opinion


UPDATE: Virtual Mobile Services in the U.S.

MVNO concept cell blurred background 3d illustration

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Whitey Bluestein explores the steady development of the virtual mobile service market over the last two decades and the main drivers of subscriber growth for these service providers.

The virtual mobile service market has grown steadily over the past 20 years and represents an important and evolving segment of the U.S. mobile market. It’s also the oldest and largest virtual wireless services market in the world. There are a surprising number of successful companies with vision and a plan, an experienced team that can execute, sufficient financial resources and growing subscriber bases. Recent developments bear this out:

  • Consumer Cellular’s steady growth to nearly 3 million subscribers, with annual revenues approaching $1 billion;
  • Launch of Comcast’s Xfinity Mobile, which reached 781,000 subs in its first full year of operations;
  • Best Buy’s acquisition of GreatCall, including Lively Mobile, Jitterbug and other services for seniors and caregivers and more than 900,000 subs, for $800 million;
  • Tracfone, the first and largest (22.1 million subs) U.S. virtual operator, returning to growth with StraightTalk at nearly 9 million subs, and solid ARPU gains; and
  • The successful metamorphosis of Kajeet from kid-friendly virtual provider to mobility solution for the education market, including nearly 700 school districts, libraries and even school busses, and a deal with Google.

What is fueling subscriber growth for these virtual service providers?

Customer Focus/Care – Consumer Cellular, Ting, Republic, and Jitterbug among others, have focused on providing a level of customer care that most big companies (in any sector) just can’t. These companies have been recognized by Consumer Reports, J.D. Powers, PCMag.com and other independent surveys for providing great care (and service).

Competition – Competing in a crowded market forces aspiring players to bring creativity, innovation and value to their plans, their features and their focus. And to disrupt. If new virtual service providers are not disrupting, they’re mere ankle-biters who will never rise above the din.

Wholesale Data – Wholesale LTE data rates are about half of what they were just three years ago. With careful and innovative service design (including Wi-Fi offloading, and permitted data consumption controls), virtual mobile providers can finally compete with unlimited plans without breaking the bank.

Multiplay – Multiplay, i.e., bundling multiple synergistic communications services, isn’t just for carriers, or cable quad plays. Comcast, Charter and soon Altice will offer mobile along with video, Internet and landline phone service. Virtual service providers are adding connected devices, Internet, financial services, even utility service and insurance (in the U.K.) to traditional mobile. Match the right bundle of services to well-defined vertical markets, with focus on care is the right direction for enterprise and SMB-focused virtual providers. More revenue streams offer more cross-promotion and margin opportunities. Customers like fewer bills, and churn less with bundles.

Innovation/IP – GreatCall’s innovative health care service platform and the IP behind it was an important reason for Best Buy’s acquisition of the company. Similarly, Kajeet’s parental controls, protected by a portfolio of patents, enabled it to pivot into the education market with IP well-suited to schools and libraries. Republic and Project Fi developed optimizing technology to minimize cellular data use and optimize network connections, respectively.

Connected Devices – Established virtual service providers understand connectivity and have built strong relationships with host operators. Many virtual service providers are growing their market by offering data for connected devices, mobile hotspots and IoT solutions, especially for vertical markets. This is where the market is going and growing.

Niches – Consumer Cellular and GreatCall (Jitterbug) focused on the senior market with terrific results. The AARP relationship for Consumer and now the Best Buy acquisition of GreatCall validates their vision. Ultra and Lyca have focused on international calling, Kajeet on education, Native Network on Native Americans, and so on. In any industry, there are always going to be underserved markets, and, in telecommunications, with IoT/connected devices and sensors, new growth opportunities. Mobile operators embrace these players, because they bring in new service revenue and grow their markets as well.

