NEWS ANALYSIS - 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.
