Sprint Nextel’s (S) acquisition of Virgin Mobile USA (VM) marks the near-end of the “virtual” wireless network boom. Once Sprint swallows Virgin Mobile, America Movil’s (AMX) super-budget-focused TracFone will be the only huge MVNO, or mobile virtual network operator, left in the U.S.
When the deal closes, Virgin Mobile (and its Helio brand) will become Sprint owned-and-operated brands, just like Sprint’s Boost Mobile prepaid walkie-talkie service.
Until now, Virgin Mobile and Helio had been operating as MVNOs using Sprint’s network, meaning its owners were buying wholesale access to Sprint’s voice and data networks and re-selling it under their own brand, with their own phones.
That allowed Virgin to get off the ground quickly — not having to win spectrum auctions from the FCC or build out wireless networks — and offer pricing, handset, and distribution options that Sprint didn’t. But as Virgin Mobile also showed, it’s a tough slog. While the company was able to attract more than 5 million subscribers — about 2% of the U.S. mobile market — it made just $8 million in profits last year on $1.3 billion of total revenue.
And Virgin Mobile — like TracFone, which runs on Verizon Wireless and boasts more than 11 million subscribers — was one of the good ones.
Plenty of bad ones to go along with it. A few years ago, before the iPhone-induced App Store craze, virtual mobile carriers were all the rage.
Companies like MTV, Earthlink, and Disney were betting hundreds of millions of dollars on MVNOs like Mobile ESPN, Disney Mobile, Helio, and Amp’d Mobile. And now they’re all dead — huge cash infernos. Helio, for instance, burned through half a billion dollars in three years before its fire sale to Virgin Mobile. With such a tiny success rate, it’s no wonder that you don’t hear about flashy MVNO plans anymore.
That’s not to say that MVNOs can’t survive — it’s still a solid business model for some companies. For instance, TracFone isn’t going anywhere any time soon; in fact, it’s moving into a closer partnership with Verizon.
And there’s plenty of smaller, niche MVNOs left, like T-Mobile-powered Peek, a mobile email/messaging startup from some of Virgin Mobile USA’s founders, and Amazon’s Sprint-powered “Whispernet,” which it uses to send books and Web pages to its Kindle e-readers.
Business Insider Emails & Alerts
Site highlights each day to your inbox.