Who are the successful virtual mobile service providers? Many of the companies are private and do not report key metrics. Further, the Lifeline segment, which is still sorting itself, is not included below. Nor are prepaid MVNOs acquired by carriers and operated as second (or third) brands, such as Virgin, Boost, Cricket, MetroPCS and Visible (Verizon’s new prepaid brand). This is by no means an all-inclusive list of independent virtual service providers, but here are some selective highlights from companies that clearly are doing it right:

  • Tracfone, the first and largest U.S. virtual operator and with 22.1 million subs, the fifth largest wireless service provider in the U.S., lost SafeLink subscribers because of Lifeline rule changes, while its main brand, StraightTalk grew to nearly 9 million subs. The change in mix resulted in an ARPU increase to $25, and a return to growth.
  • Consumer Cellular reported 2.75 million subs as of May, and at its current rate of growth, the MVNO that markets to seniors will likely surpass 3 million subs before the end of 2018. They are also approaching $1 billion in annual revenue. Consumer’s long-standing agreement with AARP – they celebrated their 10-year anniversary with AARP this year – and its agreement with Target to serve as a place where customers with phone issues can go, have helped Consumer grow and reduce churn. Demographics are on their side for continued growth.
  • The nation’s two largest cable companies – Comcast and Charter – each launched MVNOs. Comcast’s Xfinity Mobile launched in May 2017, and Charter’s Spectrum Mobile just launched. In July, Comcast reported net line additions of 204,000 at Xfinity Mobile, ending its first full year of operations with 781,000 customer lines. Oppenheimer analysts predict Xfinity Mobile will end the year at 1.3 million subs and end 2020 at 3.3 million subs. Although Charter just launched at the end of June and is smaller than Comcast, Macquarie Research expects Charter to gain a total of 650,000 subs in the next 13 months. Together, Comcast and Charter are poised to capture significant market share. With their increasing market power, other MSOs – Cox, for example – may decide to enter the fray.  For more, see my story on Comcast results.
  • GreatCall provides connected health for active aging and is geared to older adults and their caregivers. Services include Jitterbug, Lively Mobile and Wearable medical alert devices, plus several health, safety and medical apps. Last week, Best Buy signed an agreement to buy GreatCall, and its 900,000 subscribers, for $800 million, Best Buy’s biggest acquisition in its history. Best Buy has been investing in healthcare and wants GreatCall to help build out its tech support services to keep older customers healthy. Analysts following Best Buy reacted positively to the news.
  • Ultra Mobile, one of the fastest growing virtual operators focused on bringing value to those who call abroad, launched Mint Mobile two years ago, positioning itself as the direct-to-consumer disruptor in the wireless category. Much like what Dollar Shave Club did for razors, Mint Mobile combines the direct-to-consumer business approach with warehouse pricing, where customers buy in bulk and save. Subscribers purchase service up-front, including data (2, 5 or 10GB) in bulk for 3, 6 or 12 months of service, with commensurate bulk savings, starting at $15/month. It’s no surprise that Mint has been growing dramatically, surpassing 200 percent growth year-over-year.
  • Lycamobile is one of the world’s largest MVNOs, offering “affordable international and domestic calling” to more than 15 million customers across 21 countries. It also offers financial services through Lycamoney and free Lyca-to-Lyca calling. They launched in the U.S. in May 2013. Two years ago, its CEO said their U.S. subscriber base was “in the region of 750,000,” was expected to pass the one million user mark in 3Q16 and reach two million U.S. subs by the end of 2017.
  • FreedomPop created the world’s first Freemium model in mobile. Leveraging an all- digital stack, internet-centric acquisition and a suite of value-added services, FreedomPop has more than one million subs in the U.S.  FreedomPop offers users 500 MBs of data, 200 voice minutes and 500 texts for free. For heavier consumption users, bigger plans are available starting at just $5. FreedomPop delivers 50% gross margins when it converts free users to paid plans and has developed several services now adopted across the industry including data rollover and virtual numbers. FreedomPop has expanded its services into Europe, and last year started licensing technology to major carriers around the world, including Axiata in Asia, Wind Hutchison in Italy and Vodafone.
  • Google’s founders like “starting new things.” Its Project Fi launched in April 2015. With the Project Fi app and a compatible handset, users get access to the best available network among three 4G LTE networks (T-Mobile, Sprint and U.S. Cellular) and two million secure Wi-Fi hotspots, as well as high-speed data access to 170 countries. A $20/month plan for the first user, and $15 for additional users, provides access to unlimited domestic talk and text, unlimited international texts, and Wi-Fi tethering. Data costs $10/GB. The service and the app are well reviewed, and users praise the service. According to the Google Store, the Fi app has been installed more than one million times, although the number of “uniques” is most likely less. Project Fi is not a “reported segment” and thus not broken out either as a Google product or “other bet” in the company’s financial reports, so subscriber counts and revenue are unknown. The biggest problem Fi has is that compatible handsets are limited, and don’t include iPhones, which account for more than half of all new handsets sold in the U.S. This is a very large part of the market that they do not serve.
  • Republic Wireless uses “Hybrid Calling” to take advantage of available Wi-Fi at home, offices and more than 30 million hotspots nationwide as the primary network for talk, text and data, offloading to cellular only where needed. In this way, and much like FreedomPop and Project Fi, Republic averages down carrier costs. They offer a $15 unlimited talk and text plan, with LTE data at $5/GB. Like Consumer Cellular and Ting, Republic has been recognized by Consumer Reports as a top choice, beating out larger network operators. Almost a year ago, Republic announced it would launch a “pop-up” retail store, claimed $100 million in annual revenue and that it is profitable.
  • Ting prides itself on customer care, and ranked second (just behind Consumer Cellular) in Consumer Reports’ 2017 guide to cell phones and service. Ting lets customers design their own rate plan. In May, Ting reported 286,000 subs with YOY growth of 2.1 percent and decent margin growth. The average Ting bill is $23/phone. It has been reported that Ting purchased the approximately 10,000 U.S. subs of troubled UK-based MVNO The People’s Operator for under $1 million. The irony is that Tucows, the Canadian-based parent company of Ting ($580 million market cap), cannot launch an MVNO in Canada because of restrictive telecoms policy there.
  • Kajeet, once an MVNO serving kids with sophisticated parental controls, has morphed into a six-carrier North American mobility solution provider for the education market. With nearly 700 school district customers, including libraries, and expanding into school vehicle connectivity with its SmartBus™ offering, has expanded to Canada with Bell Mobility. Their parental controls now help schools, teachers, administrators and parents keep kids on task economically, and manage and analyze usage. Google recently hired them for their Rolling Study Hall project.
  • Newcomer Wing is focused on the higher end of the market, offering “stress-free” care, ease and value. As a result, nearly three-quarters of their customers come from a Big 4 carrier. Wing has digitalized the carrier experience similar to Amazon vs. Walmart. Customers are onboarded via text or call. Wing offers flexible plans that credit subs for unused data. Users track data, manage/change plans, and pay their bills via an app. Wing offers the same premium features as the Big 4 carriers, including international data roaming across 135+ countries at just $13/GB.
  • Just-launched Native Network provides telecom, broadband and connectivity services to Indian Country, a vast and underserved market. Their “Tribal Pathway” solution helps Native Americans “Connect, Empower and Prosper.” The Digital Divide is wide and deep in rural tribal areas. Native Network has a partnership with the Spokane Tribe to develop a new telecom infrastructure, helped the Tulalip Tribes establish a tribally-owned CLEC, and runs a data center with the Forest County Potawatomi. Mobile is just one piece of several connectivity solutions Native Network offers.

