Out of the Blue

The Mobile Juggernaut

Juggernaut – an overwhelming, advancing force that crushes or seems to crush everything in its path.

Business Week has a story on how navigation companies with handheld devices, including Garmin and TomTom, are struggling because of wireless competition. Over the years, as handsets and networks add features, there have been many victims of the Mobile Juggernaut. You be the judge. Here’s a short list of telecoms features and services which have fallen victim to the advancing force that is mobile, or at least lost significant market share to mobile:

• Payphones — Who needs a payphone anymore? Which explains why you can’t find one when your cellphone battery dies! (You may find a cellphone charging station at the airport before a payphone!)
• Phone Calling Cards (except international cards) — Once one of the most profitable products long distance companies and others offered are now unnecessary, except for low-cost international calling (if you can find a payphone, and don’t use Skype!)
• Long Distance Service (domestic) — AT&T Digital One, introduced a decade ago, was the beginning of the end of the domestic LD business. Why pay more for a long distance call when you can make a “free” LD call on your mobile? (On the international side, Skype, Mig33, Jaxtr, Jajah and others are dramatically lowering cost of international calls via mobile.)
• Long Distance Company – Okay, remember when you bought long distance service from AT&T, MCI or Sprint? None exist today as standalone long distance companies, as they did a decade ago. AT&T and Sprint are increasingly focused on mobile. (Sprint and ALLTEL divested their landline businesses, Verizon bought MCI, AT&T keeps getting bigger but is not “a Long Distance Company.”)
• Landline Phone Service – For a growing number of people, there’s no need for home (landline) telephone service when they have a mobile. Teens and Gen Y’ers don’t subscribe to landline service as they set up their own households, instead relying on their mobile as their only telephone service. Many business users and entrepreneurs use their mobile as their office phone. Why have two numbers, when you want customers, clients, colleagues or vendors to be able to reach you anytime?
• Point and Shoot Cameras — At CTIA earlier this month, Sony Ericsson demonstrated its new C902 cameraphone with face detection, a feature heretofore reserved for better “pro-sumer” digital cameras!  I have taken surprisingly good pictures with my Nokia N95, with its 5MP Carl Zeiss lens, all the megapixels anyone needs for great shots. 
• Handheld Navigation Devices — Read the Business Week story above or MocoNews! Then check out your mobile carrier’s navigation offerings, or better yet, try Google Maps on your mobile, for free!
• MP3 Players – Who needs a standalone MP3 player when you can take your music with you on your mobile. Did someone say iPhone? Or what seemed like scores of new music phones featured at CTIA last week?
• Handheld Games – Why carry a PSP, Gameboy or other handheld when you can play great games on your mobile? Want to go online to play games? No need to set up a connection; your mobile has high-speed data.
• Wristwatch – How many teens and Gen Y’ers wear wristwatches when they get their time on their mobile?
• PDA – I remember fondly synching my Palm Pilot to my desktop to keep contacts and calendar up-to-date. Now you don’t even need a Smartphone, as most Feature Phones store contacts and calendars, as well as play music, take pictures, run navigation programs and have games. Guess I don’t need that Newton anymore!
• TV – With 2.7 billion mobile phones in the world and 1.5 billion televisions, the former growing faster than the latter, and mobile TV services being introduced in a growing number of markets, an increasing number of users are watching television on their mobiles. Screen too small? Ever hear of a Video iPod?
• Web Browsing – In many countries where there are far more mobiles than PCs – just about everywhere – mobile browsing may already be exceeding web browsing at home or office.
• Dial Tone – Okay, now I’m having fun, but when you rely on your mobile phone, you don’t hear that steady dial tone when you pick up.

Did I miss anything?

Tags: AT&T, Sprint, Verizon, MCI, mobile, payphone, camera, MP3, Garmin, TomTom, Nokia, Sony+Ericsson

Movida and MVNO Failures

Many were surprised when Movida, the Hispanic-focused MVNO, filed for bankruptcy protection last week. With 267,000 prepaid subs and a Wal-Mart deal, Movida appeared to be building a solid subscriber base. Unlike other failed MVNOs, they seemed to have solid distribution. And while MVNOs built around content (e.g., ESPN, Disney and Amp’d) failed, those focused on ethnic segments have fared better, at least until now.

