Sep 13, 2004 12:00 PM,

The virtual wireless future

by Andrew J. Cole

As mobile virtual network operator entries accelerate, concerns have been raised about the danger of excess competition and price commoditization. These worries are unfounded. Wireless is entering a phase in which user telecom and entertainment wallets merge to create a far larger and more profitable market. MVNOs will have the dual benefit of making the market more efficient on the cost side and turbo-charging the uptake of services on the revenue side. Their presence will alter the structure, economic flows and culture of the wireless industry.

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MVNO brands are indicative of a profound shift from a voice-only market to one dominated by a proliferation of value-added wireless services. This new breadth of services is driving a change in which the depth of customer revenue streams through one provider becomes paramount. Customers will begin to select their service provider based on their lifestyle or industry, developing an affinity with a meaningful brand.

In time, the supply-side of the market will be restructured from several generic wireless voice carriers to dozens of segment-focused “life services” carriers that generate revenue from a smaller number of dedicated, high-usage customers. We are currently at the tipping point of this shift, one exemplified by the accelerating revenue and usage of data and other non-voice services. New segment-focused brands will have customer affinity and stickiness, strong marketing and expertly targeted services. Network quality will become a table stakes element as wireless companies place more emphasis on segmentation and marketing prowess. And new MVNOs will often lead the way in service innovation, enabling rapid customer acquisition.

A.T. Kearney has identified 10 MVNOs that will enter the U.S. market within 12 months. We forecast that by 2010 there will be more than 15 MVNO brands made up of three large-scale entities, several others in mid-tier positions and a handful of niche brands. By 2010 the MVNO market is forecast to account for more than 15% of the wireless market — more than 25 million subscribers.

While many financial analysts may be unnerved by MVNO entry, we believe the movement toward greater brand proliferation will improve overall market efficiency and help pay for network buildouts required for next-generation service delivery. The trend toward ownership of customers who buy and receive a breadth of mobile services through the same company will serve to improve industry economics and allow MVNO companies to play to their strengths. MVNOs are good for wireless customers, good for mobile operators and ultimately good for America.