3G Profits The MVNO Way
By Carlo Longino, Fri Nov 19 20:30:00 GMT 2004

Virgin Mobile says it plans to launch 3G services in the UK next year -- but doesn't need to make a big deal about it since it's got no license fee to justify. Novel thinking, that.


The MVNO, which announced its half-year results yesterday, says it will have a 3G offering in time for Christmas 2005. CEO Tom Alexander says Virgin will update its "Bites" range of content services to take advantage of the faster network, but he told The Guardian, "We do not need to trumpet our 3G plans because we do not have to justify spending billions on a licence." It sounds like almost a perfect plan -- all of the benefits of 3G, without the massive outlay for spectrum and capital equipment.

Virgin will do what it does best, offering services targeted at young and thrifty consumers, and it will eschew data cards and corporate services. And it will probably be very successful, as it's been in 2G. And while Virgin resolved its differences with its network supplier, T-Mobile, and announced a new 10-year supply agreement in January, it would be hard not to see Virgin's 3G plans cause additional friction, particularly with Deutsche Telekom investors. After all, it's T-Mobile that's shouldered the risk and expense of building out the network, then they're enabling a competitor to come along, and although they're paying for it, operate at a much lower cost level. It's a little different from MVNOs running on older 2G networks that were in some since bought and paid for years ago.

This potential conflict again raises the possibility that some operators will become "carriers' carriers", building their business around supplying a network to MVNOs, rather than serving end users themselves. It makes some sense -- having virtual operators target niche markets, and competing with each other rather than their network provider -- and looks like a smart way for companies to make a 3G play. When you look at the losses Hutchison's 3G operations have racked up, then wonder what it has with its network that Virgin won't, it doesn't seem like much, particularly enough to justify its buildout expenses.

And, of course, should consumers turn out to not be interested in mobile video and all the other content goodness operators have lined up, Virgin -- and other MVNOs -- won't be left holding the bag.