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Mobile ESPN closed it’s MVNO business late last year owing to difficulties in gaining traction. They reshaped their strategy and have recently been reborn as ESPN MVP, a BREW application living inside Verizon’s VCAST network.

Now, rather than focusing on running an entire MVNO business and brand, ESPN can focus on its unique value - sports content. This will be the right strategy where each partner (ESPN, Qualcomm BREW, Verizon) can focus on what they know best and split revenue. For ESPN, this is a better way to monetize its brand, even if its is not creating “locked-in” community of MVNO subscribers like it had originally planned.

The bigger story however, as we mentioned a couple of days ago, is the difficulty of getting an MVNO off the ground. That is what we will speak about today.

Let’s first take a look at the other players in the US MVNO market - Helio and Amp’d, (who target a luxury youth niche), Virgin Mobile, and Disney’s MVNO. With perhaps the exception of Disney, all of the other MVNOs have been making losses since they started.

Helio, a subsidiary of Earthlink and SK Telecom, had a somewhat sluggish start which picked up after Helio’s exclusive deal with MySpace, but has taken more than US$440 million in capital so far. It is expected to bring in 100,000 subscribers this quarter, but is still expecting to make more losses of between US$330 million and US$360 million in 2007, up from US$192 million in 2006.

Amp’d also held high promise for its niche customers (e.g. snowboarders) when it launched. Amp’d is a privately funded venture, but has recently raised more than US$107 million in Venture financing, bringing the total investment raised by the company to over US$360 million. Amp’d has between 100,000 to 200,000 subscribers now, but clearly with the recent investments it is not cashflow positive.

Virgin Mobile went public recently, but still has net negative revenues for the past 5 years that it has been in business.

Clearly the MVNO business requires massive investments and is difficult to gain traction in. The MVNO business is lucrative in that it allows smaller wireless players to use an existing carrier’s network and operations management centers, yet they can provide a fully rebranded wireless service to niche customers.

This is inherently where the entire problem lies - unless the MVNO brand is already very well known, and also provides a specific incentive for people to subscribe(e.g. GPS tracking for parents who give Disney MVNO subscriptions to kids and healthcare device monitoring perhaps with the LifeComm MVNO to launch next year) there will be very little incentive for people to change or switch from existing service providers. But without something explicitly unique, even brands such as ESPN were unable to create a strong enough community.

The other trouble with MVNOs for smaller brand-focused players is that they still have to manage a large amount of operational expenses such as primetime advertising, logistics and distribution network, exclusively licensed phones and more.

With the high costs on one side, the returns are less than ideal as well. The carrier takes a significant portion of the revenue, and the subscriber base is typically slow in gaining traction for reason mentioned above.

That said, the team at inbabble.com believes that a successful MVNO strategy would be one that involved one or more of the following elements:

• Using a brand that is already well established. Preferably the brand would be so familiar that the target market would use it as slang, yet is cheap to license and build upon. Using viral brands from social media may help.
• Using non-standard distribution or marketing - this could involve the use of social media for marketing, or in the case of LifeComm, distribution through existing trusted networks of healthcare providers.
• A highly unique, proprietary and exclusively licensed service. The device in itself may not matter as much as what people will be able to do with the new operator that is impossible otherwise. Disney seems to have found a niche for parents wishing to track their children.
• An open platform. Again MVNO services and support costs may be subsidized by working with a larger community of content, application or support providers. Margins may continue to shrink but so will costs.

- Osama A.