Research Notes

The American MVNO mobile market is one long series of catastrophes

one is tempted to ask why on earth T-Mobile in the USA has not learnt from the mistakes made by T-Mobile in Germany?

A study of the American mobile market shows that it is currently dominated by four market players Verizon, Sprint, AT&T and T-Mobile, and that T-Mobile by far has achieved the worst results in almost all areas.

When we then study the US MVNO market we see that the American history books are full of examples of MVNOs that believed they could copy a traditional mobile operator’s strategy and thereby build a successful business in a number of different areas.

The list of extinct American MVNOs is long, with probably the two most well-known MVNOs being Helio and ESPN. Both MVNOs lost a tidy three-digit million dollar fortune on trying to build a business based on a strategy that basically included all the mistakes an MVNO can make. Strand Consult believes that the consultants that sold services to those two companies should – together with their management – be held financially responsible for the shareholder value they managed to destroy while Helio and ESPN were on the market.

Our studies of the American MVNO market show that their problems can be divided into four main areas:

1. Most U.S. based MVNOs base their business on deals with CDMA operators like Sprint and Verizon. The problem with using a CDMA is that the MVNO is forced to deliver a new mobile phone to the customer – they can not simplify their business by offering SIM-only sales like their European counterparts.

2. Some of the American MVNOs have not yet passed the point that their European counterparts passed between six and eight years ago and are still simply copying a traditional MNO’s strategy regarding distribution and subsidising mobile phones. The margins on the MVNO market are simply not high enough to justify that strategy in practice.

3. Operators that are focused on GSM in America do not see the value of having MVNOs. They still believe that they can service all 300 million potential customers in the country using one brand and with no regard to the customer’s age, gender, religion or cultural background. That strategy is not only very expensive, it is also naive.

4. American market players have not realised that there is a mobile market outside the USA and that there are in fact people and companies that not only know a great deal about the MVNO market, but have actually also helped create successful MVNOs and mobile operators that have achieved their success by using an aggressive MVNOs strategy. Most American mobile operators still believe that MVNOs destroy value and do not regard them as market players that can create enormous value for mobile operator.

Having studied the US market and the approach T-Mobile has taken to the MVNO market, one can only shake one’s head in despair and ask oneself why T-Mobile did not look at how for example E-Plus in Germany used an aggressive MVNO strategy to reduce their acquisition costs and increase their earnings, simultaneously resulting in the significant decrease of T-Mobile and Vodafone’s profitability in Germany.

At the end of the day, the MVNO strategy used by E-Plus in Germany resulted in their EBITDA margin growing from 21.1% in Q1 2005 to 36.2% in Q1 2007 and helped cause the reduction of E-Plus blended acquisition costs from €189 – €84 during the same period. If you would like to learn more about E-Plus and their success on the MVNO market, there is more information here: 
If you then look at how T-Mobile in Germany developed during the same period, E-Plus not only succeeded in improving their key figures, they also succeeded in creating such large problems for Vodafone and T-Mobile that both companies stopped publishing detailed financial figures for their German operations – which they most probably would not have done if things were going well in Germany.

When examining the American mobile market, one could be tempted to ask oneself why T-Mobile in the USA had not learnt from the mistakes made in Germany? How could they not be aware of the many European mobile operators that have positive experiences from using an aggressive MVNO strategy to actually increase profitability for operators very similar to T-Mobile in the US?

Strand Consult has the world’s largest MVNO research department. We have time and time again predicted how this market would develop in a number of countries, which is why some of the world’s most successful MVNOs and mobile operators view our reports as their most important source of knowledge on how to successfully do business on this market.

We can guarantee that if you purchase our reports, with or without a workshop, we can contribute more knowledge and increase your success far more than even the most expensive consultants in the world. Some consultants simply talk about successful cases in the industry, while other consultants have played an active role in ensuring the success of those cases. As you may have guessed, Strand Consult delivers results – we play an active role in helping our customers streamline their strategies.

One thing is certain and that is that Strand Consult did not consult for Helio or ESPN and it was not us that advised T-Mobile to use the strategy they doggedly followed in the USA. Based on our experience we would have suggested an alternative strategy that undoubtedly would have given T-Mobile’s shareholders a far better dividend than they received in the USA.

You can read more information about our MVNO reports here: You are also most welcome to request more information about our unique 414 page How to Succeed in the Second-Generation MVNO Market report that explains how to develop a successful MVNO strategy and examines many of the mistakes made by a number of market players through the years.
More information: How to Succeed in the Second-Generation MVNO Market

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