The coming surge of mobile virtual network operators will target virtually every demographic, from ethnic groups to sports fans to rural users. But no group of consumers is being courted as much as America’s youth.
As wireless enters the multimedia era, the market of teenagers and young adults is more highly coveted than ever. Youngsters who’ve grown up with cell phones view their handsets as portable entertainment centers, paying premiums to access games, music and video clips on the go.
A recent study by The Management Network Group Inc. found that nearly 25 percent of 13- to 24-year-old consumers would be likely to switch carriers to get advanced multimedia wireless content and services. Forty percent of respondents said they would even watch their phones like TVs, accepting commercials to view mobile broadcasts.
For MVNOs looking to push content, then, the youth market is a no-brainer. But those waters are about to become crowded.
“I’m seeing more activity from people looking to get into the (MVNO) sector in the last six months than I saw in the last two years-probably by a factor of five,” said Craig Cooper, who co-founded Boost Mobile USA before becoming a partner at Softbank Capital. “I think there is such a wide range of what people are calling MVNOs that, ultimately, the market’s not going to be able to support (all of them).”
A lack of funding will doom many of the upcoming MVNO efforts, Cooper said. A nationwide launch can cost as much as $100 million in marketing alone; other substantial costs include billing, customer support and handset provisioning.
“We haven’t funded any MVNO in the current batch that is being marketed,” Cooper added.
But even deep-pocketed MVNOs will face a major obstacle in creating an identity in the marketplace.
Boost Mobile, which launched as an MVNO in 2002 before host carrier Nextel Communications Inc. bought the operation, gained traction among Generation X users with an extreme sports-themed marketing tack. Virgin Mobile USA, which earlier this year surpassed the 3 million customer mark, partnered with MTV to position itself as the operator of choice for music-loving wireless users.
Amp’d Mobile Inc., which is expected to launch on Verizon Wireless’ EV-DO network this fall, is touting edgy, high-tech content and has already said it intends to make adult content from Hustler and other sources available to its adult subscribers. While Amp’d said its target audience is 18- to 24-year-olds, the operator is sure to lure younger users.
“We think we’re naturally going to attract (teenagers),” said Don McGuire, chief marketing officer for Amp’d. “When you’re 15, you want to be 21, and when you’re 35, you want to be 21. Everybody wants to be 21.”
Outside brands are eyeing the MVNO model as well. ESPN is sure to look to target young users with its wireless service, which is slated to come online early next year, and parent company Disney has said publicly it is considering launching a mobile service. But as more MVNOs come to the table, it will be harder for the startups to differentiate themselves-particularly those focusing on the older end of the youth market, according to Yankee Group analyst Marina Amoroso.
“I think those guys are starting to step on each other’s toes,” Amoroso said of the growing list of players. “They’re going to have a lot of difficulty trying to make their way serving young adults and older kids.”
There appears to be more room in the kiddie pool, however, where “tweens” and young teenagers may seek a branded service that’s youth-targeted without being edgy. Firefly Mobile Inc., which sells a voice-only phone designed for kids between the ages of 8 and 12, will offer MVNO service through Target retailers starting next month. But while the smallish five-button handset may attract young users, its appearance may turn off kids looking for more high-tech handsets, Amoroso said. The result could be an opportunity for those marketing offerings specifically at young teens.
“I think there’s probably some room” for providers targeting 12- to 16-year-olds, Amoroso said.
Of course, carriers don’t necessarily have to take on MVNO partners to reach young users. Several continue to offer distinctly branded prepaid services targeted directly at the youth market, and they’ve gained considerable traction with add-a-line options. Indeed, nearly half of all postpaid users are opting for family plans, according to a recent Yankee Group report.
And the opportunity exists for both carriers and outside brands to offer wireless services to segmented markets without launching an MVNO. Software developers could provision branded handsets for a movie studio, for instance, allowing carriers to offer customized voice and data services for an MVNO-like user experience, just as Japanese carrier KDDI has done with Sanyo and Disney.
The key is to “make it hip and cool to be associated with a particular brand,” said J. Mark Howell, president of Brightpoint North America, which handles distribution and logistics for several MVNOs.
“(MVNOs) have clearly identified the usage patterns and the purchase patterns of the youth market,” said Howell, whose 12-year-old daughter is a Virgin Mobile user. “They’ve developed a relationship beyond just minutes used.”
Analysts see about a half dozen MVNOs with 1 million or more subscribers surviving in the long-term, with only one or two of those directly targeted at youth consumers. But most agree there is plenty of space in the market for more niche services.
“I think the real proliferation of MVNOs will be among the smaller and medium-sized operators,” said Howell.
The Yankee Group projects an MVNO market of 29 million subscribers by 2010, representing 14 percent of all U.S. subscribers. The MVNO market will generate $10.7 billion in service provider revenues, the group predicts.
“It’s going to be an interesting next 12 to 18 months,” said Amp’d Mobile’s McGuire. “Let the fun begin.”
