$TCPS...Patents!! Why are MVNOs so hot right now?
Post# of 72696
[b]$TCPS...Patents!! Why are MVNOs so hot right now? [/b]Thank the carriers
By Kevin Fitchard
Jun. 25, 2012 - 5:00 AM PDT
Summary:
Mobile virtual network operators are sprouting up like crazy all over the U.S. after becoming nearly extinct a few years ago. Why the renaissance? According to two of those new virtual operators, GSM Nation and TIng, the big carriers are finally letting MVNOs spread their wings.
Virtual operators are sprouting up like weeds in a garden – except these weeds are starting to look a lot more attractive than the rose beds they’re enveloping. These mobile virtual network operators (MVNOs) essentially resell the voice and data services of big operators, but often at much lower prices and with more flexible plans.
In just the last few weeks we’ve seen several new ones pop up. Last Friday, GSM Nation gave us a sneak peak at the MVNO it plans to birth this fall, distinguishing itself from the pack with a retail portal that sells almost any smartphone. Data-only operator Karma emerged last week, touting a unique social model for sharing bandwidth with the masses. Last month, Voyager Mobile launched offering two simple but comprehensive plans – one with data and one without.
MVNOs all but died out in the last decade, victim to their own over-segmentation of the market. The only survivors were the ones who kept their focus on the budget prepaid segment like TracFone and operator-owned sub-brands like Virgin Mobile and Boost Mobile. So why the sudden of flurry of activity in the last year?
We posed that question to a couple of MVNOs and their answer was a bit surprising: MVNOs are thriving because the big network operators are letting them thrive.
Here come the GSM boys
A good deal of new MVNOs have built their business models around cheap and plentiful data, and there’s a reason: operators have become much more flexible on how they charge for mobile broadband. For the longest time, carriers simply wouldn’t give MVNOs access to their data networks. When they started to so, they charged prohibitive rates and made their virtual partners pay for their megabytes up front, making it very hard for MVNOs to craft reasonable data plans, GSM Nation CEO Ahmed Khattak said.
But nine months ago, AT&T and T-Mobile started selling data and voice airtime by the bucket, which gives MVNOs much more flexibility in pricing, Khattak said. Even more significantly, those carriers started working directly with MVNOs to craft unique plans in exchange for a percentage of the plans’ revenues. The MVNO submits a proposed bundle of minutes and data to an carrier – along with a $15,000 fee — and if it’s approved, the carrier then takes 25 percent to 30 percent off the top of every monthly bill, Khattak said.
With those new policies in place, it makes it very easy and very cheap to launch an MVNO, Khattak said. GSM Nation will get off the ground with only $700,000 in investment, supplemented by revenues from its smartphone retail business, Khattak said.
“The big decision we had to make was ‘do we go with AT&T or do we go with T-Mobile,’” Khattak said. “We chose T-Mobile because T-Mobile is much more receptive to new MVNOs than AT&T. They give us more bandwidth, while AT&T is very protective of its network.”
Another key factor was that AT&T doesn’t allow MVNOs to sell any handsets Ma Bell currently it offers, which would have prevented GSM Nation from connecting the Apple iPhones and Galaxy devices it retails in its online store. Since GSM Nation is first and foremost an unlocked phone purveyor, that policy was deal-killer for Khattak. But it certainly hasn’t stopped other MVNOs from signing up with AT&T. TracFone’s Straight Talk, H2O Wireless and Red Pocket offer SIM-only plans that allow it bypass that restriction as long as their customers bring their own devices to the network.
Sprint: An MVNO’s best friend
Sprint has a long history of supporting MVNOs, but recently it has opened its network even further to wholesale partners, said Elliot Noss, president and CEO of Tucows, a webhosting company that launched its own MVNO, Ting, in February. Sprint’s wholesale rates and flexible policies allow Ting to offer some of the most innovative – and potentially disruptive plans – in the industry.
Ting sells the closest thing the U.S. has to metered data plan. Customers sign up for tiers or minutes, SMS and data, but if you use less than your plan’s allotment in a given month, Ting will credit you for the unused minutes, texts or data on your next. If you use more Ting will charge you for the additional usage at no penalty. According to Noss, Ting’s savviest customers merely select zero in all three categories and just pay for what they consume each month.
Sprint’s embrace of the virtual operator model has landed it a lot of partners. Republic Wireless, Voyager, Movida, Kajeet and a dozen others all use Sprint’s network. Sprint’s friendliness toward MVNOs carries over to its 4G partner Clearwire – in which Sprint owns a plurality stake. Data-only MVNOs like Karma, NetZero and FreedomPop, as well as Ting, have all signed on with the WiMAX carrier.
“Sprint has more of a history of wholesale,” Noss said in an email interview. “They are also a very large, but very hungry #3 in the market. That is really a perfect combination to make for a great wholesale partner. Having a wholesale and retail division inside the same company is a challenge that we appreciate at Tucows and we chose very carefully.”
Sprint does place some restrictions on handsets Ting is allowed to sell, and as a CDMA carrier it can’t resort to SIM card plans to bypass those policies. But Sprint only bans some devices, and the exclusivity period is relatively short, Noss said. “Basically, if they’re putting a big advertising push behind a device, they’re going to want time to reap the benefits of that push themselves,” Noss said. Sprint is also much less protective of its network than others. For instance, Sprint has agreed to make to make its LTE network, launching this summer, immediately available to Ting.
Are the carriers coming to MVNOs or are they being dragged?
Khattak believes that the big carriers have thrown in the towel, and have adopted a if-you-can’t-beat-‘em-join-‘em attitude toward the market. Operators know they’re going to continue to lose customers to these new competitive virtual operators, so they might as well reap the wholesale revenues rather than give that business to another operator, Khattak said.
Noss doesn’t see it that way. With the exceptions of Sprint and Clearwire, the carriers are being dragged kicking and screaming to MVNOs – they simply have no choice.
“Our view on AT&T and Verizon is that they come to wholesale very begrudgingly and they will do only as much as the market forces them to,” Noss said. “We believe that ‘necessary evil’ would better describe their view of MVNOs than ‘if you can’t beat ‘em, join ‘em’. … the incumbents will only be as flexible as the market forces them to be.”
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