July 21st, 2006

MVNO Math (ESPN Mobile and other MVNO’s)

I can not resist joining in on the conversation around ESPN Mobile. To be contrarian though, I’m going to assume that they are neither arrogant nor unsavvy about this market. There has been market research around since the beginning of time that says that consumers choose wireless carriers based on coverage at home/work, low cost or reasonably priced handsets, and cost of service. They do not choose wireless carriers for their entertainment options. We did a poll recently on our site – one percent view their cell phone as an entertainment device. We had similar data when asking consumers about their priorities when selecting a provider. I’m going to assume that ESPN Mobile knew all of these things before launching their service, and that they were not arrogant in thinking that they knew more than a hundred wireless analysts collectively.

The Math (Back of the Envelope):

- 1 percent of mobile subscribers would choose a provider based on entertainment options offered

- For simplicity, we’ll assume 200 million mobile subscribers in the US (yes, there are more than this, but this number is easy)

- That means that about two million would choose a carrier based on entertainment options

- Not all of them will be able to switch in any given year because they are locked into one and two year contracts

- Making some assumptions about percentage post-paid additions, percentage of additions that are merely family members, etc. (again rough calculation), let’s assume 12 million people make a carrier decision each quarter. Over two quarters (roughly since the holiday season), that would be 25 million if we round up a bit. If we stick with our 200 million assumption, then we assume that about 1/8th of mobile subscribers have selected a new carrier since the holidays.

- If we apply that 1/8th to the two million (potential market), we come up with 250,000 subscribers who have been in the market in the past six months who said they would make entertainment a high priority. Over a year, this is 500,000.

- (Not sure of the source, but I saw the number in Fierce) – Someone estimated that ESPN Mobile expected to bring in 240,000 subscribers in their first year. This would indicate that they fully expected to take 50 percent of this market. That is a LOT if you consider that there are not only a lot of MVNO’s (e.g., Helio, Disney, Amp’d) in this space with similar goals, but also the carriers. Anyone heard of something called a ROKR that holds 100 songs from iTunes from Cingular? or VCast from Verizon? or “live” streaming TV from Sprint (which, by the way, a lot of people said they would buy)? We are not short on entertainment offerings today. Oh, yeah, and entertainment does not equal sports … some of these entertainment-enthusiasts will make other choices.

- The same article estimated that ESPN Mobile will attract 30,000 subscribers this year. Six percent of this market sounds somewhat reasonable – like a goal they may have had when they started this business almost a year ago. It’s hard to imagine that they thought they would take 50 percent of the market in year one – especially going head to head with those that have been in the market for so many years.

I don’t think they are that arrogant. They don’t have a lot of the costs that other pure plays have. Marketing is an opportunity cost on their network rather than $$ out the door. Still, acquiring customers is hard and it costs a lot. Identifying niches that the wireless carriers themselves aren’t better suited to serve is also hard. Virgin Mobile has done it – four million subscribers in four years which is amazing, but even they have messaging and product that conveys value.

They MUST have a different plan or metrics in mind that they haven’t told these analysts.

Math here certainly isn’t exact, but I don’t think it’s off by an order of magnitude.

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