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How to make an MVNO work

Just last week, we criticized the media for their take on MVNOs. We were particularly critical of the notion of the business model being an inevitable failure, based on three instances of an MVNO folding. We were glad to run into an article this morning by Amol Sarva, who co-founded Virgin Mobile, a successful MVNO. He makes quite a few points about the MVNO business model, and believes that it can succeed.

The greatest part is that the theme of his article is the same as ours: For all the failures you see, there are a ton of successes. And he names many of the same providers as examples: Virgin, Tracfone, kajeet, PagePlus.

Here’s a number we didn’t find until now: nearly 10 percent of U.S. mobile phone users subscribe to MVNOs. That’s pretty substantial for a model that is, if you believe the media, “doomed to failure.”

Sarva then goes on to name some of the things bad MVNOs do. We’ll pick the two we enjoyed the most:

4. Ignores retailing 101. Launches big glitzy media… with no or little store availability (Amp’d, Helio, Disney, and Mobile ESPN all did this — Superbowl and MTV ads before they were even available in 100 stores nationally)

7. And so doesn’t realize that the revenue per megabyte or revenue per minute is nowhere near where it needs to be. MVNOs are wholesalers. They pay a fixed price per minute. The industry average is $0.07 per minute of revenue. When Amp’d was selling 1000 minutes for $40…they were making $0.04.

And then he mentions things that good MVNOs do:

2. Launch a differentiated product like… prepaid. Carriers have always made prepaid extra horrible.

6. Focus on the right metrics: Revenue per megabyte or per minute. For example, if Virgin’s frumpy prepaid customers spend $20/month to use 150 minutes… they are spending $0.13 per minute.

This is not coming from a person like us, an industry pundit. It’s coming from someone who actually made an MVNO that works. MVNOs are not in trouble; only the bad ones are. And really, isn’t that how it always is?

[Silicon Alley Insider]