Amp’d closing shop even as rival Virgin Mobile thrives
Amp’d Mobile Inc. got a one-week reprieve Monday but still is expected to shut down its wireless phone service in the U.S. at the end of the month.
Yet a rival service, Virgin Mobile USA, is going gangbusters. It announced plans last week to raise $506 million, more than five times what it first sought, in an initial public offering awaiting clearance from securities regulators.
Both companies are, in industry terms, mobile virtual network operators. That means they have to lease spectrum from the major carriers to provide phone service. MVNOs are basically marketers targeting niches. Both Virgin and Amp’d sell to teens and young adults.
So what went so wrong for Amp’d Mobile -- and so right for Virgin Mobile?
Plenty. The tough business, with its slim profit margins and well-known failures, can easily ruin companies that fail to define their customer base well and target their marketing and distribution.
Amp’d stuck with the youth market until the end despite young customers’ unwillingness to pay their bills, while Virgin’s use of prepaid plans caught on not only with youngsters but also with older folks.
“There are some communities that work and some that don’t,” said analyst Kenneth L. Dulaney at research firm Gartner Inc. “And great marketing wins.”
Amp’d is not so much a bellwether for MVNOs as a reminder of how plans can collapse if the business plan is based on faulty assumptions.
That happened to Walt Disney Co., which pulled the plug on its Mobile ESPN venture in September after it couldn’t attract enough sports fans to its wireless plans in nine months. The market was too broad -- NASCAR lovers had little in common with Yankees fanatics -- and those who wanted sports news could already get that from their cellphone carriers.
Amp’d had hoped to parlay the entertainment it procured or produced -- its “Lil Bush” cartoon shorts now run on Comedy Central -- into premium prices for the handsets and phone plans it sold.
But after 18 months of operation, Amp’d was done in by rapid growth and deadbeat youths. It will sell its assets to the highest bidder during a July 31 auction.
Those assets include its content business in Canada and Japan as well as nearly 100,000 remaining customers. It cut off nearly that many customers recently because they failed to pay their bills.
Verizon Wireless, which carries calls and data from Amp’d on its network, is owed more than $33 million, making it the smaller company’s biggest creditor. Verizon agreed Monday to continue handling calls through the auction, buying Amp’d and its customers another week. Amp’d had warned customers that it would shut down early this morning.
But customers such as Internet radio co-workers Jimmy Brayl and Christina Conway aren’t waiting.
“We got blindsided,” said Conway, who learned about the possible shutdown over the weekend.
They said they were switching Monday to Verizon because they couldn’t afford to be without service. Brayl said he expected his bill to double to $200 a month because Verizon charges much more than Amp’d for what he needs: unlimited calls.
In contrast, Virgin is the nation’s largest MVNO. To compare it with Amp’d is “apples and oranges,” Virgin spokeswoman Jayne Wallace said.
To some extent, she’s right. But that’s mainly because Virgin Mobile, a unit of Richard Branson’s London-based Virgin Group conglomerate, got into the game early and made the right moves.
When Virgin started selling plans in 2002 in a partnership with Sprint, prepaid plans were a pariah to those who could afford to be billed for service. Only those without credit, mainly the young, would pay beforehand for minutes they used.
But the company turned around public thinking. Many folks who could easily afford to pay bills for past service now prefer to buy minutes upfront, mainly to avoid costly overages.
“Virgin went into the market with transparent plans and a clear statement,” analyst Charles Golvin of Forrester Research Inc. said. “The basic success factors for MVNOs haven’t changed.”
David Chamberlain, analyst at research firm In-Stat, said Virgin not only developed a brand but also gave people what surveys showed they wanted -- phone calls and some text messaging.
“Amp’d was bragging about getting an average of $100 a month from customers,” Chamberlain said, casting aspersions on the company’s claims. “You can’t do that selling voice.”
The industry average is slightly more than $50.
Golvin said he once asked an Amp’d executive how the company expected 22-year-olds to pay $100 a month. The answer, he said, was ludicrous: The customers were giving up broadband and using their phones to go on the Internet.
They might have been able to come up with payments for a few months, but there was no way they could keep paying that much money, he said.
