Promising MVNO Market Fails to Meet Expectations

The once promising mobile virtual network operator (MVNO) market — composed of major consumer brands like Disney, which repackaged the services of local cellular phone companies for its clientele — is failing to live up to expectations and making a minimal impact on the mobile market.

The niche, which once promised to “shake up the market,” has attracted only a small number of customers, according to a report by the Boston-based research firm, Strategy Analytics. The new MVNOs have failed to learn the lessons of their predecessors, according to Sara Harris, a senior industry analyst at Strategy Analytics.

Recipe for Disaster

There are a number of factors behind the marketing failure, according to Harris. “The handsets are boring, pricing uninspired, and the distribution strategy is flawed,” she said. “This is a three-fold recipe for failure.”

At the end of last year, only niche players in the MVNO market — firms that sold prepaid wireless services for the youth market — were prospering. Among the winners were Virgin, Boost and Tracfone, which together made up 85 percent of the overall MVNO market. Hyped brands, like Disney and Mobile ESPN and Hello, were not even competitive in terms of market share with those other, low-cost players, according to the report.

The flashy brands should look to their low-cost counterparts for inspiration, said David Kerr, vice president of the global wireless practice at Strategy Analytics. “Most MVNOs seem to have forgotten to recognize the digital youth segment’s preference for prepaid service when planning these product, promotion and distribution strategies,” explained Kerr.

Combined, Disney and ESPN’s losses in the MVNO market are expected to reach US$135 million this year,Merrill Lynch has predicted.

It Sounded Good at the Time

“MVNO is a great idea for the consumer marketplace,” said Michael Voellinger, vice president of enterprise mobile solutions for Calif.-based telecom consultancy Telwares. “The wireless industry was looking for the success of Virgin Mobile to be replicated by Disney, ESPN, and some of the other big brands.”

In addition to overlooking the youth market, the other brands thought that mobile content would be the driver for MVNO sales, noted Voellinger. “They were reliant on content to be the differentiator,” he added.

Virgin started out with a simple, well-defined marketing plan, and stuck with it, according to Voellinger. “They knew who their target audience was going to be,” he said. “That’s 13- through 19- year-olds. They built their business around it. Very smart, targeted effort.”

The “less well-thought-through business models are suffering,” added John Green, an analyst at N.J.-based telecom market research firm BusinessEdge Solutions.

The mobile content marketing concept embraced by some of the high-profile players in the American market, simply put, was imported from Europe and didn’t quite fit here, according to Green.

Underserved Markets

The successful U.S. firms thus far have targeted what Green calls “underserved” markets, by “creating new service offerings to prove market acceptance.”

The players at the Disney and ESPN projects, however, haven’t given up hope yet, and they still think they can succeed, given more time.

“Success for an MVNO means using the unique features of the MVNO model to their advantage, as opposed to competing with the regular carrier model,” said Anne Coyle, a spokesperson for Vienna, Va.-based mPortal, a content delivery system provider.”So, this means promoting the availability and ease of use of the content on the MVNO, and avoiding competing on price.”

However, there may be a market for converging technologies if the purveyors can differentiate the mobile service offerings in a clever way, Green argued. The market may still continue to evolve quickly. For example, Virgin Mobile offers some content to its youth demographic through its partner Vibes Media, a Chicago game maker.

In the end, the most effective marketing will win out in the wireless world. “A bad business case is a bad business case, and there will continue to be failing MVNOs,” Green concluded.