Many wireless resellers going under

A few years ago, organizations from Disney to 7-Eleven to the local pinochle club were jumping into the cellphone business, leveraging their brands to appeal to niches untapped by the big carriers. Now, many are digesting a hard reality: Running a wireless company isn't as easy as it seemed. Many resellers of cellphone service — which lease the networks of national carriers — are closing, going bankrupt or struggling. Resellers, also known as mobile virtual network operators (MVNOs), are being tripped up by: Fresh competition from the major carriers. With U.S. cellphone penetration reaching 84%, the big carriers are targeting the faster-growing youth and lower-income prepaid markets that had been the province of MVNOs such as Virgin, say Entner and Yankee Group analyst Chris Collins. Failure to offer a distinctive service. ESPN, Amp'd Mobile and Helio coveted the same high-spending, data-savvy subscribers sought by large carriers "that can do it better," Collins says. Rick Heineman, a spokesman for Helio, which is partly owned by EarthLink, disagrees, saying the start-up stands out for its global-positioning, music and video services. The company, with nearly 200,000 subscribers, had 2007 losses of about $320 million. Heineman says the losses were expected. Low volumes. Some firms targeted tiny niches. Many clubs that joined Sonopia had just a few dozen subscribers. "You need to have volume and scale to survive," says Ovum analyst Raymond Yu. Operational blunders. Movida, a prepaid service, offered a jumble of confusing rates and gave subscribers free texting even though it paid Sprint Nextel for the service, Greene says. "Things were upside down," he says, adding that he's fixing the problems.
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