3G Flexibility, The MVNO Way
By Mike Masnick, Mon Mar 21 23:45:00 GMT 2005

Virgin Mobile UK is throttling back on its 3G plans -- but, just like its original 3G announcement, it's not considered a big deal, because the company isn't sitting on a bunch of expensive licenses.


There's an all too common pattern found in a number of high capital expenditure businesses, where the initial buildout is so expensive that the company that spends all that money has trouble making it back from operating revenues. In many cases the companies end up going out of business, only to have the assets bought for pennies on the dollar by companies who actually can make money without having to deal with paying off the initial capex. One of the more famous such cases was satellite communications firm Iridium. It took billions of dollars to launch all of those satellites and get the service off the ground. By the time it finally happened, it turned out the demand wasn't nearly as strong as expected (in part, due to the rapid growth of cellular phones). The company shut down and ended up selling off those billions of dollars in assets for a grand total of $25 million to a company who has been able to build a more modest success with the equipment.

While it's not that extreme, it appears that 3G MVNOs may be taking something of a similar approach in avoiding the upfront capital expenditure, giving them the necessary flexibility where the network operators have none. Virgin Mobile UK is a perfect example. Richard Branson's company originally bid on 3G licenses, but pulled out somewhere around the point where they reached ridiculous levels. Instead, he continued to grow the basic MVNO business. With various 3G networks finally launching, Virgin Mobile was able to quietly move forward with plans to offer 3G service. It didn't need any big announcements, because there was no great expenditure involved.

However, as Virgin has surveyed the market, it's realized that a lot of firms (who do have to justify large expenditures on 3G licenses) have rushed out 3G service without being prepared for it -- or preparing the market for it. With that in mind it's decided to slow down its 3G plans until it's a bit more confident that the market exists or that there really are applications and services that make the service worthwhile. Again, this rolling back isn't a huge concern, because Virgin is just taking advantage of the flexibility the lack of an actual network provides it.

While some may think it's bad news to delay the launch of such a new offering, it would be even worse to launch it and have it flop. With various other 3G MVNOs on the way, they can all spend some time figuring out what the market really wants -- rather than hoping and praying the market will pay enough for something to recoup the initial license fees and network buildout. The flexibility gives room to actually find and offer the types of applications and services people will actually use.