Cellular resale is a tough business, especially tough in these times. (I know, having been at MCI in 1995 when it bought the then-largest wireless reseller, Nationwide Cellular. Like Movida, Nationwide served a similar number of customers, though high-quality postpaid business and residential subs. The acquisition formed the platform for MCI’s branded cellular service –  MCI Wireless –  part of the company’s successful MCIone bundled offering. Earlier, I was also involved in MCI’s cellular resale operation in Los Angeles with Metromedia, so I’ve watched cellular resale almost from the start.)

Why is resale tough? Margins are razor thin, obtaining decent, low-cost handsets (an issue also cited by Movida) is difficult, and distribution is increasingly a challenge as many electronics retailers who have been wireless destinations (e.g., RadioShack, Circuit City, CompUSA) struggle. Execution is critical, and there can be no lapses. Managing a successful resale business is akin to treating a sick patient in the ICU; leave the patient alone for a long coffee break and an irreversible problem could strike. It requires that much focus. Few resellers or MVNOs have achieved long-term success. In fact, TracFone and Virgin Mobile are the only two that immediately come to mind.

If anything, cellular resale is tougher today than ever before, for several reasons:

1. Unlimited pricing plans, with all-you-can-eat minutes, have wreaked havoc on wholesale pricing, typically based on bulk minutes. Carrier plans which include free nights and weekends are bad enough for resellers, who at best buy lower cost off-peak minutes. Unlimited voice plans are the worst for resellers, who simply can’t match them without risking everything;
2. The arrival of mobile data, web browsing, and the cool handsets that make data accessible have created a widening gap between the terms wholesale customers can obtain on data and handsets versus what the operator can offer, e.g., iPhone with unlimited data;
3. Operators can innovate, and introduce new services, while resellers/MVNOs must wait for the necessary components to trickle down and become available to wholesale customers, who often not offered the carrier’s latest services at wholesale. The operators are clearly higher up the food chain in this regard;
4. Industry consolidation – with AT&T and VZW now controlling 64% of subscribers of the Big Four – has created market power not seen in the industry since the very early days of cellular, when there were only two licensees in every market; and
5. The wholesale highway is increasingly littered with fresh roadkill, which has understandably spooked the operators, who are tightening availability and terms of wholesale deals, as well as potential investors.

MVNOs have failed for three reasons:

1. Distribution – Disney, ESPN, Amp’d (and Voce) failed to build a robust distribution network. There were certainly other problems at all four (see below). By contrast, Virgin Mobile has distribution deals with Best Buy, RadioShack, Circuit City, 7–Eleven, K-Mart, Walgreen’s, CVS, Rite Aid, and of course, the Sprint and Virgin stores. TracFone, the oldest and most successful reseller, has phones and top-up available at 70,000 retailers.
2. Proposition – Content alone or as the key proposition cannot sustain an MVNO. While compelling content can make an offering interesting, operators offer something close enough, as in sports and family-oriented content. If the business proposition addresses an unmet need, as the original prepaid providers (TracFone, Virgin and Boost) addressed, or an ethnic segment – ask anyone at the aforementioned prepaid providers what percentage of their base is Hispanic and other ethnic category – that the operators are not addressing, it has a fighting chance, provided it can navigate the five problems above, and execute.
3. Execution – Again, execution with a cellular resale operation requires constant attention to details, analogous to managing a sick patient. So far, the high-profile MVNO failures have not been a result of lack of funding. Amp’d raised a staggering $350M. The Disney MVNOs (ESPN and Disney Mobile) are believed to have invested at least that much. Amp’d clearly had huge back office problems. What else could explain 80,000 non-paying subscribers (if they were subscribers at all; many may have been phantom users enrolled by agents gaming the system for commissions.) As to ESPN and Disney, I defer to Disney CEO Bob Iger, who commented on his company’s MVNO initiatives in a recent article in ADWEEK:

Iger believes there are many opportunities to offer content via mobile platforms, and said the failure of the ESPN and Disney mobile phone rollouts was due to bad marketing, bad pricing and bad research by the company. "Our approach was wrong. We made mistakes," he said, but vowed to continue to try to reach audiences via mobile outlets. "Lots of kids have cell phones and they are our audience," he said.

The vast majority of businesses ultimately fail. MVNOs are no different, especially in tough economic times. The fact that some are surviving with customer bases of more than five million subs suggests that it can be done.

Tags: MVNO, Movida, Disney, mobile, cellular, resale, iPhone, Wal-Mart, distribution, Amp'd, mobile, cellular, TracFone, Virgin, RadioShack, ESPN, Voce