Unfiltered

The industry has claimed another two MVNO casualties. Micro-MVNO-enabler Sonopia has let go of all of its U.S. staff, according to MEOW! Blog, and last week Movida, an IDT-backed Cisneros Group-backed MVNO targeted at Spanish speakers, went bankrupt.

Let’s face it the MVNO market looks pathetic. The high-profile demises of Amp’d Mobile, Disney Mobile and Mobile ESPN have produced many a group obituary for the once high-flying business model. The last remaining big-name MVNO, Helio, appears to be hanging by a thread, dependent on cash-infusions from SK Telecom to keep it running. You have to wonder how tiny operators like Kajeet Wireless manage to keep going. Perhaps targeting your virtual service at preteens is the one MVNO business model that works.

The odd thing is that the segment-focused business strategies these failed companies professed to adopt actually do work. In fact, two MVNOs seem to have them down to a science, Virgin Mobile and Tracfone. Virgin Mobile is targeting the same youth demographic as Helio and Amp’d though it spreads its wings a little more broadly. Virgin has managed to sign up more than 5 million subscribers. Of course, it also posted a loss of $14.7 million in the 4th quarter, but it’s hardly insolvent. Virgin’s founder Sir Richard Branson even stopped by CTIA Wireless last week to defend the MVNO model–when he wasn’t yanking our chains about star-liners bound for Mars.

Then there’s Tracfone, which America Movil created in the U.S. long before the acronym MVNO came into the lexicon. It has a whopping 9 million subscribers, targeting primarily the same Spanish-speaking audience that Movida pursued. So why are Tracfone and Virgin Mobile so successful when Movida and Amp’d were not? It’s basically semantics. Back in the pre-hype days we’d know Tracfone and Virgin simply as prepaid resellers. Sure, they target specific segments, but those segments happen to be where the biggest demand for prepaid services lie: the large populations of pimply kids and recent immigrants who don’t have the credit records to land a post-paid contract. Tracfone and Virgin thus advertise and market to those groups accordingly.

Amp’d, Movida and the rest of the boutique MVNOs were trying to do something more: establish a culture around the cellphone. Amp’d sold content reflecting a certain hip lifestyle. Mobile ESPN promised non-stop scores and highlights for the sports junkie. Movida didn’t just focus on Spanish speakers, it focused on Hispanic culture. Sonopia takes that concept to its furthest extreme, creating the smallest of vanity services.

I won’t go so far to say that the MVNO model will only work under the umbrella of prepaid resale. But it’s clear that the MVNO identity brands aren’t working. Maybe the segments they target are large enough to support  boutique service providers, but it’s obvious that only a fraction of the people within those segments are willing to make their wireless service reflect that identity. Amp’d had realized this. It tried to turn itself from a service provider to a content provider before bankruptcy caught up with it. And Mobile ESPN seems to be doing a lot better as an app on the Verizon deck than as a stand alone operator.

There’s still plenty of room for identity on the mobile phone, but a single service provider promoting a single pigeonholed lifestyle isn’t the way to deliver it. If the boutique MVNO model is problematic now, it will become obsolete in a matter of years as networks start to open. Verizon’s open-developer initiative, Sprint’s Xohm network and Google’s Android all imply a world where the services and access are separated. The new MVNOs won’t be “virtual network operators” at all. They’ll have nothing to do with the network whatsoever.

Update: Thanks to the readers who pointed out an error in the post. Movida’s primary backer is the Latin American conglomerate Cisneros Group, not IDT. IDT launched Tuyo Mobile.

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