MVNO EARTHLINK FINDS ITS MOBILE VOICE

Since international entertainment conglomerate Virgin launched as a mobile virtual network operator in 2002, the U.S. wireless industry has been waiting for another MVNO splash. This week, at the industry's biggest meet-market, the wait will be over. Telephony has learned that EarthLink is announcing a MVNO voice offering to supplement its burgeoning wireless data services.

Stein Soelberg, director of EarthLink Wireless, said the big Internet service provider will launch voice services by the end of the second quarter, focusing primarily on its 5.2 million existing customers and delivering services to the voice-enabled BlackBerry devices some of its customers already use for wireless access to their EarthLink e-mail and other services.

“Entry into wireless voice is a natural progression for us,” Soelberg said. “Our existing BlackBerry customers have been asking us for this.”

EarthLink is partnering with a national network operator to support its service, but Soelberg declined to identify the carrier, saying EarthLink didn't want the confusion of two brands in the spotlight. The move puts weight behind the MVNO model, which has drawn much attention from industry watchers for at least three years but has yet to live up to the buzz. The model has seen broader adoption internationally, but in the United States, Virgin Mobile USA, which announced stellar subscriber numbers last week (see story on opposite page), has been the only notable firm to take the MVNO bait.

Still, as recently as last week, rumors were circulating that multimedia powerhouse Time Warner, telecom legend AT&T and content king Disney were planning their own MVNOs.

“Time Warner is a possibility. Disney is a possibility — that rumor has been around a long time, since the 1990s, and it continues to resurface,” said Martin Dunsby, vice president of operations at wireless consulting firm inCode Telecom. “MTV could be another one. You could see AOL do it, and even the old mother ship, AT&T.”

News of EarthLink's plans also comes just weeks after Qwest Communications launched a voice MVNO rooted in a network-sharing agreement with Sprint. While industry watchers have suggested voice MVNOs have less potential to add value than content-focused or niche-oriented plays, the aggressive and straightforward plans presented by Virgin, EarthLink and Qwest, combined with a lack of action so far by content companies, raise questions about whether the MVNO market will be grounded in the old mobile voice world or take off in the new mobile content realm. While the MVNO model is maturing, the immaturity of mobile data networks and devices may be keeping content giants out of the game thus far, Dunsby said.

“Consumers aren't adopting mobile data broadly enough yet, and the handsets can't really support the sort of content for which companies would want to extract premium revenue,” he said. “Most of Disney's animation content can't realistically be viewed over a device right now.”

MVNO success stories in the near term are more likely to involve service providers that bring new value to existing customer bases. “Even though they don't have to acquire spectrum, there are high customer acquisition costs related to MVNOs, and if you can start with your customer base, the customer acquisition cost will be much lower,” Dunsby said.

MVNOs: A MARKET IN MOTION
Recent MVNO launches Qwest Communications EarthLink Wireless	Strategic strengths Ability to bundle wireless/wireline Existing wireless data customer base
Who could be next? Time Warner: Vast content properties, multimedia mega-brand Disney: Content, youth market focus, demographic crossover potential AT&T: Trusted telecom name, bundlng ability MTV: Youth demographic strength, content ESPN: 18-34 year-old male demographic, content Niche retailers: Customer focus, distribution capabilities

That's what EarthLink has in mind, Soelberg said. The company is so focused on its existing data users, it isn't even rolling out a traditional voice handset with its MVNO launch. However, he added that EarthLink eventually will try to attract, new “like-minded” customers, and also will look at expanding its device availability as customers express demand.

“We feel we're different than everyone else,” Soelberg said. “We're leading with different devices. Other carriers are going after the Fortune 1000 enterprises, while we're going after different users.”

Clear differentiation plus a strong identification with user affinities make for very viable MVNOs, said Bob Egan, principal analyst at Mobile Competency. It's a combination that many traditional mobile carriers serving anonymous mass markets can't match. Some are likely to find themselves supporting rollouts for the EarthLinks of the world, and remaining unidentified like EarthLink's silent partner. “We're at the threshold of seeing the traditional mobile carriers be relegated to bit pushers,” said. “It was bound to happen because they can't prove the value of their existence beyond the pipe.”

EarthLink's voice service will be packaged with higher-revenue data applications, and that's a key difference from Qwest's voice MVNO, which has no data element yet, and is being bundled with wireline services. “I don't know if wireline/wireless MVNOs are going to work without the value of data or content or an affinity application being added,” Egan said.

Dan Schulman, CEO of Virgin Mobile USA, said bundling wireline and wireless and integrating billing will improve carriers' bottom lines, but won't be enough to compete in the MVNO market long-term.

“It's good to have a single bill, I guess, but I'm not sure at the end of the day that's what people purchase on,” he said.

Egan has his own idea for how the MVNO strategy could be executed: “If I could get a device from ESPN that would allow me to watch ball games when I'm traveling, or allow me to catch up with the Red Sox when I'm somewhere else, I'd buy ESPN's phone before I'd buy Sprint's.”