After a wave of enthusiasm a year ago, the US MVNO market has suffered a crisis of confidence, particularly after the demise of Disney’s ESPN Mobile in September. It became clear that many MVNOs were relying too much on the power of their brand and content, and finding it hard to compete with major cellcos on basics such as voice pricing, especially as those cellcos moved themselves into targeted content.
One of the most aggressive of the new breed of virtual operators, Amp’d Mobile, has managed to weather most of the storm of dire warnings of MVNO shake-out, and is showing healthy progress, but it is clearly not planning to pin its whole future on a high risk model, but instead to take its strengths in content to create a blueprint that can be exported abroad. After initial mistakes, Amp’d now claims ARPU of $100, with $30 coming from data services, and in 2006 signed up more than 100,000 subscribers, including 70,000 in the fourth quarter.
Although this is a step back from predictions, made at launch, of 150,000 customers by the end of 2006, the figures are healthy, given the fierce competition from major cellcos, and from more established MVNOs, notably Virgin Mobile, which – like Amp’d – targets the 15-35 age group with a heavy emphasis on multimedia content.
It has also made some strong moves in terms of channels to market, signing distribution deals with retail chains Best Buy and Circuit City, accompanies by television advertising – all contributing to the strong Q4. However, Amp’d has said it needs to gain an average of 25,000 net new subscribers per month to hit its target of an operating profit by the end of 2008, and it will do well to diversify its business model.
This has pushed it towards an innovative franchising approach and it is signing deals to offer its unique content and user interface to operators abroad, bringing it a share of an MVNO’s revenues without the expense and risk of running the business itself.
It claims to have two international partnerships ready to go live in March, the first with Canada’s Telus and the second with KDDI in Japan. ‘We see ourselves as a global, mobile entertainment company which has an MVNO business here in the US,’ said Bill Stone, president of Amp’d Mobile, in an interview, claiming the company would now export its “secret sauce of Amp’d Live” around the world.
He said he had not ruled out ever doing another MVNO but, outside the US, this would not be the first priority – a tough decision that other MVNOs may have to face too. Virtual operators like Virgin know that their key asset is their brand, and in some markets it may be appropriate – or not – to apply that brand to an MVNO as part of a general lifestyle portfolio of services.
This is what Amp’d is now trying to do in reverse – creating awareness of an entirely new brand and content through the initial MVNO activity, but now seeking to extend that asset through partners. Telus has signed up to improve its approach to the youth market. It will run back office operations and Amp’d will handle marketing, events and content, with the service marketed as ‘Amp’d powered by Telus’. Key competitors will be Fido and Virgin Mobile.
But how did Amp’d get where it is today. Well after a dismal start, Amp’d introduced voice and data plans that matched or undercut those of the majors, splitting off its high end video offerings ‘ a recognition that basic services at good prices remain the main driver of adoption, rather than the high value functionality on which many MVNOs are basing their business plans.
Amp’d’s initial rate plans were in line with or slightly higher than those of national cellcos, and included the usual features, such as unlimited off-peak calling, plus an extra $19.99 for the unlimited data service that allowed Amp’d customers to access content.
However, Amp’d quickly changed its postpaid pricing in early March, two months after launch. Changes to the plans included a large number of extra anytime minutes at mostly similar price points to make up for removing unlimited mobile-to-mobile calling. Unlimited off-peak calling was also a casualty and became an add-on option.
In other words, customers are acquired with cheap voice minutes, not the inclusion of advanced content ‘ a fact that restricts the MVNOs’ ability to differentiate their plans from those of the national cellcos, even though, if they get the voice pricing right, they should lure users with the add-on bonuses of interesting content such as film or sport.
In Japan, the relationship with KDDI goes beyond revenue sharing to an integrated portal model. Amp’d content will be available on about 20 million KDDI handsets immediately, Stone said, and the company will receive a share of the revenue generated by users’ consumption of content.
The service will include both a la carte and subscription services, and access to games, music, and the “rich graphic interface’ from Amp’d that will be exclusive in the Japanese market. In both countries, Amp’d is opening up facilities including a studio that will allow content from those countries to be recorded for their domestic audiences and exported back to the US.
The company offers big brand content from exclusive partners as well as its homegrown offerings, called Amp’d Originals (which, according to RCRNews, represents less than 5% of the content available, but 30% of the views). Stone hopes that some of this original content will be licensed by television companies to show on bigger screens or on their own mobile TV platforms.