Whitey Bluestein pioneered the mobile virtual network operator model at MCI in the 1990s. He later helped Visage Mobile become a mobile virtual network enabler, and now he's again advising early-stage companies (www.whiteybluestein.com). Bluestein talked to Telephony about market growth, carriers' wholesale strategies and what it takes to be a good MVNO.

A recent Wall Street Journal story talked about slowing growth in wireless penetration in Europe and Asia. An accompanying chart showed that penetration in Sweden is 109%, and in the U.K. it is 100%, while in the U.S. it is 61%. So there's still a lot of headroom for growth here in the U.S.

What's going to fuel that growth? It's going to come from MVNOs, it's going to come from the youth and prepaid market (which is driven mainly by MVNOs) and it's going to come from data. Content and new apps are going to drive people to get phones who didn't have them before or to spend more. And in this area, MVNOs are going to be more effective selling data, messaging and other content than the carriers can themselves. MVNOs are more focused and know their customers better, and they're building their product offerings around those elements.

To be a successful MVNO, you need a better business model, and you really have to have a value proposition that's going to attract and hold on to customers. You have to find a way to dig a shallower acquisition hole and give yourself more time for customers to climb out of it. That's been the business from the start: The carrier digs a hole to acquire a new customer, then hopes the customer stays on long enough to climb out. When the customer is just about out of the hole, they give them a new phone, with that subsidy sending them back down the hole again. To make matters worse, as carrier acquisition costs go up, each new subscriber has a lower ARPU than the last. Classic carrier economics won't work for a successful MVNO.

I spoke with someone the other day who wants to be an MVNO. I asked, ‘Do you have a strong brand? Do you have stores or a distribution network? Do you have an existing customer base? Do you send bills to people? Do you have a Web site that draws potential customers? How are you going to build a business in a way that reduces acquisition cost from what it is for carriers today, which is in the $350 to $375 range, and reduce churn, which can be as has as 3%?’

Things are also getting interesting on the carrier side. I've believed for some time that the first carrier to truly embrace the wholesale market will own it. That's why I think Sprint's MVNO and wholesale strategy is brilliant, and why other carriers are starting to look more and more at wholesale strategies. It drives growth and makes money from the very first minute sold.

Cingular and Verizon both have very good wholesale programs, too. I just don't think as companies their management has embraced the wholesale strategy as enthusiastically or moved as aggressively as Sprint has. Sprint has an elegant network — single band, single technology, built to a single spec — which has kept their cost structure down. In contrast, both Cingular and, before it, AT&T acquired diverse networks, which can be both an integration and cost challenge.

But don't count Cingular or T-Mobile out. There's strong demand for GSM among MVNOs planning to sell into the ethnic market. They want to sell GSM. And when you're looking at a prepaid offering, GSM handset costs are still less. Cingular has a huge opportunity if they can win this business.

Every aspiring MVNO still goes through Visage Mobile. Their first stop on the carrier side is usually Sprint — then Cingular and Verizon — and their first stop on the MVNE side is Visage. What Visage has built is clearly a first-class, carrier-grade operation. There are a lot of other people that would like to have what Visage has built, but they don't. Visage has been the leader for years because it was built from the ground up to enable MVNOs.

I've heard people say that MVNOs will build out their own infrastructure, but I'm not seeing it. Who wants to spend tens of millions of dollars building out infrastructure? Whether in retail, entertainment, finance, or cable and telecoms, these MVNOs are not rushing out to build their own service platforms.

There are a lot of things going on again in wireless and the technology world. There's a lot of innovation. People have climbed out of the foxholes and are really doing a lot of cool stuff. Companies are getting funding, and they're moving forward. It's a very exciting time again.

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