Commentary: What the Amp'd bankruptcy means for MVNOs

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	Commentary: What the Amp'd bankruptcy means for MVNOs	By Philip Berne, 5 June 2007

As one of the largest MVNOs files for Chapter 11 protection, Philip Berne takes a look at the remaining MVNOs, and the business model as whole. Read on for our full take.

Why Amp'd is bankrupt

On June 1st, Amp'd Mobile filed for Chapter 11 bankruptcy protection, citing rapid growth as a disruptive element to their back-end infrastructure. In the days following, a more complicated picture emerged, implicating Verizon Wireless, the carrier from which the MVNO bought network time wholesale, in a strong-arm tactic to recover more than $30 million that the 200,000-member network owed the nation's second largest carrier.

Amp'd's problem wasn't its lack of customers. The problem was that customers weren't paying. A full 40% of Amp'd's 200,000 subscribers had missed payments, and the total amount owed was roughly $2 million, or a full month's payroll expenses, according to court documents filed by the MVNO in their bankruptcy case. So, the problem was mismanagement on one level, and poor customer credit screening on another. Hopefully, this isn't endemic to the MVNO industry as a whole. Still, it begs the familiar question: are MVNOs a viable option in today's marketplace?

We think so, if they can offer something the four major carriers don't offer. For the most part, this means offering better pricing, better handsets and equipment, or better services. Frankly, we rank these elements in just that order, and think that MVNOs that offer deep discounts over the networks will fare best (as in Virgin Mobile), and networks that rely on unique content and services will have the hardest time (as in Amp'd, and to some extent Boost Mobile and Helio).

Virgin Mobile

As a bargain, pre-paid network, Virgin has had some luck, and though its low-end phones aren't impressing the technorati, they are certainly moving units. Still, the unique handsets aren't the point for Virgin Mobile customers, though the starting price of around $20 might be. Instead, it's the no-contract, no-fee pricing structure, which starts at $15 for a bare bones plan, that draws folks who want a phone without a contractual obligation. Couple this with the phone's marketing and the fact that the devices are usually sold in blister packs on retail shelves, without the need for pushy salespeople or excessive paperwork, and you have a compelling option.

Helio

In the midst of the Amp'd issues, Helio has taken the opportunity to brag about their Ocean phone, and though we haven't seen actual sales figures, we admittedly liked the phone. Still, we worry that the company hasn't fulfilled its original mandate. While we are quite fond of the Drift and the Ocean, and we can appreciate the unique stylings of the Kickflip and Hero, we had always hoped that Helio, which is owned in part by South Korea's SK Telecom, would be a conduit for bringing the coolest Korean phones to the U.S. market. Instead, the MVNO has taken great pains in creating its own unique phones. The phones and features, like the Buddy Beacon feature and the integrated MySpace support, have drawn praise from gadget enthusiasts, who are Helio's target audience, but we wonder if the small selection hasn't hurt the company's numbers. Helio's pricing plan, which offers just about every service except calling in unlimited doses, is innovative, and the MVNO was one of the first companies to offer unlimited messaging. Still, the company relies extensively on exclusive content, which we think is the weakest link for an MVNO, as exclusive content is almost always limited to the same three-minute clips you'd see in a long surfing session on YouTube or iFilm. We think Helio should focus instead on bringing more handsets from South Korea to the U.S., with more styles and variety, all the while maintaining their all-in pricing structure.

Red Pocket Mobile and Planned Parenthood

On the surface, Red Pocket Mobile and Planned Parenthood are the two most intriguing MVNOs. Red Pocket is a Chinese language MVNO offering special pricing for calls to China. Planned Parenthood is sponsored by the sexual and reproductive health care provider, and uses the service as a way not only to raise money for its federation, but also to keep its members informed, as the MVNO's handsets will receive periodic messages and news updates about Planned Parenthood issues. Red Pocket seems to us a great idea, because it targets the specialized needs of a specific population, and competes in terms of price. Planned Parenthood offers unique content, which we think can be risky, but it begs the question of how profitable an MVNO must be to be successful. Does Planned Parenthood need 10,000 subscribers to consider the service a success? Wouldn't 1,000 users also mean 1,000 people who are kept up to date on Planned Parenthood issues? As long as wholesale prices and support costs are kept low enough, even a loss by the MVNO could equal a gain for Planned Parenthood as a whole.

The future

Amp'd Mobile is not a bellwether for the industry as a whole; its problems seem specific to its management team and company in general. Still, it would be hard to imagine a major carrier in similarly dire straits. We think there are ways that MVNOs can stay competitive, though competing with the major carriers in terms of pricing and hardware will be more difficult than competing by packaging or repackaging audio and video content for their networks. We think there will always be niche markets for MVNOs like Red Pocket and Planned Parenthood, so the MVNO model will survive, but the more popular networks, like Helio and Boost, will only stay competitive if they can remain innovative and agile.