Finally, the rapid collapse of an MVNO gets blamed on venture-capitalist firms placing unrealistic goals on those left managing the day-to-day operations. That’s what happened in the case of recently bankrupt mobile virtual network operator Movida Communications Inc., APC Wireless CEO Paul Greene told RCR Wireless News.
Movida, which targeted Latinos, was bought by APC Wireless for $2.8 million on April 18, less than three weeks after Movida filed for Chapter 11 bankruptcy in a Delaware court, blaming a “costly and restrictive” MVNO agreement with Sprint Nextel Corp. for its demise.
Venture capitalists are frequently blamed for the seemingly never-ending flow of monumental MVNO flame-outs, but only in hushed tones. After all, venture capitalists could very well fund that next startup that swings for the fences. Keep your enemies close, they say.
Besides, how much harm can be done by pegging the blame on a tier-one carrier, which seems to be the route almost always followed by failed MVNO executives? And in this case, Sprint Nextel has much bigger problems than the 246,000 customers Movida left in flux when it floundered. The No. 3 carrier has been losing nearly that many customers every month, on average.
“It really has nothing to do with Sprint. It’s kind of the plague with MVNOs that these venture capitalists come in and throw a bunch of money in,” Greene said, adding that venture capitalists are almost always behind the list of MVNOs that have tanked over the past couple years.
“It’s a tough business. If you don’t get it, you shouldn’t be in it,” Greene said.
Poor business decisions and venture capitalists’ unrealistic goals for growth are to blame for Movida’s rapid fall from grace, he said.
Counting on sale to Virgin Mobile USA?
“It seems like these VCs, at least the two that I’ve been involved in, put in these unrealistic goals,” Greene said, adding that it appears the venture capitalists behind Movida were posturing to sell the company to Virgin Mobile USA Inc. – something that never materialized.
APC Wireless purchased another MVNO, Liberty Wireless, earlier this year.
“We’re looking through the books and they’re a little bit murky,” Greene said of Movida’s financial reporting. However, by APC Wireless’ measure, about 60% of Movida’s 2007 profits were spent on new handsets, of which they only got around a 15% return on.
In fact, Greene said there are about 1 million phones sitting in a warehouse, still waiting to be activated with new or existing customers. Movida has been activating about 25,000 handsets per month, but has an inventory much larger than that. Demand is definitely not meeting the supply.
Per the sale agreement, APC Wireless paid $600,000 at closing and will pay the remainder of the sale price within 120 days.
APC said it quickly put Liberty books in the black within 60 days and has continued to increase its subscriber base.
“We plan to do the same thing” with Movida, said Sam Bahreini, COO of APC Wireless. “We’re going to cut the fat from Movida and we’re going to run a tight ship.”
The network deal with Sprint Nextel is still intact and the Movida brand, rate plans and subscriber contracts will remain the same. But Bahreini said APC will improve the user experience, re-double emphasis on the Latino market and expand the service’s push into additional market segments.
“We’re just going to revamp everything – go back to the old way, sort of the grass roots that Movida was,” he said. “We’re just trying to salvage everything and keep everyone happy.”
“We felt that it was a great opportunity and we feel we can make it work,” Bahreini added.
“We’re going to focus, of course, on the Latino network as far as the community goes. But with Liberty Wireless there’s going to be an added benefit. We’re going to go after everybody,” Bahreini added.
“We’re kind of alienating the people that are not Hispanic” by solely targeting that market, Greene said.
