Making cell phone companies out of thin air

(continued from previous page)

quality. The carrier doesn't provide revenue figures from selling wholesale access to its network, preferring instead to speak in glowing, but amorphous, terms.

"We have no concerns," Tiemeyer said. "Customer satisfaction is on the way up. We anticipate this to be a very (good) business," she said.

The carriers' cold shoulder toward MVNOs is thawing, argues A.T. Kearney analyst Andrew Cole. Cingular is now testing the waters by supporting, rather quietly, 7-Eleven's MVNO. Verizon Wireless backs a cell phone option available through OnStar, the in-car wireless remote attendant. But, publicly at least, Cingular and Verizon representatives still say the operators aren't a willing MVNO host.

"You can't just throw any kind of (stuff) on the network," said a Verizon Wireless source. "You get a busy network, and you open yourself up to devices that aren't approved for use on our network."

Cingular Wireless isn't likely to change its view on MVNOs, either, said Ed Whitacre, CEO of SBC, which co-owns Cingular Wireless with BellSouth. He pointed out that MVNOs don't own or operate the network their customers use, and therefore lack the hands-on control for really good service. If customer service problems drive people away from the MVNO, they generally blame the underlying network owner.

The top two carriers have also managed to beat rivals in customer satisfaction ratings because of the built-in overcapacity of their networks, meaning calls have much more room on the network--thus, fewer are dropped. The customers will take it out on their MVNOs, which will in turn blame the wireless operator, making everybody look bad.

The MVNOs target teens, bad-credit hipsters, ethnic minorities and other niches that wireless operators have long ignored. But the big carriers are beginning to focus on these slivers--most large carriers now target the long-neglected Hispanic demographic, for example--and don't want to kill their own market.

Sprinting ahead
Working with virtual carriers may come easy for Sprint, because it arguably was the first MVNO.

About 3.1 million of Sprint's 23.2 million subscribers actually rely on 11 midtier cell phone operators. These publicly traded companies have one client: Sprint. They do everything Sprint does. They act essentially as infrastructure, leasing their networks only to Sprint. As a result, they rely on Sprint to come up with new handset services and plans to win more customers.

Aside from photo messaging, Sprint hasn't had much success delivering sizzling cell phone products to its affiliates, and they were grumbling. MVNOs were a perfect solution, because Sprint doesn't have to come up with winning ideas; just the network. The MVNOs sweat the marketing stuff, choosing the handsets and the types of plans.

If Sprint is going to continue to be the only networked friend MVNOs have, it may find itself with more friends than it had expected. Many other recognizable brand names are expected to jump into MVNO-hood, promising future Sprint paydays. Strategy Analytics market analyst David Kerr said he has made a friendly wager that Wal-Mart Stores will be the next giant entrant to sell wireless phones under its own brand. Other candidates are Costco Wholesale, Kohl's and Home Depot.

They haven't jumped in yet, but Kerr and many others think it's only a matter of time.