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MVNOs (Mobile Virtual Network Operators)
Does Brand Matter?

Conventional wisdom would indicate that a Mobile Virtual Network Operator (MVNO) needs an established brand to achieve success. But in today’s wireless world, that’s not necessarily the case.

Take, for example, Boost Mobile and TracFone: two market entrants that lacked brand recognition, but have somehow made significant inroads into the wireless business. While both companies did not have an established brand before they launched, surprisingly they have both been successful. In fact, TracFone recently topped 3.5 million subscribers and Boost Mobile now boasts more than 1.7 million subscribers. Even Virgin Mobile USA, which last reported more than 3 million subscribers, did not have the same brand recognition as a company like Coca Cola or McDonald’s.

Of course, starting with a well-known brand name, can be advantageous, as it helps with not only consumer recognition, but also consumer trust. For example, when ESPN and Disney eventually launch their MVNOs, they will have instant brand recognition and a strong affinity base. To a somewhat lesser degree, so will SK-Earthlink when it begins to offer its own service.

While all that is true, starting without a brand also has its own appeal – the company has the opportunity to define itself with no stigma or predetermined attitudes, which could be an advantage in a world where wireless carriers are not exactly at the level of Nordstrom or Southwest Airlines when it comes to consumer satisfaction and trust. This “blank slate” will be the case with some planned MVNOs, such as Amp’d Mobile. In a sense, with the right service offering, Amp’d can position itself (like the Oldsmobiles of yore) as “not your father’s wireless company,” in much the same way Sprint PCS defined itself as the “clear alternative to cellular” when it first came to market in the 1990s.

Other unknown brands, such as 7-Eleven’s Speak Out Wireless, may have a more difficult time gaining a market foothold, because their two primary competitive tools are price and convenience. They will likely contend for subscribers on a head-to-head basis with other more established MVNOs and resellers such as TracFone and Liberty Wireless.

All of these companies must approach their business models in different ways -- although with all MVNOs and resellers, some approaches will no doubt be similar. MVNOs need to have a network partner, offer their own customer care and billing, develop their own relationships with device manufacturers and distribution channels, and execute distinctive marketing campaigns that resonate with consumers. At the same time, there will be numerous differences in the product offerings themselves, such as types of voice and data services, types of devices, marketing tactics and choice of distribution channels.

One way to see just how brands might affect business models is to look at three new and soon-to-be launched MVNOs: Disney, Amp’d Mobile and Speak Out Wireless.

Disney Mobile — Disney’s MVNO will focus on unique content. It will also use its brand recognition to differentiate itself from its competitors. In 2004 The Children's Place Retail Stores announced that it had agreed to acquire and operate the Disney Store retail chain in North America. This means that in addition to mass-market retail stores and toy stores where it already has a strong presence, Disney can also market its mobile offerings at The Children's Place. In addition, the company can leverage its cable network to promote its service. The fact that Disney has a well-known worldwide brand should also help the company when it deals with handset manufacturers, gaining concessions that a similarly-sized traditional operator would probably never get.
Amp’d Mobile — Amp’d will focus on high-end multimedia content and services. The company has inked contracts with many content providers, including Gameloft, JAMDAT, Bandai and InfoSpace, to name just a few. Product positioning and effective market messaging are essential for Amp’d – the MVNO is targeting the “content-savvy early adopter youth market” as opposed to the “hip and stylish (but price sensitive) youth market” that is currently the domain of Virgin Mobile; however, this distinction may be lost on the market. Distribution channels are also a potential bump in the road, as Amp’d is tasked with building retailer and e-commerce relationships from the ground up.
Speak Out Wireless — On the other end of the spectrum, an MVNO like the 7-Eleven’s Speak Out Wireless will differentiate itself primarily on the basis of low price and convenience, and its business model will reflect this. While Speak Out has a built-in distribution channel through 7-Eleven stores and has partnered with an MVNE (Zstar Mobile) to help with some of the backend operations, the company will have to work harder on marketing to differentiate its offering from others that offer low-cost and pre-paid plans.

Brand recognition is certainly not the only factor that determines the ultimate success of a company, especially given the slim operating margins of the MVNO business model and the myriad pitfalls of subscriber operations, customer service, billing, and retail distribution. All told a company’s brand is the most important factor in determining business structure and go-to-market strategy for an MVNO. The successful alignment of brand equity with the overall product offering and customer experience will be the most significant influence on any company’s success or failure.

— Charul Vyas, Senior Analyst & Account Manager