Monday, June 04, 2007

Why did Amp'd Mobile stumble?

It's another day of negative news for the US MVNO industry. One of the highest-profile operators, Amp'd Mobile, filed yesterday for Chapter 11 bankruptcy protection. According to theWall Street Journal (link - $$), they simply ran out of cash. How did they get to this position?

In the MVNO business (as well as the mobile operator business), customer signups are really expensive. It costs, depending on your distribution model, marketing model, etc., from $100 to $400 to sign up a customer. Meaning it will take perhaps eight to twenty-four months for a subscriber to pay off the initial investment in signing him up.

Established carriers have a large existing customer base to defray the cost of adding new customers. Startups don't. Therefore, they must have enough working capital to absorb these losses until they reach a critical mass of customers. Amp'd apparently didn't.

One other thing. I've heard from some Amp'd subscribers that their bills were late, that they didn't receive bills at all for some months, and in some cases they received bills with an outstanding balance of a penny.

You don't read much about billing in telecoms, as opposed to, say, marketing. But late bills, missing bills, etc., cause customers to withhold or delay payment. A carrier with these issues leaves money on the table--money that could help pay its bills while it waits for those new customers to turn positive. It's not clear how much this impacted Amp'd's situation, but it was a factor for sure.

Marketing is sexy, but collecting money from customers? That's priceless.


Anonymous said...

This of course means that VZW won't touch another MVNO with a 10 foot pole.