Drinking from the MVNO money keg
Om Malik and Ian Gilliot have written extensively on the Mobile Virtual Network Operator (MVNO) phenomenon, some of them raising upwards of $300m to build specialty services that ride on existing mobile operator networks. Both Om and Ian suggest that MVNOs like Amp’D, Helio, XeroMobile, and Mobile ESPN are likely to follow the same boom-bust dynamic of CLECs of five years ago. I agree. History is likely to repeat itself.
In fact, a new mania is upon the land as evidenced by the facts surrounding those involved in the most recent wild horse, XeroMobile. The Register, FT, and others have reported on the strange nature of some of the principals, many of whom recently jumped from a failed effort using the same business model. Apparently, the past doesn’t seem to matter to a substantial number of investors.
That being the case, there will be winners and losers — just like the last time. As Om Malik and others point out, the losers will be “private equity investors, venture capitalists, and well in the end the citizens who fund pension funds.”
The winners will be those who can find a way to tap the keg of money with the biggest spigot and drain the money the fastest way possible. Since some of the new MVNOs — especially XeroMobile — plan to offer free ad-funded phones, advertising agencies will obviously be one of the winners. But ultimately, if MVNOs continue to get funding, their efforts and their money will:
- Fuel the broadband mobile market. These high-end services will need a lot of pretzels and beer to get them off the ground. Smart phones from Samung for $400 a pop and all you can eat data services from Verizon at $80 per month will need a huge promotional budgets to acquire customers. Guess where that money is coming from.
- Prove or disprove the ad-based business model. To some, it will not matter whether they succeed or fail. Either way, critical data on ad-funded networks will be gathered from multiple MVNO experiments. Google will need to decide whether to play, or to put up its feet and see what survives the fire.
The real beneficiaries of this money-draining exercise will be phone makers Samsung, Nokia, and Motorola, high speed data infrastructure suppliers Lucent, Nortel, and Airvana, and the world’s 3G-transitioning wireless operators. They will be the ones drinking from the money keg.
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