AS AMP’D MOBILE INC. WINDS DOWN its mobile virtual network operator service, questions loom about the health of the MVNO space.
Bankrupt Amp’d Mobile has halted customer service and was on the verge of cutting off network access to its customers entirely last week, before receiving a reprieve-at least through this Tuesday.
Meanwhile, Helio L.L.C.’s parent company, EarthLink Inc., reported that the MVNO is expected to burn through as much as $360 million this year alone. The company, launched in May 2006, surpassed the 100,000 customer mark in the second quarter and EarthLink estimates it will have between 200,000 and 250,000 subscribers by the end of this year and generate revenues between $140 million and $170 million.
Helio was founded with an initial investment of $440 million from EarthLink and co-parent SK Telecom. The two companies recently pledged a new cash infusion up to $100 million. According to EarthLink, the two companies have both approved initial funding of $30 million to be released this week.
Helio generated revenues of about $33 million in the second quarter, with total losses of nearly $84 million. Given its second-quarter figures, Helio is spending about $40 million a month to continue operations. Helio declined to discuss financials for this story.
“I think they’re next on the bonfire here,” said Iain Gillot of iGR Inc. “If you’ve got five stores and 100,000 customers, where are the costs? If that’s all you’ve got after spending all this money, pull the plug.”
Ranjan Mishra, director for Oliver Wyman, said that the shake-up in the MVNO industry follows classic industry growth trends: following on the quick growth of early MVNOs such as Virgin Mobile USA L.L.C. and Boost Mobile, an MVNO boom started-now being followed by a bust.
One good idea or service doesn’t build a solid MVNO, he added-companies need to be at least as good as their competitors on all fronts, differentiate on a few things, but at the same time they need to keep their costs in line by not insisting upon being the best at everything.
“People want to be best-of-breed in everything with their expectations and desires, and without knowing what it takes to get it done, you can get sucked into these kind of high-cost metrics very easily,” Mishra said.
Amp’d Mobile has requested permission from a bankruptcy court to auction its assets and faced continued legal pressure from host operator Verizon Wireless, which said that allowing Amp’d Mobile to continue operations in bankruptcy is costing the carrier about $370,000 a day with no guarantee that it will be paid.
However, the carrier also objected to the auction, due in part to an estimated 20,000 Motorola Inc. handsets in the MVNO’s inventory that Verizon Wireless says have faulty software and could affect its network-or that of other CDMA carriers-if they are sold and activated.
Amp’d Mobile filed for Chapter 11 bankruptcy in June; roughly half of the MVNO’s 200,000 customers were not paying their bills, leading to a cash crunch. The company had hoped to obtain debtor-in-possession financing to make its way through the bankruptcy process intact, but was unable to score the necessary funds.
Given Verizon Wireless’ requests, Amp’d Mobile said last week that its “ability to continue to operate was suddenly at risk” and the company “determined that it was in the best interest of the estate and its creditors to sell all or substantially all of its assets in a court-supervised auction process.”
The company’s assets, according to filings, include its inventory of handsets and accessories as well as studio equipment, office equipment and copyrighted content. Amp’d Mobile said that the assets might end up being sold to multiple buyers.
An Amp’d Mobile spokesperson said the weeklong extension was related to a potential auction of the company’s assets in bankruptcy court, but did not provide additional details.
Amp’d Mobile warned it subscribers via text message and its Web site on July 21 noted that service could be stopped on July 23. The company also has stopped offering full access to its services; no purchases are being processed through its Web site, and it closed up customer care on July 23.
However, the news that subscribers soon might not be able to use their Amp’d Mobile phones is not obvious on the carrier’s Web site. As of last week, the home page continued to flash promotions (including one emphasizing various options for bill paying), and the information regarding the possible shuttering of service is located in a “customer Q&A” page linked from the home page.
According to the Amp’d Mobile Web site, customers will not be charged early termination fees and can port their numbers to other carriers. If customers still have unpaid balances, they must work with a collection agency; if they are owed a rebate, credit or balance refund, they must file a claim with the bankruptcy court.
$41M owed
Verizon Wireless, which has calculated that Amp’d Mobile owes it $41 million for network services up until the date of the bankruptcy filing, told the court that there are problems with the MVNO’s inventory of Motorola E816 handsets (which Amp’d Mobile sold under the name Hollywood). Verizon Wireless said the phones contain faulty software that can cause interference on Verizon Wireless’ network by constantly pinging the network, even after service to the handset is discontinued. Verizon Wireless said the phones also suffer from dropped-call problems.
The carrier said the E816 problems existed prior to the MVNO’s bankruptcy filing, and Amp’d Mobile had been working with Verizon Wireless on the issues. The operator said that if the phones are sold and then activated, the additional influx of faulty handsets could threaten Verizon Wireless’ network.
“Verizon Wireless has reason to believe (the phones) could also impose a threat to any other CDMA provider,” the company added in its objection to the auction.
The bankruptcy also is having other reverberations in the wireless industry. BCGI Inc. noted the event in filings with the Securities and Exchange Commission last week and concluded that “a significant reduction or wind down of Amp’d business operations would have a material adverse effect” on BCGI’s operations and finances.
