According to a Business Week article on Amp'd, "By May, the number of nonpaying customers reached 80,000. That's nearly half of Amp'd's current customer base of 175,000 subscribers." Amp'd filed for Chapter 11 bankruptcy protection this week.
That is really too bad. Amp'd, by most accounts I had heard, had a terrific service. But, clearly, the business model didn't hold. Amp'd had a blue chip roster of investors and some good people on its team so I think it is more likely that Amp'd's failure suggests a lack of viability of a smaller MVNO versus bad execution in a good market.
Boost (owned by Sprint) and Virgin USA (IPO pending) are each closer to 5 million subs. Will they continue to prosper? I think and hope so. Virgin is not profitable but those are bigger entities, $1bn in revenue and not far from profitability in Virgin's case. But, this news, following the death of ESPN's MVNO, sounds suspiciously like a death sentence for tier-2 MNVOs with less than 1m subs.
What are the long term profit margins of a tier-1 MVNO in the USA? Probably slim, but positive I believe. Boost and Virgin are innovative and do deliver unique value to their subs. Both have been on the cutting edge of mobile content for example (as was Amp'd) but spread over a larger subscriber base than Amp'd has. Still, neither will be as profitable as a carrier that owns its own network. That is the law of the telecom industry, at least today.
11 years ago, I was a junior telecom M&A banker on Wall Street. Once of my jobs was to track the long distance "comps" or valuation multiples of the publicly traded long distance carriers. Back then, there were 3 tier 1s which owned a full scale network (AT&T, MCI, Sprint), 3 or so tier-2s which owned a smaller network (Worldcom, LCI, Frontier), and 12 or so tier-3s (Midcom, ECI, etc.) which were either pure resellers or which owned a small number of Lucent switches (often one). One by one, the tier-3s died. And the tier-2s consolidated. And, due to perfect competition in the long distance market, the tier-1s struggled.
Fortunately for tier-1 mobile carriers, there is not perfect competition. It is a government protected oligopoly, with a certain number of spectrum owning carriers. So, the tier-1 mobile carriers and tier-2s who own network and spectrum are making good money. Unfortunately for those who don't own spectrum, like Amp'd... it is a tough business.