A core argument

Assuming NextWave Telecom continues its surprising resurgence as a mobile network operator, the company is hoping to become one of the first U.S.-based service providers to craft resale partnerships with emerging mobile virtual network operators (MVNOs).

MVNOs are among the newest, most talked about service providers in telecom, perceived to hold the key to bringing mobile Internet and m-commerce services to all kinds of rich market niches that have lain untapped by wireless industry giants.

Mostly non-facilities-based service providers from outside the telecom industry, MVNOs look to gain a foothold in the market by offering big discounts on voice minutes packaged with m-commerce applications relevant to their core audiences despite the fact that wireless is not their core business. In the MVNO scenario, brand is everything because customers supposedly will buy just about any service from a brand they know and trust.

For these reasons, the MVNO business model was favorably compared with the similar free ISP business model when MVNOs such as Virgin Mobile began to have success last year in Europe. Now the U.S. is considered the next MVNO battleground, just in time for NextWave's proposed network buildout.

Nowadays, however, you will not hear too many people comparing MVNOs with free ISPs, largely because almost all of the latter have gone out of business or merged with traditional “fee ISPs.” Just last week, Bluelight.com, the largest remaining independent free ISP, moved to a pay service. The causes for the downfall of free ISPs include faulty financial management, over-reliance on advertising revenue and slow consumer embrace of e-commerce.

MVNOs need to be wary of the same obstacles. Retailers that started free ISPs found they were money-sucking marketing ploys rather than services that exploited their brands to lead to new purchases. MVNOs come armed with brands, too, but will diversification of their brands be worth the costs of service support and network capacity through companies such as NextWave?

Though free ISPs, for the most part, knew their core audiences, they did not understand e-commerce and were not ready for the technical difficulties and consumer indecision that has caused slow uptake of e-commerce. MVNOs have optimistic m-commerce studies to fall back on, but it's not clear whether they know what kinds of mobile applications their customers want and whether or not they trust wireless network security.

Many free ISPs hoped that advertising revenue would carry their services until e-commerce took hold, and though MVNOs could be less reliant on ad revenue, how long are they willing to wait for the m-commerce market to develop?

There is reason to believe the MVNO market could represent a windfall for NextWave and other network operators, but if the fleeting free ISP business is any indication, non-telecom firms may start up and tear down MVNO divisions with reckless abandon, based on conditions in their core businesses and not necessarily their non-core MVNO efforts. It is difficult to determine with any accuracy how many MVNOs there will be in the U.S. six months from now, a year from now or three years from now.

MVNOs are not the only partners/customers that NextWave is going after, but some analysts believe the company's ability to cut a few MVNO deals could trigger an MVNO revolution. Before carriers start repositioning themselves as MVNO wholesalers, they need to consider the pitfalls that caused free ISPs to falter. If MVNOs will not represent the core business of the companies that run them, they should not represent any carrier's core market.
Contact Dan O'Shea at doshea@primediabusiness.com.