Disney is killing MVNO business

In shuttering its second mobile resale business in a year, the Walt Disney Company has cast doubt on the viability of a market that has taken its share of body blows in the last year.

But one analyst believes the damage inflicted by Disney was not fatal and the next generation of mobile virtual network operators will learn from Disney’s mistakes.

“Disney has done damage to the image of the MVNO business, but its failure will serve as a lesson to the next generation of MVNOs,” Besen Group analyst Alex Besen said.

Disney late Thursday announced it plans to shut down its family-friendly Disney Mobile at the end of the year.

Source: redherring

In September 2006, Disney shut down its Mobile ESPN, one of its first experiments with the mobile virtual network operator (MVNO) model, its sports-oriented cell phone service.

Disney lost an estimated $135 million on Mobile ESPN, and its decision to kill Disney Mobile raises further questions about the the MVNO market.

MVNOs resell cell phone services from established carriers to customers. They draw customers based on the attractiveness of their brands.

Mobile ESPN was designed to pull in the millions of sports fans, while Disney Mobile was supposed to appeal to soccer moms.

“Disney never truly understood the mobile business,” Mr. Besen said. “It offered service features that weren’t unique, and it did not learn any lessons from Mobile ESPN. They just duplicated their ESPN mistakes.”

But 2007 was an ugly year for MVNOs in general.

In June, Amp’d Mobile, which had taken $360 million from a number of investors, filed for protection under Chapter 11 bankruptcy.

In May, Virgin Mobile USA, the largest MVNO in the U.S., filed for an IPO to sell up to $100 million in stock, exposing a sea of red ink: In five years it had accumulated $553.3 million in debt.

Virgin Mobile USA, a joint venture of London-based Virgin Group and Sprint Nextel, has never turned a profit despite signing up more than 4 million customers.

Disney executives said the company has not given up on its family service. It promised a reincarnation of the service’s content in partnership with a mobile carrier, but it will no longer offer the service as an MVNO.

“The MVNO model has proven, as we’ve seen with other companies this past year, to be a difficult proposition in the hyper-competitive U.S. mobile phone market,” Steve Wadsworth, president of the Walt Disney Internet Group said in a statement.

The company decided that the best solution would be to change strategy to pursue profitability in mobile services.

That’s exactly what Disney did with Mobile ESPN. In February it began offering its sports content on Verizon V CAST mobile video service and V CAST Mobile TV.