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20th November 2003 - Earlier this summer, Boost Mobile,
the new wireless brand based on Nextel's wireless service,
sponsored a skateboard competition in Las Vegas, at
the Hard Rock Hotel and Casino. Boost is a youth-oriented
brand, essentially a marketing company whose sole purpose
is to make Nextel-based wireless service popular with
kids.
The skate event was important for anyone concerned
about slowing subscriber growth in the US wireless market.
The reason Boost's focus on youth is important is that
this is one subscriber segment that is both under-saturated
by wireless, and which has shown a strong appetite for
wireless services. The total potential wireless youth
market is estimated to range from 25 to 35 million customers,
depending on how you define the youth market. While
this age group can range from pre-adolescents to post-graduates,
the sweet spot for carriers like Boost, which offers
pre-paid wireless service, ranges in age from teens
to post-undergrads looking for their first real jobs.
Over the last couple of years, this market has not
gone unnoticed by the wireless industry. Carriers ranging
from industry giants Verizon Wireless, AT&T Wireless,
and Cingular have all rolled out prepaid services specifically
targeted at kids and young adults. Just last year, Sprint,
in partnership with Virgin Mobile of the UK, rolled
out a Mobile Virtual Network Operator (MVNO) called
Virgin Mobile USA tailored to appeal to the "MTV
Generation". All of these have had varying levels
of success in penetrating this target market and collectively,
have millions of subscribers in this age group. Boost
Mobile, however, may have hit on a formula that will
give them the edge over these other companies in reaching
what is viewed as a highly fickle customer segment.
To say that the youth market is volatile is an understatement,
as any parent, or sufficiently young, or young-minded
adult, can tell you. Kids are fashion oriented herd
animals, which means they move enmasse from the last
big thing to the next big thing. Getting out in front
of the trends can prove nerve-wracking, and indeed impossible
to do on a consistent basis.
Wireless carriers that market to this segment can use
a number of strategies, and face a number of hurdles.
These strategies include:
The Family Plan: One strategy that has been
employed by carriers is to offer family plans. This
allows a parent to choose a wireless service that bundles
multiple phones and phone numbers on a single plan,
with all members of the plan dipping into a common bucket
of minutes each month, and paying one bill for all of
the members' service, each month. The advantages, for
the carrier, of this plan are significant, since it
locks an entire family into an annual (or longer) contract,
reduces churn, guarantees higher ARPU than can be expected
from a single plan, and is easily marketable to parents.
The family plan also makes it possible for kids (those
under 18) who can't sign contracts to get access to
mobile phone service. The downside of such plans are
that they may not appeal to some parents who don't see
the need to provide their kids with expensive mobile
phone service, and that kids may not like the strings
that come attached with having a mobile phone provided
by their parents.
Traditional Prepaid: Prepaid wireless service
is a standby in much of the world outside of the US
- more mobile phones are sold in Europe through prepaid
then through post-paid service. Nevertheless, prepaid
has stumbled in the US. Prepaid was originally offered
in the US as a way for the credit challenged (i.e. those
with bad credit) to get wireless service when they couldn't
qualify for post-paid plans. It was also a way for those
under 18, who can't sign contracts and don't have credit
histories, to get a mobile phone. Back in the bad old
days (the 1990s) prepaid tariffs were punitive, with
customers paying per-minute rates that were two to three
times more than post-paid. Prepaid customers also didn't
have access to the monthly bucket-of-minutes plans that
were introduced beginning in 1998 (AT&T was the
pioneer with wireless bucket plans). Carriers justified
these higher rates because prepaid customers were unreliable,
and highly likely to churn away (that is, leave) from
the carrier much more quickly than a customer locked
into an annual contract. Therefore, the carriers felt
the higher rates were necessary to help them recoup
the costs of signing prepaid customers before they left.
