NEW YORK (AFX) - It sounded like a can't-miss idea: An ESPN-branded cell phone that brims with scores and video highlights for sports fanatics.
It missed.
After less than a year on the market, Mobile ESPN is ending its bid to compete with mainstream players like Cingular Wireless, raising doubts about the business logic behind the gold rush of other niche cellular brands offering their own mobile phones and calling plans.
These ventures have distanced their business models from ESPN's like politicians fleeing a comrade's scandal. They argue there's plenty of money to be made serving the unique interests of specific market segments, be they the Gen-whatever younger set (Amp'd Mobile and Helio), families (Disney Mobile), immigrants (Movida and TuYo Mobile) or the rich and pampered (Voce).
'Can someone give me another example of one that's fallen over?,' asked Peter Adderton, founder and CEO of Amp'd, which opened for business in late 2005, and who started the Boost Mobile brand overseas. 'I've been in the business 10 years and I don't know one' that's ailed before Mobile ESPN.
Executives from other specialized wireless services also dismissed ESPN's stumbles as irrelevant to their prospects or the general concept of niche brands.
'They basically pinned their hopes on one application and said people will suffer subpar devices and subpar pricing just to get' ESPN content on a phone, said Sky Dayton, CEO of Helio, a 5-month-old joint venture between EarthLink Inc. and Korea's SK Telecom Co.
But other industry players see the hasty retreat of a venture with so much going for it as very telling. Robert Dotson, chief executive of T-Mobile USA, also noted that ESPN and others would be more talkative about subscriber data if they had good news.
'I would say they're doing mediocre at best. I say that because nobody's reporting any numbers,' he said.
If nothing else, the mounting skepticism has driven some budding carriers to start breaking their silence about how they're faring with customers.
Dayton, a serial entrepreneur who also founded EarthLink and the Wi-Fi service provider Boingo, disclosed to The Associated Press that Helio has been generating average revenue per user of about $100 per month. About $25 of that comes from Helio's mobile data offerings, including a custom link to the MySpace social networking service.
Amp'd, whose backers include Qualcomm Inc. and Viacom Inc., recently announced that its users have been generating 'a little higher' than $100 per month. That includes $30 from a wide array of edgy content, from popular video games to live TV and a made-for-mobile series called 'Lil' Bush,' poking fun at the president.
By contrast, the nation's biggest cell carriers, Cingular and Verizon Wireless, report monthly revenue per user closer to $50, with data usage accounting for slightly more than a tenth of that total.
Disney Mobile, like Mobile ESPN a unit of Walt Disney Co., wouldn't provide specific revenue figures. But general manager George Grobar told AP that the phone's non-voice services 'are being used extensively, way above industry averages. The rate of downloads is way above industry average.'
Still, the bigger question is how many subscribers they've managed to sign up, and most insist it's too soon to discuss that number.
Amp'd, nearly a year old and thus a relative veteran, spoke up in September in response to mounting speculation about anemic subscriber growth. The company said it was approaching 50,000 users and expected 150,000 by year-end thanks to expanded distribution through Best Buy Co. and Circuit City Stores Inc. But earlier this month, the target appeared to turn more conservative, with executives telling AP they were on track to surpass 100,000 by the end of the year.
Globally, there are now more than 250 of these targeted cell ventures, including 42 in the United States, according to a new book by Christian Dippon and Aniruddha Banerjee of NERA Economic Consulting, 'Mobile Virtual Network Operators: Blessing or Curse?'
The book's title is taken from the industry name for these ventures, as none of them actually own the wireless networks that deliver their services. Instead, an 'MVNO' slaps its brand on another wireless operator's service, whose name doesn't appear on any of the phones or monthly bills
There are pluses and minuses to this approach. A virtual carrier doesn't bear the cost of buying licenses to use the public airwaves and then building and maintaining a national network of cellular transmitters.
But an MVNO pays the actual network operator for every second of call time and every bit of data transmitted to and from its customers. This setup can be especially costly in the United States, where the mainstream wireless brands have conditioned cell users to talk freely, offering supersize buckets of minutes and unlimited off-peak use. T-Mobile, a unit of Deutsche Telekom AG with multinational cellular operations, says U.S. subscribers talk 17 hours per month, or nearly six times as much as European cell users.
The MVNO business has its successes, and the most obvious conclusion to be drawn from them is that it takes very patient financial backing to make it work.
It took more than three years and nearly 4 million subscribers for Virgin Mobile USA to turn an operating profit, a milestone reached in the first quarter of 2006. Virgin, a youth-oriented service, is owned jointly by Sprint Nextel Corp. and Virgin Mobile Holdings PLC.
It's also been a watershed year for Qwest Communications International Inc., the dominant provider of local phone service across the Rocky Mountain and Northwest regions. Qwest became an MVNO in 2004, selling its wireless licenses and network assets to Verizon Wireless and contracting with Sprint to provide service for Qwest's cellular subscribers. The business crossed into profitability in the second quarter with 777,000 customers.
Somewhat in line with those two examples, Amp'd is forecasting it will turn an operating profit by late 2008, when it would have more than 700,000 customers if its current projection of 25,000 new subscribers a month holds true.
Sprint remains the biggest U.S. proponent of the virtual model among network operators. It is the biggest carrier of traffic from these virtual providers, serving about 20 other brands. At midyear, those MVNOs accounted for 5.3 million users, or nearly 10 percent of the 51.7 million wireless subscribers carried on Sprint's network. That was up from 4.6 million a year earlier.
Despite the loss of ESPN, which runs over the Sprint network, 'We are still very supportive of the MVNO program. I want to make that very clear,' said Thad Langford, Sprint's vice president for strategic partners.
Langford said Sprint estimates it takes 'roughly four to six quarters' to build a successful virtual provider of 'post-paid' service -- a more lucrative business where customers pay monthly charges rather than prepaying for air time to use at their own pace. ESPN is ditching its venture after less than a year.
'You have to give these new opportunities a chance to grow,' he said.
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