Amp'd Mobile Inc., a Los Angeles wireless phone company that garnered more than $360 million from a broad range of well-heeled stockholders, is hoping to revive itself under the protection of a bankruptcy filing.
Amp'd Mobile, which counts MTV Networks and Universal Music Group among its investors, has marketed its phone and mobile-entertainment services to young, hip consumers by sponsoring motocross, surfing and other action-sports competitions.
Its "Lil' Bush: Resident of the United States" cartoon was such a hit on its mobile phones after being introduced last September that pay-television's Comedy Central picked it up for an initial run.
But burdened by more than $100 million in debt, including $33 million owed to Verizon Wireless for using its network and $16.4 million to Motorola Inc. for cellphones, Amp'd Mobile quietly filed a Chapter 11 petition in U.S. Bankruptcy Court in Delaware on Friday, barely 17 months after launching its service.
The filing is likely to wipe out not only the company's debt but also ownership stakes and preferred stock -- totaling nearly $18 million -- held by MTV, Universal Music, Redpoint Ventures, Highland Capital Partners, Columbia Capital Equity Partners and Amp'd Mobile's founder and embattled chief executive, Peter A. Adderton.
Adderton is the company's biggest single shareholder with 900,000 shares, or 5%, of the stock. For the last two weeks, rumors abounded about a rift between Adderton and some directors, and about his possible departure.
The company said in a statement issued over the weekend that its "senior management team remains largely intact." Adderton could not be reached Sunday.
Amp'd Mobile said in the statement that it would try to restructure its debt while continuing to serve its 200,000 customers, including those in Canada and Japan, markets it recently had entered.
"As a result of our rapid growth, our back-end infrastructure was unable to keep up with customer demand," Amp'd Mobile said. "We are taking this step as a necessary and responsible action to sustain and strengthen our momentum in the marketplace."
Some analysts figured it was only a matter of time before the company went into bankruptcy.
"They got eight different types of venture capital firms backing them. They got high subscriber-acquisition costs. And they are having a hard time getting additional financing," said Alex Besen, whose Besen Group consulting firm in Oakton, Va., helps small cellphone companies.
Relying on mobile media to sell phone and data service is "a very hard business model," Besen said, and Amp'd Mobile hasn't created the marketing muscle it needs.
It didn't help that soon after Amp'd Mobile started, EarthLink Inc. and SK Telecom, South Korea's largest mobile phone company, launched their Helio joint venture, targeting the young and tech-savvy customer who wants content and capabilities that U.S. cellphone companies aren't offering.
Only two months ago, privately held Amp'd Mobile boasted about its fast growth. The company said its average revenue per user was more than $100 a month, about twice the industry average, as customers paid extra for its music downloads, videos, mobile games and other content.
But the company has been slow to pay its creditors, Besen said. He also estimated that 7% to 8% of Amp'd Mobile's customers quit every month, far more than the 1% to 2% that cancel accounts with established mobile phone companies. "There's no customer loyalty there," he said.
Amp'd Mobile, Helio and the much-larger Virgin Mobile are examples of what the industry calls mobile virtual network operators because they lease networks from major carriers. But then such network operators have to come up with unique content or better service to compete.
The business is tough. Walt Disney Co.'s ESPN cable network found last year that it couldn't transfer its established customer base to its mobile phones and ditched the service after a short-lived effort.