried to run it remotely and of course that didn’t work. The need to put resources into the US with regards to things as simple as our website weren’t happening and it greatly affected our customer’s experience. For example, subscribers were not able to pay their bills on-line. They couldn’t activate their SIM cards on-line. This led to over 60% of our base calling our care organization every month where the standard is in the sub 2% range.”
At its high point, TPO had nine (9) US employees with everything else being handled (or in this case, NOT being handled) from the United Kingdom. Without a doubt, a recipe for disaster.
TPO, for that matter, shuttered it’s UK business in February, 2019, leaving 15,000 customers unable to use their devices (The People's Operator mobile network goes bust leaving 15,000 customers unable to text, call or use internet (thesun.co.uk)).
Yahoo Mobile Goes Bust!
As I write this, another MVNO has called it quits. Verizon owned Yahoo Mobile announced that its service will end by August 31st. Launched in March 2020 as a way to “further monetize its Yahoo userbase, Verizon used its Yahoo platform which included Yahoo email to market the service. Yahoo Mobile offered one plan, an unlimited everything plan for $39.99/month with taxes and fees included.”
So, what went wrong?
Recognizable brand name? Tons of money and …….. hmmm, what was their differentiator? Possibly they thought that just selling to current Yahoo subscribers would add enough subscribers to make it a worthwhile and highly profitable endeavor. That didn’t happen.
Did they compete on price alone at $39.99? Not when their sister company, Visible (also owned by Verizon), came in with cheaper offers. Most important is the question, did they know their target market well enough to offer a wireless service?
They made the same mistakes that the aforementioned Mobile ESPN and Disney Mobile made; you can’t simply slap your name on a brand and think it will be successful.
Lessons Learned on Being a Successful MVNO?
Obviously having a great public name and tons of money doesn’t guarantee success in the MVNO space. Neither does trying to run your MVNO remotely or skimping on things like technology (as was the case with our friends across the ocean). As I’ve written many times, know your market, have a differentiator, have funding to make adjustments and invest in your business. Also hire people that know the wireless business! Again, surround yourself with the best IT, marketing and sales people you can.
Starting an MVNO is a huge decision, no matter what size your company is. I stated in my last article, How to Start an MVNO, for most looking to get started in the industry, it would be better to start your MVNO through an MVNE, Aggregator, or MVNO in a Box Solution. For those of you already in the space, I’d love to have a conversation with you about avoiding the pitfalls that many others failed to see. Please reach out to me at https://atriumunlimited.com/ or [email protected]
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