Advertisement
Articles
Advertisement

TruConnect Takes a Shot at the MVNO Business

Sun, 09/18/2011 - 8:12pm
Maisie Ramsay

Remember the time ESPN launched its own wireless service? How about Amp'd Mobile, which went bust in 2007 after it was unable to get customers to pony up cash for its services?

The heydays of the MVNO may be well behind us, but that doesn't mean the business model is kaput. There is still interest in MVNOs – think AARP's Consumer Cellular, H2O Wireless, Leap's data deal with Sprint – and now one new company thinks it stands a chance at making the business model a success.

This week marks the official commercial launch of TruConnect Mobile, a data-only MVNO running on Sprint's 3G network. The Los Angeles-based startup is being backed by Telscape, a 12-year-old Los Angeles competitive local exchange carrier with about 60,000 customers.

Kevin Hamilton"Most people are using modest amounts of 3G data but they have to buy these huge bundles," says Kevin Hamilton, CEO of TruConnect. Hamilton has about 20 years of experience in telecommunications, including management and the private equity side of the business. "Our vision for this is you'll throw this device in your bag and kind of forget about it until you need it."

TruConnect kicked things off with two data-only devices, a $70 USB modem and a $90 Wi-Fi hotspot that can handle five connections at a time. Customers pay $4.99 per month for the service, plus 3.9 cents per megabyte.

The company took a page from Skype's charging model and automatically tops up customers' accounts when they dip to $2. E-mail notifications are sent out before the funds are deducted from a customer's account, and users can choose from $10, $20 or $30 top-up amounts.

TruConnect has been in beta mode since May, allowing a limited number of customers to use the service. The average subscriber uses between 300 MB and 500 MB of data per month, Hamilton says. That comes out to a bill from $11.70 to $19.50 each month, plus the $4.99 fee.

TruConnect isn't targeted at heavy data users – its plans wouldn't be economical for someone consuming 5GB of data per month. Instead, the service is designed for people who use a light amount of mobile data and don't want to sign on to a postpaid plan through one of the major operators, such as business travelers who only need a cellular connection when they're on the road.

"This is not aimed at huge bandwidth users," Hamilton says. "If you're using 2 GB to 5GB of data each month, this would not be economical."

About one-third of TruConnect's customers use the USB modem, with the remainder signing on for the Wi-Fi hotspot.

So far, churn has been low, Hamilton says, though he declined to provide specific numbers or quantify TruConnect's current customer base. The company addressed possible push back on the automated top-up fees by allowing customers to cancel the service at any time without a penalty. The account will stay active and customers' funds will stay in place for 60 days before their balance expires. If a device on the account becomes active before the 60-day deadline, the funds will remain in the account.

Hamilton isn't blind to the past failures of MVNOs, which went through a boom and bust period between 2005 and 2008. Companies invested hundreds of millions of dollars in the businesses, only to see them doomed by competition from incumbent operators, dismal device lineups and crushing marketing costs.

"I think the biggest challenge for MVNOs is to control costs and control marketing spend. It's very challenging to not spend in that way and to actually acquire subscribers at a significantly lower cost," Hamilton says. "That's been the downfall of almost every failed MVNO in the past – they've been consumed by the costs of their marketing campaigns and were never really able to get the distribution that they needed."

TruConnect is counting on its pricing structure, which lends transparency to how consumers are charged for mobile data, to set it apart from the competition.

TruConnect Wi-Fi Hotspot"Consumers have really very little understanding about what the cost of the service really is," Hamilton says, citing bundled data, tiered services, throttling practices and overage charges. "When we come along with something that's easy to understand, it's very straight up, there are absolutely no strings attached and we're offering it to a very specific segment of the market, the casual user. That resonates."

That's not to say TruConnect has guaranteed smooth sailing. In-Stat analyst Allen Nogee says MVNOs will always face pricing pressure and narrow profits. Their profit lies in the narrow margin between an operator's wholesale price and the retail charges paid by subscribers, and ads, stores, customer support and device subsidies all eat away at that income.

"When it's all said and done, it's difficult to do," Nogee says. "I don't know if it's inherent to MVNOs that they're always going to be tight on profits, but that's pretty much what it always has been."

As long as wholesale prices remain high – which seems likely, given the dearth of wholesale-only providers in the marketplace – the MVNO model will be a risky one.

That doesn't mean that MVNOs are guaranteed to fail. There have been a number of successes, some more high-profile than others.

Consumer Cellular has been around for 16 years. The MVNO piggybacks on AT&T's wireless network and began its relationship with the AARP in 2005. It continued to grow even during the height of the financial crisis and in 2009 was named as one of the fastest growing private business in the county by Inc. Magazine.

The company's success can be attributed to the special care it takes to serve a niche market of older customers who don't want fancy phones or complex service plans. The vast majority of its customers are now older than 50.

Most of Consumer Cellular's phones are relatively basic, and it offers a device with large buttons and oversized text specifically targeted at seniors. Consumer Cellular isn't ignorant of market trends, however; earlier this month, it debuted its first Android-based smartphone, the Motorola Bravo.

Then there's Virgin Mobile USA, which began in 2002 as an MVNO using Sprint's network. Sprint bought out the company in 2009 but kept the brand. Virgin Mobile currently has about 6 million customers. Like Consumer Cellular, Virgin Mobile's success lies in knowing its customer base, offering cut-rate service for young customers.

The MVNO market could get a boost in LightSquared is allowed to deploy its hybrid satellite-terrestrial LTE network. Its launch has been held up by problems with GPS interference, but that hasn't stopped 14 companies from signing up for the service.

For now, TruConnect is starting with the basics. The company is looking at adding smartphones some time down the line and is interested in providing 4G service as well.

TruConnect is entering a space where many have failed and few have succeeded, but it believes it has the formula for success. Keep an eye out for them at CTIA Enterprise & Applications – they've been invited to exhibit in Sprint's booth.

Advertisement

Share this Story

X
You may login with either your assigned username or your e-mail address.
The password field is case sensitive.
Loading