Rivals Could Join Virgin Mobile in Renting Space on Sprint's Wireless Network

[larry]

Could Join Virgin Mobile in Renting Space on Sprint's Wireless Network
March 10, 2004 5:04pm
Knight-Ridder / Tribune Business News


Mar. 10--Virgin Mobile USA, the cellphone company known for hip-hop ring tones and celebrity voice mail, doesn't own a wireless network or fuss with cell towers.

It leaves that heavy lifting to its partner, the well-known wireless carrier Sprint PCS.

The upstart Virgin Mobile, which has its U.S. headquarters in Somerset County, is an MVNO, or Mobile Virtual Network Operator. It's a fancy way to describe a company that sells cellphone service but rents airwaves from an established cellphone provider.

In the United States, MVNOs are relatively scarce, with only a handful of companies daring to enter the highly competitive wireless market.

But that soon may change.

Qwest, a local phone company that operates in the western United States, plans to roll out nationwide wireless service under an MVNO agreement with Sprint. AT&T Corp. is contemplating a similar arrangement.

Even Walt Disney Co. has said it might jump into the cellphone business.

"We're in a serious exploratory stage," said Larry Shapiro, executive vice president for business development and operations for Walt Disney Internet Group.

Shapiro added that the company is talking with potential wireless carriers, although he declined to say which ones or how many. But he did say Walt Disney is finding "a great deal of interest" on the part of the carriers in an MVNO deal.

"It's a good time for MVNOs, better than the last few years," said Daniel Torras, director of consulting at Pyramid Research.

In Europe and parts of Asia, MVNO's have been around for several years. In Britain, millions have bought Tesco brand cellphones -- Tesco is one of Britain's largest supermarket chains.

The scores of MVNOs in Europe came about partly because governments there gave out licenses to cellphone providers with the requirement that they build networks quickly. The companies were then under pressure to "fill the pipes" and use up excess capacity so they welcomed MVNO companies to lease their airwaves, said Torras.

By contrast, in the United States, cellphone companies built their networks much more slowly, and most simply didn't have the capacity to lease airwaves to another company until more recently.

In addition, in Europe, the more mature market led to MVNOs seeing a chance to grab market share by offering a different kind of service, which in most cases meant a pay-as-you-go service that eliminated the need for a long-term service contract.

Virgin Mobile USA customers also use a pay-as-you-go model, paying ahead for minutes instead of signing up for a year or longer contract.

Since rolling out service in 2001, the company, which is a joint venture of Virgin and Sprint PCS, has signed up close to 1.4 million subscribers.

The young teen to 20-something crowd gravitates to Virgin Mobile's no-nonsense approach to pricing and bills, says Howard Handler, chief marketing director.

"We have one pricing plan, no activation fee, and we roll all taxes and imaginary surcharges into this one simple price," Handler explained. "We've kind of struck a chord and we're building a little bit of a brand cult." Handler also pointed out the benefits of being an MVNO, that is a cellphone company that can focus on sales, marketing, and customer service instead of operations.

"We've got this low cost structure," he said. Virgin Mobile didn't have to pay the federal government millions for licenses to operate over certain portions of the airwaves, or build expensive cell towers, or hire tens of thousands of people to work on the network, he said.

If you take away the capital expenses and debt servicing, you've got 30 percent profit margin, said Walt Disney's Shapiro. "That's a pretty attractive business." The MVNO model isn't without its challenges.

Torras, for one, believes Virgin Mobile may face a tough future in part because it can't begin to spend the kind of advertising dollars that the larger wireless carriers do.

The carrier has had success in the United Kingdom, but its attempt to resell service in Singapore under the Virgin Mobile brand fell flat when it signed up only 30,000 customers.

Virgin Mobile USA may have found its niche with a youth market, but it still has to play in the big leagues here, where fierce competition keeps prices down and revenues tight for the carriers.

Last month, AT&T's CEO David Dorman told analysts his company would be looking closely at the idea of setting up an MVNO. AT&T was left without a wireless offering when it shed its wireless unit in 2001. Last summer, AT&T cut a deal with its offspring and began a trial offering AT&T Wireless service to subscribers in some U.S. cities.

But AT&T Wireless has been sold (pending shareholder and regulatory approval) to rival Cingular, which says it will drop the AT&T Wireless name, leaving AT&T Corp. perhaps looking for a new wireless partner.

Bedminster-based Verizon is tight-lipped about who might or might not be renting out its network and airwaves. But a spokeswoman did say that "Verizon Wireless thinks it's smart business to do MVNO arrangements." One company that does resell Verizon Wireless service is Tracfone, the largest U.S.-based MVNO with 3 million customers. Tracfone Wireless, which sells its prepaid service in many large retail outlets, is owned by Mexican wireless giant America Movil and targets the Hispanic market. It leases airwaves from more than 30 U.S. carriers, and has been selling its phones since 1996, according to Tracfone spokeswoman Sherri Pfefer.

MVNOs succeed in large part when their brand is highly recognized, The Shosteck Group says. In Britain, where Virgin Mobile has signed up 3 million customers, consumers are familiar with the company's music stores, Virgin Airways, Virgin Cola, and more.

Brand recognition is something AT&T -- and Disney -- have in common.

The company already has a Web site where you can download Disney character graphics for your cellphone's color screen, or ring tones from your favorite Disney movie score.

Can you hear me now, Mickey?

[ShoresGuy]

Interest article, thanks Larry.

