The American MVNO Mobile Market is One Long Series of Catastrophes

A study by Strand Consult of the American mobile market shows that it is currently dominated by four market players Verizon, Sprint, AT&T and T-Mobile, and that T-Mobile by far has achieved the worst results in almost all areas.

The list of extinct American MVNOs is long, with probably the two most well-known MVNOs being Helio and ESPN. Both MVNOs lost a tidy three-digit million dollar fortune on trying to build a business based on a strategy that basically included all the mistakes an MVNO can make. Strand Consult believes that the consultants that sold services to those two companies should – together with their management – be held financially responsible for the shareholder value they managed to destroy while Helio and ESPN were on the market.

Studies of the American MVNO market conducting by Strand Consult show that their problems can be divided into four main areas:

1. Most U.S. based MVNOs base their business on deals with CDMA operators like Sprint and Verizon. The problem with using a CDMA is that the MVNO is forced to deliver a new mobile phone to the customer – they can not simplify their business by offering SIM-only sales like their European counterparts.

2. Some of the American MVNOs have not yet passed the point that their European counterparts passed between six and eight years ago and are still simply copying a traditional MNO’s strategy regarding distribution and subsidising mobile phones. The margins on the MVNO market are simply not high enough to justify that strategy in practice.

3. Operators that are focused on GSM in America do not see the value of having MVNOs. They still believe that they can service all 300 million potential customers in the country using one brand and with no regard to the customer’s age, gender, religion or cultural background. That strategy is not only very expensive, it is also naive.

4. American market players have not realised that there is a mobile market outside the USA and that there are in fact people and companies that not only know a great deal about the MVNO market, but have actually also helped create successful MVNOs and mobile operators that have achieved their success by using an aggressive MVNOs strategy. Most American mobile operators still believe that MVNOs destroy value and do not regard them as market players that can create enormous value for mobile operator.

Having studied the US market and the approach T-Mobile has taken to the MVNO market, one can only shake one’s head in despair and ask oneself why T-Mobile did not look at how for example E-Plus in Germany used an aggressive MVNO strategy to reduce their acquisition costs and increase their earnings, simultaneously resulting in the significant decrease of T-Mobile and Vodafone’s profitability in Germany.

At the end of the day, the MVNO strategy used by E-Plus in Germany resulted in their EBITDA margin growing from 21.1% in Q1 2005 to 36.2% in Q1 2007 and helped cause the reduction of E-Plus blended acquisition costs from ?189 – ?84 during the same period.

If you then look at how T-Mobile in Germany developed during the same period, E-Plus not only succeeded in improving their key figures, they also succeeded in creating such large problems for Vodafone and T-Mobile that both companies stopped publishing detailed financial figures for their German operations – which they most probably would not have done if things were going well in Germany.

When examining the American mobile market, one could be tempted to ask oneself why T-Mobile in the USA had not learnt from the mistakes made in Germany? How could they not be aware of the many European mobile operators that have positive experiences from using an aggressive MVNO strategy to actually increase profitability for operators very similar to T-Mobile in the US?

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