MVNO Prepaid: MVNO service was pioneered by
Richard Branson's Virgin Mobile service in the UK in
the mid-to-late 90s. The concept is straightforward:
the MVNO buys airtime from other carriers, operates
its own billing and customer care system, and markets
itself as a separate "infrastructure-less"
(i.e. no towers or base-stations) carrier. In the UK,
this was a brilliant success, and in tandem with dozens
of other highly popular Virgin brands (ranging from
air and train service to music and entertainment) Virgin
Mobile was soon a top-selling wireless carrier, particularly
among the youth market. Riding on the success of its
UK operations, Virgin Mobile launched its service in
several markets around the world, including, in 2002,
the US, with Virgin Mobile USA. Virgin Mobile US is
a 50/50 partnership (though some would say money-pit)
between Sprint and Virgin Mobile. In its first year
it managed to sign up more than 500,000 customers to
its nationwide service, and recently announced its 1
millionth customer, no small feat for a company that
was non-existent prior to 2002.
This brings us to Boost Mobile. Boost, 66% owned by
Nextel, is intent on establishing itself as the leading
wireless carrier among the youth market, putting it
squarely in competition with Virgin Mobile USA, as well
as other carriers with prepaid youth campaigns, such
as Verizon Wireless' FreeUp offering. Boost hopes to
accomplish this by reaching key youth opinion/fashion
leaders. To do this, it has positioned itself as the
"Surf, Ski, Skate" carrier and is sponsoring
competitions, like the one in Las Vegas, that will catch
the attention of that key demographic. Sponsoring competitions,
alone, will not make much of a difference if Boost also
didn't have something to offer its customers.
Boost, which is still in the initial stages of launching
its offering and is only currently available in California
and Nevada, is a prepaid wireless service which uses
the Nextel iDEN wireless network. Boost customers can
make normal cellular phone calls over the network, just
like any other cellular phone service. Boost customers
can also use the Push-to-Talk (P2T) technology to talk
to each other. P2T is a walkie-talkie type service that
lets users set up group calls in which multiple users
can talk to each other at once. Because P2T technology
uses half-duplexing, only one user at a time can speak
- whoever "has the floor" i.e. is pushing
the walkie-talkie button, is the one who speaks.
P2T is a kind of Voice-Instant Messaging (V-IM), and
as such, is instantly understandable to youth, who are
major adopters of Instant Messaging (IM) on computers.
Boost, with P2T, is bringing this to kids, and they
are reacting positively. In the third quarter of 2003,
Boost nearly doubled its subscriber base, adding 102
thousand new customers, for a total of 245 thousand.
Those are impressive results for a new carrier that
is only operating in two states, and has only been offering
its service for 8 months. These numbers compare favorably
with the announcement, during the same quarter, from
Virgin Mobile, that it had just acquired its 1 millionth
customer. Virgin Mobile has been operating a nationwide
wireless network for nearly twice as long (15 months)
as Boost.
Boost's initial success rests on offering a unique
service (prepaid P2T targeted at teens), competitive
pricing (unlimited P2T for a $1 a day), and a strategy
of embracing style leaders (i.e. Tony Trujillo in skate,
Luke Egan in surf) to promote and endorse their products
to their target markets. As Boost expands from a regional
carrier to becoming a nationwide carrier (in 2004 it
will expand into four to six new markets), it will have
to work harder to reach different markets than it is
focused on now. The risks the company will face are
that its message will either become too homogenized
as it tries to use a broad marketing message to reach
different niches, or that the message will become too
fragmented as it tries to reach too many sub segments.
Another question is whether its cost structure, which
is heavily weighted towards marketing and advertising
(remember, Nextel runs the network), is sustainable
on a nationwide basis. Since Boost isn't releasing metrics
related to subscriber cost of acquisition, it is difficult
to analyze how sustainable their model is. Nevertheless,
to date Boost has seen strong growth in what is an under-penetrated
market. Their initial success indicates a bright future
for the company.
This report has been compiled by In-Stat/MDR.
For more information use link to visit their website.
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