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    Tapping Into the Spectrum

    Written by

    Carmen Nobel
    Published April 1, 2002
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      While wireless carriers may be too big to cater to the data access and billing desires of particular customers, there seems to be hope for innovation through a small but growing industry called the mobile virtual network operator.

      An MVNO provides mobile voice and data services to end users through a subscription agreement without owning any spectrum. Essentially, an MVNO buys airtime from a wireless carrier and then resells those minutes to a niche market that the carrier might not otherwise have reached, largely because of complicated billing issues. An MVNO, not having been saddled with spectrum auction debt, is more likely than a traditional wireless carrier to experiment with new billing options such as prepaid service.

      Right now, wireless carriers look at MVNOs as Virgin territory. Virgin Mobile Telecoms Ltd., of Trowbridge, England, this year will become the first major MVNO in the United States by selling wireless services over Sprint Corp.s PCS (Personal Communications Service) network in a deal that is largely funded by Sprint. Virgin is aiming at the youth market and will be providing prepaid services as well as features such as MP3 downloads that Sprint does not offer directly.

      “From an end-user perspective, it means not just tying in to a brand theyre loyal to but catering a service bundle to what theyre expecting,” said Paul Hughes, an analyst at The Yankee Group, in Boston.

      Sprint also has an MVNO deal with smaller U.S. companies that have business models more radical than anything a larger carrier would have. For example, Excel Holdings Inc., which uses the Sprint PCS network, runs its wireless business on a multitier marketing model—with the majority of its customers being direct sales representatives who recruit customers and encourage them to become sales representatives and so on.

      On the other end of the spectrum, Working Assets Funding Services Inc. recently began buying minutes from Sprint and reselling them to customers with a business model that focuses on progressive politics—a portion of every bill is donated to a charity.

      “Youre trying to find that niche that you serve very well,” said Steve Gunn, vice president of operations at the San Francisco company. “And you add a lot of value in that your customer knows you, likes you and likes what you stand for. And you want to give them what they ask for, specifically.”

      With MVNOs going after the same markets as wireless carriers that own their spectrum, there is the possibility of cannibalization.

      “Theres a bit of channel conflict there,” Gunn said. “Im sure there are people at Sprint who say, Gee, I wish these guys didnt exist. But for every customer I acquire, they avoid the cost of billing, fraud, etc.”

      Cannibalization is expected to be a bigger deal with a company such as Virgin, which has the potential to steal serious market share from Sprint. Officials at Virgin and Sprint declined to talk about their deal, as they still are in a quiet period.

      But industry experts say that carriers generally think the MVNO model is worth it.

      “What the wireless operator gets out of the deal are incremental subscribers at virtually zero cost of acquisition,” said Dave Hogue, vice president of marketing at Sentori Inc., in Dallas. Sentori handles billing and services for MVNOs such as Working Assets, as Sprint does not have its own billing business.

      Analysts and consultants say that while the initial purpose of the MVNO model was to fill niche consumer needs, its future will be to serve the needs of the corporate enterprise, especially in vertical markets, something that has been happening in Europe.

      Wireless Maingate AB, of Karlskrona, Sweden, leases Global System for Mobile Communications spectrum from Swedish carrier Telia AB and sells it, essentially, to machines. Dubbing itself “the mobile operator for machines,” Wireless Maingate sells services that enable wireless data communication among utility meters, vending machines, ATMs and other high-tech boxes. The billing system is different from that of a traditional wireless service.

      “Its solving a business application that they need, that carriers wouldnt otherwise address,” said Mike Reuschel, a partner at PwC Consulting, the services unit of PricewaterhouseCoopers, in San Francisco. PwC Consulting helps create billing structures for MVNOs.

      While companies that focus on the enterprise have yet to adopt the MVNO model in the United States, Reuschel said its only a matter of time. Several field force automation and other application companies are talking to PwC about how to extend their wireless application software to include the actual network services.

      “With todays technology [emerging third-generation networks that focus on high-speed data], youll see a lot more being spent in that area in the coming months,” Reuschel said, although he could not give examples because none of these companies have launched yet. “A lot of companies are being formed to drive costs through the enterprise. … Field service is really gaining momentum.”

      Carmen Nobel
      Carmen Nobel

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