More than a decade ago, the first wave of MVNOs –
TracFone,
Virgin and
Boost
– brought consumers the option of prepaid service. No-contract cellular
was disruptive then; today, it accounts for more than one out of five
mobile users. The original three MVNOs still account for about half of
the U.S. prepaid market (Virgin and Boost are now units of
Sprint), and hold a 10 percent share of total wireless subscribers.
While matching the impact of the first wave may be difficult, a new
wave of MVNOs is reaching the market now with equally disruptive
business models, such as dramatically reduced acquisition and service
costs, low-cost voice and data services, and exciting new capabilities.
Here’s how they’re doing it:
Low-cost model
Handset subsidies can be a large part of the acquisition cost for
traditional carriers (in the case of the iPhone, for instance, several
hundred dollars per unit). In contrast, many new MVNOs are adopting
Bring Your Own Device (BYOD) strategies, with SIM-only MVNOs like
Simple Mobile,
Red Pocket and
Ultra on the GSM side, and a new BYO Sprint Device solution for MVNOs like
Kajeet,
Ting and others on the CDMA network.
Sprint’s BYOSD program has the added benefit that no SIM kit or installation is required; the handset is activated simply via its serial number.
With BYOSD, for example, Kajeet offers network-based parental
controls, web filtering and location services on recycled handsets. BYOD
solves two problems for the MVNO – eliminating handset subsidies and
reducing logistics cost (kitting, shipping, warranty repairs and
returns). Even where customized handsets are used, MVNOs sell them above
cost, eliminating costly subsidies.
Not sold in stores
Many new MVNOs bypass the retailer and dealer channel altogether and
save a bundle by embracing online distribution, web marketing, social
media, viral and multi-level marketing. In lieu of paying retailers high
commissions and sales incentives while still fighting for shelf space,
these MVNOs rely on newer, lower-cost targeting. SEO and SEM are just
the beginning. MVNOs like Ting sponsor selected podcasts and weekly
Facebook caption contests to reach their target audience.
Solavei
uses multi-level marketing, Facebook, and tried-and-true referral
incentives. And Kajeet uses a “Mom Sales Team” referral program (that
interestingly relies on old-fashioned word-of-mouth among parents).
Service – airtime and data – costs can also be reduced. With
increasing data usage, many MVNOs utilize dual-mode phones (cellular and
Wi-Fi) to offload voice and data traffic to Wi-Fi networks, which is
increasingly available in homes, offices and businesses. And an added
benefit for providers: offloading to Wi-Fi turns off the carrier’s
meter.
MVNOs to watch
Ting appeals to early adopters and
Internet-savvy folks with a completely different take on pricing.
Self-described as “Geek-powered,” Ting lets customers design their own
rate plan, buying only as many minutes, messages and megabytes as
needed, with plan sharing for just $6/device. Alternatively, customers
can simply pay for actual usage at the end of the month. Is it prepaid
or postpaid? Ting’s answer: “We call it fair, and trust you.” Customers
manage usage from an online dashboard, and customer care is friendly,
unscripted and helpful. Bring your Sprint device to Ting, or select from
a range of Android handsets.
When
Republic Wireless
introduced its $19/month unlimited plan as a beta trial, everyone asked
how they planned to do it. Republic relies heavily on Wi-Fi networks at
home and work, using “hybrid calling” or cellular offload where traffic
only rolls to Sprint’s cellular network when Wi-Fi is unavailable.
Republic is now shipping a
Motorola Android
smartphone, running proprietary Republic software (for $259), which
completes the no-contract package. And apparently the beta trial worked
just fine: the same $19 plan is now available to all.
FreedomPop guarantees 500MB
of free 4G mobile broadband data every month, with no data caps or
throttling, and attractive plans ($17.99/month for 2GB of data, a cent
per MB additional). Customers can earn additional data for each friend
referred or unlimited data by engaging in partner promotions. The
Freedom Hub Burst, a 4G Wi-Fi router that offloads cellular to wireline
and supports up to 10 devices, is free with security deposit. They also
offer the
Freedom Sleeve Rocket,
an iPod Touch case that turns it into an iPhone. Plans include trading
bandwidth with other FreedomPop users, and creating bandwidth-sharing
communities. Launched on
Clearwire, FreedomPop will add Sprint’s LTE network next year.
Voyager Mobile , a
Tennessee-based company with just nine employees, nonetheless thinks
big. With unlimited talk at $17 to unlimited everything for $39,
Voyager’s shrinking service plan program drops monthly rates by $1 for
every six months of on-time payments. Last month, Voyager announced
Project Global Voyager
for calling “across the world, without any roaming charges.” Using dual
CDMA-GSM handsets, on Sprint here and GSM everywhere else, Voyager
promises international voice, messaging and data worldwide “without a
penny of roaming charges” in first-half 2013. Voyager says demand is
strong. Two other MVNOs are also addressing international roaming costs –
Karma in the U.S. and
GlobalGig in London.
And everybody is watching
Solavei, a
T-Mobile
MVNO that, under an elaborate compensation plan, pays bounties to
members for signing up new customers. Members are encouraged to share
with family and friends, and post on social networks in a marketing
scheme described as “more like Amway or Tupperware.” Last month, Solavei
announced it reached 65,000 members just six weeks after launch and had
paid more than $1 million in commissions. This would be a roaring
start, but not losing steam is often the challenge for multi-level
marketing.
These and other new MVNOs are introducing attractive pricing with
innovative technology and business models. As always though, execution
and deep pockets will determine winners and losers.
Whitey Bluestein, a 25-year telecom veteran, is a strategic
advisor and corporate development specialist focused on prepaid, mobile
applications, payments and roaming services. Visit whiteybluestein.com.