By Frank Boulben, Former Executive Vice President, Strategy, Marketing and Sales
August 15, 2011
While everyone enjoys a Cinderella story, this one is certainly not a fairy tale. This is a story of a business model which has seen a great share of success globally, and when it finally makes its mark in the U.S., subsequently changes the wireless broadband landscape as we know it.
As mobile data demand continues to skyrocket, and the U. S. wireless industry grapples with the ideal solution to manage and deliver this data, there is no time greater than now for Mobile Virtual Network Operators (MVNOs) to succeed in the U.S. But MVNOs have so far struggled to gain footing in the U.S., with even marquis brands such as ESPN and Walt Disney unable to succeed. However, in Europe, there are more than 200 active MVNOs, and global MVNO subscribers are expected to reach 189 million by 2015.
So why haven’t MVNOs had as much success in this country? Despite not having to invest in spectrum and infrastructure – enormous costs for operators – wholesale economics haven’t been attractive because current operators offer a “retail minus” pricing structure versus a pure wholesale offer. This limits the MVNO’s pricing flexibility and thus their ability to achieve sustainable margins.
Another significant challenge facing MVNOs in the US has been the conflict of interest between the wholesaler and the MVNO. The operator providing the network to the MVNO is competing for the same retail customers – which also takes us back to the underlying reasons for the pricing challenge I just mentioned. It’s a model that is clearly unsustainable – and has proven to be so as many MVNOs have entered the market and left just as quickly.
The solution, or the glass slipper if you will, is for MVNOs to work with wholesale-only operators such as LightSquared. This relationship avoids conflict of interest and allows MVNOs to pursue a variety of favorable pricing models and retail options. The wholesale model also opens the door to a vast ecosystem of companies who can now enter the wireless market. If you think about it, data-centric devices, such as tablets and laptops, are best sold in retail environments where there is enough shelf space to display many models – and trained staff to field customer questions. A great example of this is LightSquared’s agreement with Best Buy which was announced earlier this year. Under the Best Buy Connect brand, Best Buy will sell devices bundled with 4G services, using the LightSquared network.
I mentioned mobile data demand earlier. Research suggests that U.S. wireless data usage is expected to grow 4,000 percent in the next four years. That’s quite an opportunity for MVNOs. With consumers struggling to quantify their monthly data usage in the face of tiered data plans, new models are emerging. For example, manufacturers can bundle a certain amount of data usage into the price of a tablet and allow consumers to top off whenever they’re running low. And look at the Amazon Kindle model where the connectivity – downloading books – is all but invisible to the user.
Too often, wireless operators have struggled to avoid being labeled as “dumb pipes” and have attempted to add value-added services to deflect this characterization. If we’re in the business of pipes then LightSquared prefers to think of itself as a “high value” pipe offering existing and emerging companies a nationwide, reliable wireless platform to deliver exciting new services to consumers. Since our network is completely open, we’re empowering companies to raise the bar on innovation – without restrictions –with compelling new devices, services and applications. We’re creating an open platform for emerging players such as netTALK, an innovative VoIP services provider, which recently signed an agreement to become a LightSquared wholesale customer.
Clearly the time is right for Cinderella to arrive at the ball, this time in the form of both traditional and nontraditional MVNOs. LightSquared offers the right wholesale-only business model, with the right economics, at the right time to ensure MVNOs in the U.S. achieve the same success as their counterparts in Europe.
Frank Boulben is the former executive vice president for strategy, marketing and sales.