Bob Egan on MVNOs

TowerGroup Emerging Technologies Research Director Bob Egan has been one of the industry’s biggest naysayers on MVNOs, which didn’t exactly make him popular among what was expected to one of mobile’s hottest sectors. But a lot of signs are now pointing to Egan being right.

Last quarter two of the biggest network providers to the MVNOs, Verizon Wireless and Sprint, both reported declines in wholesale customers, and financial analysts are starting to question the MVNOs’ basic business models. The MVNOs may just be undergoing growing pains, but they certainly haven’t been raking in the customers and aren’t having the huge impact on the industry everyone expected. And according to Egan, they never will.

“MVNOs are dead on arrival,” Egan said. “I hate to say I told you so, but that’s exactly what’s happening. … They are trying to create a secular proposition to attract a very small part of a marketplace that is constantly shrinking. By definition, their business models are based on a market that is always getting smaller.”

Egan isn’t condemning the MVNO model completely, but he said the current batch of MVNOs, led by Helio, Amp’d Mobile, Disney Mobile and ESPN, have arrived in the market too early. The U.S. wireless industry is still in its expansion phase, trying to reach the 90% to 100% penetration numbers of fully matured markets in Europe and East Asia, Egan said. Consequently competition has always been framed in terms of network quality—“Can you hear me now?” and “How many bars do you have?” MVNOs are competing on services, content and lifestyle brands that the broader carriers don’t provide or cater to, he said. The problem is if the market is still driven by access--i.e., network quality--it’s almost impossible to make a case for the consumption models of the MVNOs.

“People are still buying cellphones to make phone calls,” Egan said. “As long as that access model continues, MVNOs will be a money-losing proposition.”

Virgin Mobile and Boost were initial MVNO exceptions because they targeted the market with an access solution the other carriers weren’t providing, namely prepaid services, Egan said. But the newer MVNOs are focusing on content and brand, which have little sway on the American consumer that thinks of wireless as a voice communication tool. Perhaps, when the U.S. does reach its critical buildout and network quality is no longer a factor, that content can be used to differentiate one provider from another, Egan said. Then, and only then, he added, will the idea of content be a differentiator--when one network is the same as another.

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