Virgin actually is an MVNO here in the UK too. They use T-Mobile UK's towers.

[Rich]

Sprint's turing into the hotel of wireless[img]i/expressions/face-icon-small-wink.gif[/img]

[GoodmanR]

Originally posted by: ShoresGuy
Interest article, thanks Larry.

Virgin actually is an MVNO here in the UK too. They use T-Mobile UK's towers.

Correct me if im wrong, but doesn't T-Mobile own part of Virgin Mobile UK?

[Matt]

Originally posted by: GoodmanR

Correct me if im wrong, but doesn't T-Mobile own part of Virgin Mobile UK?

Yes, 50%. Here's a link

[ShoresGuy]

Interesting article but this does not change the fact that Virgin is using T-Mobile's network so in a way, one is still benefitting from the other.

[bobolito]

It doesn't make any sense to me why an European company like Virgin who is so tied to T-Mobile, didn't choose T-Mobile USA as its MVNO partner and went with Sprint PCS instead.

[GoodmanR]

Originally posted by: bobolito
It doesn't make any sense to me why an European company like Virgin who is so tied to T-Mobile, didn't choose T-Mobile USA as its MVNO partner and went with Sprint PCS instead.

My best guess would be that when the deal was made a few years ago, Tmobile wasn't able to offer service in some of the top markets that Virgin was targeting. They lacked a true national footprint at the time Virgin Mobile launched here.

And also, im not sure what the deal was made for the MVNO, but was TMO still Voicestream then?

[larry]

Yeah that doesn't quite make sense but I'm glad they chose Sprint instead of T-Mobile. [img]i/expressions/face-icon-small-smile.gif[/img]

[ehcruzan]

It may have had to do with the disagreements over the UK operations.

[Matt]

The Sprint/Virgin JV was announced on 10/5/01 - just a few months after TM had closed on the VS/PTEL merger. The TM branding, starting with the CA/NV markets, didn't start until July 02, so TM wasn't an option from Virgin at the time.

[Airb330]

Originally posted by: Matt
The Sprint/Virgin JV was announced on 10/5/01 - just a few months after TM had closed on the VS/PTEL merger. The TM branding, starting with the CA/NV markets, didn't start until July 02, so TM wasn't an option from Virgin at the time.

It was never of an option, and probably wouldn't be today. At the time it meant roaming in CA, NC, SC, E-TN. Plus, Sprint had more capacity most likely also.

[GoodmanR]

Originally posted by: Airb330

It was never of an option, and probably wouldn't be today. At the time it meant roaming in CA, NC, SC, E-TN. Plus, Sprint had more capacity most likely also.

I was getting at the CA issue more than anything, i thought TMO didnt have a native network there at the time, but I wasnt sure. I bet that was more the issue than the carolinas.

[Airb330]

I was getting at the CA issue more than anything, i thought TMO didnt have a native network there at the time, but I wasnt sure. I bet that was more the issue than the carolinas.[/quote]

Probably. I mean really Sprint and Nextel have the only networks that cover almost every major city, without roaming. T-Mobile, Verizon, Cingular, and ATT all roam in a few major places. MVNO's probably would like no roaming as much as possible. Oh well, Sprint has better coverage for my area anyway [img]i/expressions/face-icon-small-wink.gif[/img]!

[GoodmanR]

Originally posted by: Airb330
I was getting at the CA issue more than anything, i thought TMO didnt have a native network there at the time, but I wasnt sure. I bet that was more the issue than the carolinas.

Probably. I mean really Sprint and Nextel have the only networks that cover almost every major city, without roaming. T-Mobile, Verizon, Cingular, and ATT all roam in a few major places. MVNO's probably would like no roaming as much as possible. Oh well, Sprint has better coverage for my area anyway [img]i/expressions/face-icon-small-wink.gif[/img]![/quote]

airb,

you think att would ever do an mvno with sprint? i just don't see it, i dont think they would want to work with one of their two wireline rivals on this.

[Airb330]

Originally posted by: GoodmanR

Probably. I mean really Sprint and Nextel have the only networks that cover almost every major city, without roaming. T-Mobile, Verizon, Cingular, and ATT all roam in a few major places. MVNO's probably would like no roaming as much as possible. Oh well, Sprint has better coverage for my area anyway [img]i/expressions/face-icon-small-wink.gif[/img]!

airb,

you think att would ever do an mvno with sprint? i just don't see it, i dont think they would want to work with one of their two wireline rivals on this.[/quote]

I dont see it either. Maybe just for "package" deals like someone else said somewhere. But, what can ATT package besides long distance. They don't have cable anymore. I just see Sprint, Cingular, and Verizon doing the packages, and that covers a lot of the USA. What does ATT do anyway? LD from them is a ripoff usually; get a calling card, use a cell, or use someone else!

[GoodmanR]

Originally posted by: Airb330

airb,

you think att would ever do an mvno with sprint? i just don't see it, i dont think they would want to work with one of their two wireline rivals on this.

I dont see it either. Maybe just for "package" deals like someone else said somewhere. But, what can ATT package besides long distance. They don't have cable anymore. I just see Sprint, Cingular, and Verizon doing the packages, and that covers a lot of the USA. What does ATT do anyway? LD from them is a ripoff usually; get a calling card, use a cell, or use someone else![/quote]

I think they are the no. 1 long distance carrier aren't they??
But yeah, I just don't see them as willing to help their wireline rivals with an mvno, they'd do TMO or nextel iuf anyone at all.