Sprint and Verizon Wireless reported some surprising wholesale subscriber figures in the second quarter. The two are the leading providers of network service for the new wave of mobile virtual network operators emerging in the U.S. wireless industry, but instead of reporting gains in wholesale subscribership due to this new business, both reported significant losses. Verizon Wireless lost 100,000 wholesale subscribers while Sprint reported a 31,000 wholesale customer loss, a performance that is even more surprising considering Sprint added 288,000 wholesale subscribers in the first quarter.

Combined, the two carriers provide the networks for Amp'd Mobile, Helio, Disney Mobile, Mobile ESPN, Virgin Mobile and both Qwest's and Embarq's wireless services. But aside from Qwest and Virgin, all of those MVNOs have launched since the beginning of the year and were expected to bulk up both carriers' indirect subscriber numbers. The opposite, however, appears to be happening. The Tier 1 operators seem to be siphoning customers away from their MVNO and resale partners.

Bob Egan, TowerGroup emerging technologies analyst and long-time critic of the MVNO model, said poor wholesale subscriber figures are a sign the market is correcting itself.

“What we saw was lots of hype and lots of marketing dollars spent in the previous two quarters,” Egan said. “But the MVNOs found they weren't getting the subscriptions they expected, so they've backed off and are recalibrating their business models.”

The new MVNOs can account for only some of those losses. By all estimates, Mobile ESPN and Amp'd account for only a small percentage of the millions of wholesale customers Verizon Wireless and Sprint have. Qwest, Virgin and the dozens of traditional resale providers make up the majority of the wholesale subscriber base, and likely account for much of those losses.

The MVNOs simply are fishing in a very shallow pool, said Seamus McAteer, chief product architect for M:Metrics. He pointed to the 13 to 24-year-old demographic market of Virgin, Amp'd and Helio. There are 13.8 million customers in that segment, many of whom are locked into contracts. Assuming a 3% churn rate, only 400,000 to 500,000 of those customers will be switching carriers any given month. If MVNOs can pick up 10% of those customers, that leaves about 45,000 new customers per month, divided among them. The MVNOs can grow, they'll just do it very slowly, McAteer said.

“It's very difficult to build a consumer brand in the U.S.,” McAteer said. “The major carriers are some of the top advertisers. To rise above that noise is hugely difficult if you're a start-up brand.”

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