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Friday, October 27, 2006

US MVNOs - Tracfone the leader

Tracfone, the US MVNO aimed at the Hispanic population reported its numbers the other day as part of the 3Q results of the Mexican giant, America Movil. Tracfone added a net 226k customers giving a total base of 7.23m. Quarterly revenues were US$330m, EBIT of US$32m, Monthly Churn of 5.4% and ARPU of US$13/month.

The reason I mention this is that its’ performance puts the Sprint MVNO’s to shame who collectively only added 177k in the quarter to stand at 5.528m. Gary Forsee mentioned that the Sprint share of the annualised revenues were now around US$650m, which works out around US$9.8/customer/month. Theoretically, the Sprint wholesaling operation should provide much larger margins that the Tracfone MVNO as Sprint don’t need to acquire or service customers. Sprint’s MVNO customers includes such big name MVNOs as Virgin Mobile, Qwest, Embarq, Helio, Disney Mobile and Movida which all apparently grew in the quarter, but none of them matched the growth of Tracfone. Also, don't forget the 30k soon to be disconnected ESPN Mobile customers are included in the Sprint figure. All the Sprint MVNOs are on the CDMA network; Tracfone is predominately on the Cingular GSM network and therefore has the benefit of cheaper handsets compared to the CDMA MVNOs.

Sprint also has a prepaid service of its’ own on the iDen network this is called Boost. It added only 216k customers in the quarter to give a total of 3.8m. To be fair the growth was constrained by capacity constraints on the iDen network itself. The turnover in the quarter was US$364m and Boost customers have a much higher ARPU of US$33/customer/month but has a much higher churn figure of 6.8% and no doubt higher SAC’s (because of handset costs) than Tracfone. Again, Sprint doesn’t disclose the profitability, but I would guess it is better than Tracfone just because Sprint owns the iDen network. However, I would add that if the Sprint iDen network is capacity constrained at the moment, then Sprint should really be adding higher margin post-paid iDen customers if possible. According to my back of the envelope calculations Sprint have not added of these net since the purchase of Nextel last year, if we exclude the additions from the Nextel Partners acquisition.

In general on the US market: Cingular have already reported and had a blockbuster quarter, Alltel also reported this morning and seemed at first glance to have done okay without setting the world on fire. I will do an overall market comparison after Verizon Wireless reports on Monday, but it looks to me already that the big winners are Verizon and Cingular with the big loser Sprint and the rest being also rans, including T-Mobile.