The mobile virtual network operator may have gained credence with hip young brands like Virgin and Boost, but today a new breed of MVNO is emerging — one that replaces the sold-off wireless assets of the regional and rural local exchange carriers.

The cable companies have long been considered prime candidates for a virtual wireless service, but it looks like their LECs may be beating them to the punch. Qwest Communications sought to match the wireless assets of its fellow RBOCs by buying into the MVNO model with network partner Sprint. And now smaller regional carriers are getting the same idea.

CenturyTel is the first and largest of the independents to announce its MVNO strategy. It plans to launch wireless service using Cingular's nationwide network in select markets by the end of the year, replacing the wireless service it lost when it sold its mobile business to Alltel three years ago. Earlier this year, Hawaiian Telcom, recently sold off by Verizon, said it would create its MVNO.

Both CenturyTel and Hawaiian Tel officials said the MVNO play gives them a crucial wireless element to add to its bundle of local, long-distance and Internet service, which in turn reduces churn and lures back customers that might be tempted by offerings from cable competitors.

“The main reason we created it was for us to deliver on our promise of being a full service provider,” said John Gelman, vice president and general manager of wireless services for Hawaiian Tel. “Landline erosion continues to be part of the industry. In order to offset that we felt we needed to offer a complete package.”

Unlike running its own independent wireless business, however, the MVNO requires no separate capital or operational resources, said Kathy Victory, vice president of marketing for CenturyTel.

“We can use our existing marketing and sales channels,” Victory said. “We're not dependent on or limited by cellular coverage or licenses. And there's no capital outlay.”

In fact, some regional players with extensive wireless network assets have chosen to sell off those assets and launch service with an MVNO, said Tom Bobich, senior vice president of marketing and product development for Visage Mobile, one of the new breeds of mobile virtual network enablers (MVNEs) that are providing the network management and back-office services to MVNOs. Bobich pointed to Qwest, which decided to hand its network over to Verizon Wireless in favor of launching an MVNO with nationwide service through Sprint.

“Over the last seven to ten years, wireless has become a national product,” Bobich said. “Regional carriers just don't have the scale and scope to provide that kind of service themselves.”

While the MVNO makes operational and logistical sense, there also is a defensive element in adopting the strategy. While smaller operators have never really had to compete with the RBOCs by virtue of their incumbency, cable companies have become far more aggressive. Starting with cable modem service, they've expanded into voice-over-IP services and are expected to launch their own wireless MVNOs in the future. Independent telcos responded with their own video services, but a wireless component is necessary to match the cable bundle.

“It seems a lot of LECs are worried not only about losing out to the cable companies but also about wireless replacement,” said David Steinberg, CEO and founder of InPhonic, another MVNE that runs its own wireless resale and MVNO businesses.

In the case of Hawaiian Telcom, defense plays a big part but so does its unique market. As a state, Hawaii ranks high in both wireless penetration (72%, about 8 points higher than the national average) and consumer acceptance of technology.

“We have one CompUSA store that opened here a couple years ago, and it's their number one store in the nation, sitting in a market of only 1.25 million people,” Gelman said.

The company's plan is to offer differentiated services. Among the first to roll out is a service using Callwave's softswitch service that allows customers to transfer calls between their wireless and landline phones. In addition, the service will let users screen messages live and track caller ID information using a Web interface.

“We can't be the low-cost provider using an MVNO model so we have to focus on differentiation,” Gelman said. “There's some things we think people will pay for, and one is local customer care. We hope there's a built-in demand wanting to work with a local company.”

Hawaiian Telcom also will offer local content such as traffic, weather and sports over its handsets, something the national carriers won't do.

That said, however, other rural and regional MVNOs may have a more difficult time launching their wireless services than a traditional reseller. Unlike the ESPN Mobiles and Virgin Mobiles, which will map onto the nationwide footprints of their large network providers, many rural independent have footprints outside the major carriers' coverage areas. Many will have to piece together network assets from numerous wireless carriers to ensure 100% coverage in their territories.

CenturyTel is a perfect example. It is choosing to launch initially in a few markets where Cingular's coverage is at its peak. As it expands, however, it will have to strike deals with additional carriers to cover many of its more remote rural areas.

“We really don't want to offer a substandard service to our customers so we're being very picky about where we launch service,” CenturyTel's Victory said.