Are US MVNOs Parasites or Parasite-eating Symbionts?

There appear to be around 50 MVNOs operating in the US today.  Whatever the actual number, I believe MVNOs are driving a rise in churn. I also believe that may be extremely healthy for the entire market. Maybe my mind is assembling bits of disparate data like a paranoid schizophrenic in a sensational Hollywood thriller, but follow me here.

First, I get an email from Nokia Siemens Networks plugging its new CEM portfolio for LTE networks. Buried in the text is a reference to a forthcoming study which will reveal:

“…that the likelihood to churn (change mobile service provider) in the US increased by 10% in 2012. Today, two out of five subscribers (40%) are considering a change of service provider.”

Why the surge? At last check, churn hovered around 2 or maybe 4 percent right? What gives?

Then I get an email from TelBill telling me to “Launch a Multiple Carrier MVNO” and touting its simple yet capable cloud-based billing and OSS platform…ideally suited for MVNOs, so it claims. I’ve heard similar messages recently from both IDI Billing and BeQuick Software.

I figure, if so many vendors are refreshing their MVNO messaging, chances are they see MVNO-driven activity in their sales funnels.

A Google search quickly reveals this article from GigaOM’s Kevin Fitchard (Alex’s former Connected Planet colleague) that discusses the many new MVNO business models that are emerging. Apparently, changes in the way operators allow MVNOs to buy buckets of services have made the MVNO business model more economically sustainable. Further, like everything else in the world, demand for mobile data is driving investment in data-centric MVNO offerings. There’s a fair bit of venture capital available for all things mobile broadband these days. Also, various big brands are looking for moves to make with their hoarded cash – why not a new MVNO?

There’s great choice in the marketplace coupled with more downward cost pressure. At least 12 million Americans are still unemployed (and probably many more, given millions who’ve likely given up looking for work). So, are more people looking for viable ways to spend less for mobile services they can’t live without anymore? Are MVNOs with $17 per month offerings; no overage penalties; and simpler, cheaper data plans seeking out and fulfilling that shift in demand? It’s distinctly possible and that’s a sign of a healthy ecosystem.

The big US operators realize that losing a customer who wants to pay $17 month and use a free or extremely cheap phone isn’t worth spending much money to keep. The cost of re-acquisition isn’t an issue at that level. Rather, the cost of preventing churn isn’t worth it.

What may be emerging is a symbiotic relationships between MVNOs and major operators. Think of it like the little birds (MVNOs) who eat insects and parasites off the rhinoceros’ (major operators’) back. Why else would a trailing company like T-Mobile launch its own low-end MVNO brand? Its a way to segment out its low-rate customers and have them drive revenue from their still-amortizing investments in 3G and GSM networks while the high-rate customers move to 4G.

If symbiosis is emerging, then the churn numbers aren’t all that alarming. They could represent a healthier state of being for the entire market; the big guys offload the no-profit, hard-to-please crowd on MVNOs who are happy to have them. And along the way, the cloud-based billers who support those MVNOs generate increasing cash from the rising number of billing transactions and service activations they process. That’s good for billing.

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Edward Finegold
About Edward Finegold 122 Articles
Ed is now Director, Strategy for NetCracker. Previously, for 15 years he was a reporter, analyst and consultant focused on the OSS/BSS industry and a regular contributor to BillingViews.

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