Luster Off MVNO in U.S. Market

Ed Mueller, Qwest Communications CEO, now can be counted among executives who believe their mobile virtual network operator ventures have been a bust.

After operating an MVNO using the underlying Sprint network, Qwest now has concluded it simply hasn't worked well enough to keep doing. "We have a hole in wireless and we don't have the assets and we aren't going to invest," he says.

In Qwest's case, at least, an MVNO isn't financially attractive, but also is weak in the market place," Mueller says. One of the issues is access to the latest, greatest phones. "We don't have scale to get the new phones," he says.

"The financials and economics are really difficult," he says. "Only six percent of our customers bought, where the national average is 200 percent."

"Even if we had access to all the new phones, it would still have been difficult," Mueller says. And he also acknowledges a historic reality resellers of basic communications products of all sorts have faced: low margins. "We won't get rich on this, even if we have wireless that works," he says.

So why bother? "As part of a bundle, though, wireless gives us great stickiness," he says. He likes the resale agreement with DirecTV just fine, for many of the same reasons. "We have nine percent penetration of video," Mueller says.

That's about the same penetration as at&t or Verizon get in some of their markets in the first year. But at&t as well as Verizon expect, and get, higher penetration than that after as few as six to nine months. By the end of a year of full marketing, penetration can be in the 13 percent range.

The real money in wireless over a three-year time frame is data, not voice, Mueller says. "Voice will be a ride-along on the data," he adds.

The other thing is Qwest's interest in fixed mobile convergence, especially ways to use mobile handsets inside the home. "FMC is about strong signal inside the home," he says. "So we want a partner with a data network."

Nor does Qwest want to wait for handsets. "We want to be equally advantaged on the product set immediately, not in six months," Mueller says. "Two of the four wireless networks do not have wireline assets and should be a good fit for us. "

In other words, Qwest doesn't want an MVNO agreement, even if it is reselling another provider's network services.