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WirelessWeek,  Monica Alleven  October 01, 2007

My Rap
MVNOs: Heaven or Hell?
By Monica Alleven

The MVNO graveyard is getting bigger, and some of them are just digging their own graves.

So far, of the ones that have passed on, such as Mobile ESPN, Amp'd Mobile and most recently Disney Mobile, were suffering from more than the inherently risky MVNO business model. They were each focused to some degree or another on content, something that is becoming increasingly accessible from most all carriers. And some, like Amp'd, had what former executives there liked to call a "perfect storm" of things that went horribly wrong.

Some MVNOs today are still basically resellers with a marketing plan, harkening back to the resellers of the 1990s. They didn't have big brands back then, and they weren't very successful, either. That said, some companies today are going after a broader segment than others, such as Virgin Mobile USA, Boost Mobile and Tracfone, all of which have established themselves, by most standards, as fairly successful businesses.

The jury is still out on Helio, but it's got more going for it than some of the many other MVNOs that have come out of the woodwork. "We're basically closer to a carrier than a lot of the MVNOs out there," says Rick Heineman, Helio's senior director of communications at Helio. With the exception of the Sprint Nextel network and spectrum, "everything else is Helio." It runs its own customer care and backoffice, thanks in no small part to one of its parents, SK Telecom, which also helped the MVNO get a deal with MySpace some 15 months before most of the rest of the industry. SK's backing also helps Helio by way of specially made devices, such as the Ocean. And while I often think of Helio as a high-end service for yuppies, it now offers a range of devices, from the $295 Ocean to the $50 Heat.

The MVNO's subscriber count is up 40% in the past 90 days, which is a good sign. But it really needs to hit that 1 million mark, and it's probably got less than a year to prove itself, says Dave Whetstone, former chief marketing officer and co-founder at Virgin Mobile who is now CEO of CloneFone. An MVNO can't make a business out of just a few hundred thousand subscribers, even if the ARPU is high. "The first customers you get are always the highest ARPU," he says, and that ARPU will come down over time as the service spreads over a broader market.

One of Helio's parents, EarthLink, is struggling with its own problems, but considering the technical know-how and assistance that Helio gets out of its relationship with SK Telecom, that doesn't appear too disturbing. The South Korean company is investing up to $270 million in Helio.

Helio expects a full-year net loss of $340 million to $360 million. That doesn't sound too good for the MVNO, but company representatives insist they're in the wireless business for the long haul, not just dabbling in it as a brand with snazzy content.

Maybe SK is just using Helio to test the North American waters before making a bigger move. For now, Helio's South Korean investors have been patient with their money.

The point is that we need to look at the mechanics behind each MVNO before we give them a death sentence. Heck, I didn't even consider Tracfone an MVNO until the term came into vogue. Maybe we need a new term for the MVNOs that appear headed for the graveyard, with little more than a name, and those "tweeners" that have the backoffice systems and support that make them more like a carrier than a reseller.