Virtual mobile operators are taking the US market by storm. Asian carriers are right to be cautious, but inevitably they too will take the MVNO road. It's a matter of finding the right one.
The popularity of MVNOs (mobile virtual network operators) and MVNEs ('enablers') in North America should not surprise. It's the world's most sophisticated consumer society, the cellphone is the most popular electronic device and frankly mobile marketing is still in the development phase.
Cellular is still sold by service providers on a mass-market basis. There isn't a great deal of individualization in how the phones and services combine to create fresh experiences for what is a very personal item.
The attraction of the MVNO/MVNE is well-known: they're a segmentation tool for operators, helping them reach customers they couldn't otherwise get at through mass market branding and channels.
The challenges for Asian cellcos are the high penetration levels and the low prices. The failed attempts at first-generation MVNOs in Asia five years ago - Virgin Mobile in Singapore and Shell in Hong Kong - tell a story in themselves. Virgin's partner SingTel stuck it with a wholesale price as high as the local retail tariffs. The Shell model lacked a customer base.
Technologies and business models have since moved on. Today's faster networks and feature-rich phones are the platform for creating much stronger consumer experiences. The richest opportunity of all comes from content - music, video, ringtones, the Web, email - combined with fresh form factors.
To use a media analogy: regular mobile operators are akin to free-to-air TV broadcasters that offer family-friendly but often bland fare. Yet in the face of this apparently fully-supplied TV market, dozens of cable channel brands have been able to establish themselves.
Hit or miss
There's no doubt there's an opening in every market for a youth-oriented MVNO or two based on pop culture. The difficulty is the cost of getting there. The media business is awfully hit or miss, however strong the branding.
As Ovum analyst Carrie Pawsey warned in a recent paper: 'The investment costs of being a content-driven MVNO are high. Only those with deep pockets and an experienced management team will survive.'
Example: Amp'd the hip, edgy US operation, which has just completed a $150 million third-round in financing. It has marquee investors like MTV, Universal Music, Qualcomm and Intel, but it's quickly burning their cash.
It's aimed at young twentysomething males - guys who like sports, music and girls in bikinis, and who find their regular operator just a little tame.
Those media-driven MVNOs are in a race to capture the market before the money runs out. Research group Pyramid notes that, apart from the long-established Virgin Mobile UK, most MVNOs are either loss-making or slightly above break-even.
That's not the only market being attacked by US MVNOs. The low-end segment is well-served by no-frills players like Tracfone, while others are going after the burgeoning 'tween' (8-to 12-year-old) market.
The one area that beckons in Asia is the guest-worker segment; Smart Communications from the Philippines offers MVNO-based services in Singapore for the 130,000 Filipino workers there. That's an opportunity for Indonesian, Thai and south Asian carriers will look keenly at imitating.
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