Outlook More Positive for MVNOs in U.S.

Speaking to reporters on Monday, the CEO of SK Telecom, Kim Shin-bae, gave an indication of the current outlook for the Helio MVNO joint venture with EarthLink, stating that "Helio can turn around to a profit around the end of next year or 2009". This places a more positive spin on the outlook than the previous indications that the venture was underperforming as it signed 70,000 customers since the delayed hard launch in June 2006 and contributed a loss of US$35.7 million in the fourth quarter (see United States: 7 February 2007: Helio Signs 70,000, Pulls EarthLink into the Red). Expectations from that figure were that Helio would attract 200,000–250,000 subscribers by the end of 2007, a pace of growth which would leave the company wide of the 3.3 million customers originally predicted to have joined by 2009. The forecast in February predicted that Helio would lose US$330–360 million in 2007 while generating revenues of US$140–170 million, as aggressive marketing campaigns are used to attract subscribers.

Helio's main competitor as a niche-marketed MVNO looking for the high-spending, young data-service-oriented market is Amp'd, which predicts a similar time scale to Helio before profits begin to be generated (see United States: 6 October 2006: MVNO Amp'd Predicts Cash Required Before Profit in 2008). Amp'd is largely marketed on the strength of its content and services, and after a slow start has just announced a rapid increase in the rate of growth it is seeing in the first quarter of 2007, seeing the customer base jump by 70% as it achieved 84,000 new activations (see United States: 11 September 2006: Amp'd Reveals Mobile Subscribers). ARPU from the 84% post-paid subscriber base continued at the US$100 level with US$30 from data and services, 50% of which came from content sales rather than pure data revenue. Content sales continued to grow strongly with 4 million downloads of videos, songs, and games in the first quarter, with 30% of overall downloads being "original content" created for Amp'd (compared with only 5% of total available content). Amp'd described its subscriber base as "approaching the 200,000 mark", but from the figures given here and the January announcement that it has 100,000 customers, having added 70,000 customers in the third quarter, it is likely to be a little over 180,000 (see United States: 9 January 2007: Amp'd Hits Revised Targets with 100,000 Subs). 

Disney Mobile, another recently launched MVNO, has also reported some metrics for its customers—although notably not its subscriber numbers. The Disney-owned ESPN operation crashed and burned in 2006, adding to scepticism that content- and service-based MVNOs could generate sufficient interest to meet subscriber targets (see United States: 29 September 2006: MVNO Mobile ESPN Goes Under). RCR Wireless News reports that 56% of the subscribers are adults and 44% children, 65% use the family alert text messaging feature, and 30% use the GPS location tracking service on average 14 times per month, with 70% of requests originating from the handset and 30% from the fixed internet.

Outlook and Implications

Helio is focused on the high end of the youth market, selling devices that borrow from the high-tech South Korean handset market and pushing advanced data services; in particular, Helio had an exclusive deal with popular social networking site MySpace until the largest carrier in the United States, Cingular/AT&T, announced that it would provide a MySpace service with higher functionality at the end of 2006 for US$2.99 per month. Results announced in February put ARPU at around US$100 and data ARPU at US$25, both around twice the industry norm—Cingular/AT&T generated blended (post-pay and prepay) ARPU of US$49.10 and data ARPU of US$7.19. Reported in Yonhap News, the SK Telecom CEO described the U.S. data market as "in its embryonic stage, I guess it will take some time, but the market will surely grow".

With highly desirable data service exclusives such as the MySpace deal unlikely to reoccur, Helio will have to maintain an edge on the competition to attract the new data users it is looking for. It is likely to do fairly well with the launch of its latest handset, the Ocean, an attractive—although slightly on the large side—dual slider smartphone with both a normal keypad and a full QWERTY keyboard that should appeal to email and MySpace addicts and competes in a similar space to T-Mobile's "Sidekick" (incidentally already able to view MySpace pages through the internet page re-formatter). However, the launch towards the end of the year of the Apple iPhone—exclusively on Cingular/AT&T—will be the handset most coveted by enthusiasts and could bite into growth for other companies competing for this customer segment (see World: 10 January 2007: Apple iPhone Launches, Cingular Gets U.S. Exclusive). 

Amp'd has managed to speed up the rate of customer acquisition and the two handset technology, content- and service-oriented providers appear to have optimistic predictions for the time before they generate a return on their investment. Disney also shows that there is demand for the advanced services which are central to the marketing efforts of these MVNOs. The main issue facing these companies as data-centric services become popular and enter into mainstream usage will be maintaining an advantage over the core carriers. Whether the strength of their brand, services, and importantly the user interfaces and overall experience they provide will be enough to fight off competition as other players push their own versions of these services and the wider mobile internet opens up remains a key question.