1. US market is probably one of the only major markets where operators offer branded handsets (at least as of 2007/8). All of the major MVNOs – Virgin, Amp’d, Helio and others offer branded handsets with customized features. The cost of acquisition of a customer goes up because of the subsidy that they need to offer on these handsets. Add to this distribution cost and the retailer bounty, the break-even on a new customer becomes an uphill task. Additionally, these MVNOs cannot command the handset volumes to match the top service providers and hence cannot demand better pricing from the handset manufacturers.

2. There is still lack of a ‘unique’ value proposition which can be refreshed on a regular basis by these MVNOs. In this competitive environment, the big operators are ceating value offers for all customer segments. Their prepaid plans are comparable if not better than what are offered by the MVNOs. On the high end, all of the US operators have brought out ‘all you can eat’ voice and data plans to the market.

In the future, the market might improve for the MVNOs but until then sustainability is going to be key. Regardless, competing with your suppliers is a tough place to be.

Then in your closing sections, you say that the opportunity for MVNOs will grow. “What’s it gonna take? A greater level of market saturation, says Besen.”

That’s totally contradictory. Furthermore, I would agree more with the former argument than the latter. The MVNO’s ability to differentiate was high while the majors had a “Ford Model T” strategy for cellular service. But as the markets get more competitive, and the land grab days of easy customer adds goes away, the carriers need to focus more on customer niches, flexible plans, segmentation strategies, variety of options, etc. This additional competition will increase the challenges of MVNOs.

At this juncture, the best bet for an MVNO is to stake out a demographic, win subscribers in numbers > 750,000 and await a buyout from a major carrier or PR. But getting subs > 500k has proven elusive to MVNOs, and at that scale, you burn money and are of little interest as a M&A target.

Derek Kerton
http://www.kertongroup.com

Anyone who has been in the industry for a while remembers that many “resellers” (some of them big names like MCI) got out of the business in the late 1990s because there was no margin. Somehow, content companies thought they could do it differently, but they failed to get the network deal that support carrier-like economics.

I agree that we are likely to find new iterations of companies partnering with the big networks in the US, but it won’t be a reseller model.