These are just a few of the more high-profile and/or interesting MVNOs. Of course, the IoT and connected device space includes many players providing value added services for which connectivity is an enabler rather than the raison d’etre. Many MVNOs and MVNEs are taking their connectivity experience and business relationships, and extending them into the IoT space, as Kajeet has done with the education market, and a growing number of MVNOs have added device connectivity and other IoT services to their range.

 

Whitey BluesteinWhitey Bluestein advises young technology companies on mobile strategies and helps them win deals, as an advisor and interim corporate development executive. His business is all referrals from clients, colleagues and the strong network of business and personal relationships built over his 35-year telecoms career. “If you need to study something, hire a consultant; if you need to get something done, call Whitey,” according to one of his clients. Whitey knows connectivity, and works primarily in the IoT, wearables, security, cloud and crypto areas. He works with young companies – mostly A and B Round startups – helping them navigate the mobile ecosystem and developing strategic relationships with mobile operators in North America, UK/Europe and AsiaPac. He’s also worked with big companies, including Disney, Google and Cisco, on new mobile initiatives. Current clients include Orion Labs and Payfone, among others. Recent clients are based in San Francisco, New York, Montreal, London and Paris. Whitey Bluestein is also a regular speaker at the MVNOs Series events – including the MVNOs North America and MVNOs World Congress.

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