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AFTER THE ACQUISITION of its wireless arm by Cingular, AT&T effectively found itself without a wireless play. Instead of going through the rigors of building or buying a network, however, Ma Bell is becoming an MVNO (mobile virtual network operator), reselling Sprint PCS's wireless service as part of an integrated bundle that leverages AT&T's brand equity in long-distance and enterprise services.

While this deal pushes AT&T back into the wireless world, on another level it signifies an even bigger trend: Wireless is becoming an offering that providers can't live without. "As of late, the mantra in the wireless industry has been 'consolidation,' and with the announced merger of AT&T Wireless and Cingular that seemed to be the trend," said Todd Harrington, principal analyst, wireless services, Current Analysis, in a recent competitive report. "However, now that AT&T wireless service will be reborn, a new trend could be emerging in the U.S. wireless market--wireline carriers who have either done poorly with and/or divested their wireless ventures that re-enter the market through an MVNO agreement with one of the large network providers. If this trend persists in the United States, it will definitely change the landscape of the wireless market."

The U.S. MVNO opportunity is certainly promising. According to research from ARC Group, projected U.S. MVNO revenues could reach $29.6 billion by 2010 (see Figure 1). Taking a cue from European operators such as BT, which has an MVNO agreement with Vodafone, the MVNO concept is beginning to make considerable inroads in the U.S. market. On the heels of the success of Virgin Mobile, which just this year reached the 1.75-million subscriber mark, well-known brands in retail and other non-wireless entities are being attracted to the scene.

Complementary Distribution

As the wireless industry continues to mature, operators will no longer be able to differentiate on price and coverage. In market segments to which traditional wireless carriers can't afford to market services, an MVNO can use its established brand to do so. Seeing the success of Virgin Mobile, Liberty Wireless and Nextel's subsidiary Boost Mobile, other players in the service provider arena (AT&T and Qwest) have joined the movement. From outside the service provider market come new entrants from retail (7-Eleven), content/media (Disney), automotive (OnStar) and affinity group (universities) markets, all using their brand equity to deliver wireless service unique to their target audiences.

"Some things are happening to open up a new opportunity for other brands or other companies to sell wireless service," said Adam Guy, director of the wireless practice at predictive analytics firm Compete, Inc. "The U.S. wireless market is saturating and there's not a lot of new customers for traditional carriers to go after with the same thing. This suggests that someone else can more profitably pursue the frontier of new customers."

The two most talked about MVNO arrangements are the Sprint PCS agreements with Qwest and AT&T (see Carriers Creating Killer Bundles, page 23). While some could argue these arrangements may hurt Sprint, the company sees them as synergistic. "We're focused on looking for opportunities that complement our distribution," said Dave Bottoms, Sprint's vice president of strategic partners. "Qwest is an example of someone that's geographically focused, and the complementary edge there is that they have a great wireline/wireless integration strategy and appeal to a segment of customers Sprint PCS would not be able to appeal to with a product we would not have the capability of addressing."

But not all wireless operators are on board. Verizon Wireless CEO Denny Strigl said at a recent Lehman Brothers conference that his company would not pursue any relationships where another entity would simply resell its service, but rather only create agreements where that entity would "create something new and something different."

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Many automotive, content/media and retail outlets are also pursuing some kind of an MVNO strategy. Although content media groups and auto manufacturers have not announced anything formal, retailers and universities are moving fast on this opportunity. The format is similar to the way a credit card company may align itself with a university or religious group, branding the service to appeal to a select group of users. Morrisville State College in New York, for example, has gone so far as replacing student dorm room landline phones with Nextel iDen service. In another example, CampusCell and Telispire have been offering private label wireless service, to Ohio University and San Diego State University, respectively.

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For retailers, the MVNO opportunity is equally compelling. While Wal-Mart, which already offers Internet services for $10 per month, is contemplating offering MVNO service, convenience store retailer 7-Eleven has taken the lead. Already a pioneer in selling pre-paid wireline long-distance service for more than 10 years, 7-Eleven sees wireless as just another service to put on its shelves. Through an MVNO arrangement with Cingular, MVNO (mobile virtual network enabler) Ztar Mobile and Nokia (for handsets), 7-Eleven's SpeakOut pre-paid wireless service offers a competitive 20-cents-a-minute service (days, nights and weekends) with a pre-programmed phone (see MVNEs Emerge as Back Office Savior, page 23).

"Merchandising is really where we like to work with our suppliers, and Ztar Mobile, Cingular and Nokia are all rooting for the same thing: bringing a high-quality product to market that best meets the customer needs," said Kevin Cooper, 7-Eleven's services category manager.

Custom Fit

As U.S. wireless penetration exceeds 50 percent, various market segments, including teenagers and ethnic groups, are a ripe opportunity for MVNOs. One of the most talked about opportunities is the youth market. Led by Boost Mobile and Virgin Mobile, these offerings include simple plans that come with the latest phones, applications and youth content. While not exactly an MVNO, Boost Mobile has made a lot of progress, bringing on 132,000 new subscribers in Q1 2004 alone.

Virgin Mobile has been just as effective. To appeal further to this market, the operator has even aligned itself with MTV to develop an MTV-branded phone with an MTV look and feel as well as relevant youth content.

"We saw an underserved market that had distinct needs from its wireless providers, and none of the other wireless carriers resonated strongly from a brand-affinity perspective," said Dan Schulman, CEO of Virgin Mobile. "We realized that slapping a brand on a wireless service would not do the trick as the brand is more about the experience and not the promise of what the brand can be."

While the youth market is certainly compelling, the ethnic market could prove even more lucrative. To serve a widely diverse population that has specific needs in terms of community structure, language and interest, a U.S.-based MVNO play that offers not only competitive long-distance rates, but also customer care and marketing in various languages is a significant opportunity. In addition, the MVNO could offer value-added data services including SMS (short messaging service) and real-time news from users' native countries. AT&T Wireless, for example, through its MVNO partner Locus Telecommunications, has been able to bring multiple ethnic segments into its network that it probably would not have been able to reach on its own.

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"The MVNO opportunity is not just the teen market, but an opportunity to target specific affinities or types of people that have a need for something different," said Compete's Guy. "Prepaid MVNOs are bundling long distance with wireless, and are making it real easy for this user segment, which would include unlimited nights and weekends with a direct speed-dial function to the international IXC."

To be successful, an MVNO has to have the established brand and also maintain the experience without interruption as if it were just another product on its shelf. If done correctly, the benefits to both the brand and user could be rewarding.