The Prepaid Press - June 15, 2008 - (Page 4)

PREPAID BUSINESS June 15 · 2008 - 4 THE RETSKE REPORT By Gene Retske The More Things Change lessons of history are doomed to repeat them. This is wise advice, so Joe asked me about long distance competition and what can be distilled from that experience that may apply to MVNOs today. It was a good question, one that I wonder if those who are guiding MVNOs ever bother to ask themselves. Sometimes relevant questions like this are not asked because of a fear that the answer will not support the current strategy. First, let’s talk about why long distance of the past is relevant to the MVNO scene today. In both cases, the first competitors to facilities based carriers, whether wireline or wireless, were pure resellers. In the case of long distance, while new technology competitors were building out networks, a class of resellers, called “aggregators,” contracted for bulk minutes at a discount from AT&T. These aggregators then marked them up the minutes contracted from AT&T and re-sold them in competition with AT&T, earning them the title of “aggravators” at AT&T. In the long term, it was a zero sum game because it took a government regulator to force the monopoly company to share its margin. If, and this is a big “IF,” the reseller/aggregator brought new revenues to AT&T by opening niche markets, then it was a symbiotic relationship. But, this was often not the case, and resellers simply went for the low hanging fruit, adding nothing to AT&T’s bottom line. I remember an AT&T business unit head saying about aggregators, “We put them into business, we can put them out of business.” The more successful an aggregator was in opening new markets, the more likely they were to be counterattacked, and the carrier take back what they felt was rightfully theirs. On the other hand, if the reseller fails to meet agreed upon sales goals, the carrier is also motivated to eliminate the costly middlemen. niche markets, content services, specialized handsets and unique marketing schemes, but the result has been the same. One after another has hit the wall. Even well heeled, well financed companies with significant marketing muscle, Disney, Movida, Amp’d, ESPN, have all folded up their tents and left the market. The ones that remain are struggling. Why? For the same reasons that long distance resellers struggled, having to rely on a regulatory solution to a lack of control over basic facilities; it is subject to regulatory fiat. Look at what happened to competitive LECs. They spent all of their energy, and money, trying to force the FCC The more successful an aggregator was in opening new markets, the more likely they were to be counterattacked, and the carrier take back what they felt was rightfully theirs. to give them a better deal, a handout, on local service connections. As the AT&T executive alluded to, that which is given can also be taken away. MVNOs have been following the same path, trying to get better deals from the network operators, offering them little or nothing in return. Albert Einstein defined insanity as doing the same thing over and over again and expecting different results. By this definition, most MVNOs are insane. Until MVNOs break out of the mold and start doing something entirely different, they are destined to end up the same as long distance resellers. So, what is the significant difference we referenced earlier? Well, long distance competition started in the early 1970s, and aggregating resellers peaked in the 80s, then went down, so by 1990 they were essentially gone, or pulled back into niches. In the 1990s, facilities based resellers began to emerge, and exist today. The nonfacilities based resellers lasted approximately 20 years, give or take a couple years. MVNOs started around 2000 or 2001, and, as of 2008, they are in serious decline. So, what took 20 years to accomplish in the long distance market, has happened in less than 10 years in mobile competition. The new bandwidth being auctioned by the FCC may drive in the final nail, as the global overbuilding of circuits did for long distance pure resellers in the 1990s. While I realize that this analogy is not perfect, there are enough similarities to make those who aspire to compete for wireless to sit up and take notice. That is, if they want to succeed. Business is a funny thing. Everything runs in cycles. Wait long enough and you will start to see a repetition of events. It may take years, or decades, but trends will ultimately repeat. Case in point. I had a conversation with Joe Pawlikowski of Prepaid Reviews last week. Joe is the editor of this consumer oriented website, as well as a contributor to TPP who does the Prepaid Trends column. Joe asked me to do a podcast with him based on a conversation we had about the parallels between the long distance market in the US in the early 80s and MVNOs today. It was a very interesting discussion and I encourage you to listen to it on Joe’s website, www.prepaidreviews.com. There is a distinct parallel between non-facilities based long distance resellers and MVNOs, with one significant difference, which we will get to shortly. It is said that those who fail to learn the Until MVNOs break out of the mold and start doing something entirely different, they are destined to end up the same as long distance resellers. This is exactly what happened. Some resellers built facilities and moved to niches like prepaid calling cards, ethnic markets, special functions, etc. Others merged, or went bust. But, without facilities of some sort -- switches or network -it was not a sustainable business model. Now, roll forward to MVNOs. The scenario is pretty much the same. MVNOs do not have facilities, and are the equivalent of aggregated billing resellers for the most part. They have tried SIMPLE, ALL-IN-ONE SOFTWARE TOOL UNLOCKS, TESTS, AND RECONFIGURES PHONE SETTINGS OVER 200 CDMA PHONES SUPPORTED AND IT’S LEGAL !!! PERFECT FOR DEALERS, SERVICE PROVIDERS, WHOLESALERS, & REPAIR SHOPS KEEP THE PHONE CHANGE NETWORKS! 1.800.496.0156 • houdinisoft.com Exhibiting at The Prepaid Press Expo Las Vegas Aug 19th to 21st Caesar's Palace, Booth 510 http://www.prepaidreviews.com http://www.dvrg.com http://houdinisoft.com http://www.dvrg.com http://houdinisoft.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - June 15, 2008

The Prepaid Press - June 15, 2008 Contents The Retske Report: The More Things Change… Regulatory Rundown: June 2008 5 Minutes With Harvey Caron VP/Marketing Director, Pentagon Graphics TPPExpo’08 Spotlight Handset Trafficking Dealt Blow Prepaid Wireless Roundup Virgin Mobile to Use Platform-A Sprint Reports Lower Wireless Revenues Virgin Mobile Adds Samsung to Offerings States Considering Photo ID for Prepaid Wireless Prepaid Reviews Podcast Includes TPP Editor Prepaid Wireless in Brief Managing Equipment and Capacity Upgrades Atlantax Systems and TMI Form Alliance The Legal Line Spot Rates FTC Halts Bogus Prepaid Phone Card Claims Titan Global Re-Appoints Kurt Jensen as Pres/CEO Calling Cards in Brief TX AG Files Suit Against Calling Card Company Startec Moves to PhoenixSoft Cirrus Ringplus.net Offers Free Calls Interchange Fee War Begins edo Interactive Launches Networking Card MasterCard Uses CSC Platform nFinanSe Gets $15 Million Line of Credit Travelex Cash Passport Debuts at US Retail Stores CardEx Offers Cost-Free Gift Cards Payments in Brief Altair and Blueberry Launch a Prepaid Card for Moms FrontStream Acquires Direct Technology Innovations New Etelcharge Version Goes Live Prepaid 101: POSA Retail Focus in Brief NRF Says Retailers Fighting Organized Crime Blackhawk Announces Annual Hawk Awards NRF Says Retail Sales Showed Resiliency in April TravelCenters Adopts Coinstar Pay As You Go Marriott Offers a $25 Visa Gift Card NRF Favors Law Protecting Retailers from Lawsuits Starbucks Card Members Get Free AT&T Wireless Wi-Fi Our Advertisers Classifieds Contact Us

The Prepaid Press - June 15, 2008

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