December 1, 2007 —

Rate Plans for the Melting Pot

By Monica Alleven

WirelessWeek -

December 01, 2007

 

The U.S. wireless industry has a lot of ties with China, either via U.S. companies that have operations, partners or competitors there. But before Red Pocket Mobile stepped onto the scene, no one was providing Chinese-specific handsets to segments of the Chinese population residing in the United States.

 

That changed just over a year ago, when Red Pocket launched services as an MVNO using AT&T’s network. Red Pocket is just one of the U.S. MVNOs targeting specific ethnic groups, which most often are aimed at the growing Hispanic population. Each has seen varying degrees of success, but they’ve lasted longer than some of their MVNO counterparts that targeted consumers with specific types of content, such as the sports-minded Mobile ESPN or the family-oriented Disney Mobile, both of which went out of business.

Gordon: Asian immigrant market is growing rapidly.

 

GROWING SEGMENT
Red Pocket isn’t revealing how many customers it serves. It doesn’t operate its own stores but sells through outlets like Chinese grocery and convenience stores in cities such as Los Angeles, New York City and San Francisco, as well as less obvious places like Las Vegas, Seattle, Houston and Philadelphia. Its sales outlets can be found in the usual Chinatowns within those cities but also in suburban areas, such as the San Gabriel Valley east of Los Angeles, where a large and vibrant Asian community has settled. “We want to be where our customers shop,” says Red Pocket COO Joshua Gordon.

 

Why go after the Asian American market? For one, executives at Red Pocket have a lot of experience targeting the Asian community, both in the U.S. market and abroad, so it was a natural, Gordon says. And while competition for the Hispanic consumer is now a relatively crowded space, the Asian market is expanding just as fast, he says. The numbers are not as high, but the growth rate is comparable in terms of the amount of immigrants moving into the United States.

 

Red Pocket’s core customer is the recently arrived immigrant from Asia, and it serves a number of ethnic subgroups, such as those of Philippine or Indonesian descent. Besides English, customer service reps speak Cantonese, Mandarin and Filipino. “It is not our intention to serve every dialect in Asia,” Gordon says, but new languages will be added as appropriate.

 

Part of its marketing mantra is cheap calls to China – or Singapore or even Canada. International calls are priced the same as a call within the United States. Red Pocket can offer highly competitive rates because of the way its own system is set up as well as help from vendor VoIP Logic, which helps rate and monitor calls.

 

Red Pocket also had help from Motorola. Plenty of Chinese-language handsets are available in China, but no one was bringing them to the United States. Red Pocket worked with Motorola to develop a custom interface for the C139 and RAZR V3 models that Red Pocket sells, with Chinese as a language option.

 

WIDENING THE REACH
Both Red Pocket and Movida Communications, an MVNO using Sprint Nextel’s network to target the Hispanic market, say they’re seeing demand from outside their core target markets, with people attracted by their international calling rates and prepaid systems. It’s not always the credit-challenged who want prepaid; people who want the ability to better manage their budgets without being held to a contract are opting for prepaid as well, says Movida CEO Michael Robinson.

 

Movida often is held up as an example of a successful Hispanic-oriented MVNO, but it underwent a mid-summer crisis of sorts and backed off earlier projections for subscriber growth, primarily due to issues around phone subsidies. However, now with fourth-quarter promotions going strong, the company expects to top the 300,000 mark and has its sights set on 650,000 subscribers for next year, according Robinson.

 

About 85% of its customer base is from Mexico, which isn’t surprising, but Movida also is finding demand in areas that one might not expect, such as Philadelphia and North and South Carolina. About 65% of its customers choose Spanish as their first language of choice, with 35% opting for English.

 

Movida is in the process of relocating from Miami to Kansas City. Robinson says the company highly values its relationships with partners, for one thing, and being close to Sprint and Wal-Mart is important. Plus, it makes sense to be located in the middle of the country with easy access to either coast.

 

COMPETITION
Naturally, both Movida and Red Pocket are up against plenty of competitors. Analyst Roger Entner of IAG Research says the most successful service provider focusing on the Hispanic market outside the big four carriers is probably TracFone, buoyed by its direct mail and other advertising. But targeting specific ethnic groups is tricky, he says. It must be a large enough group, but not so large that the larger operators will go after it with all of their marketing might.

Robinson: Warns against low prices and commodization

 

Robinson acknowledges that Virgin Mobile, Boost Mobile and others are trying to capture the mindshare of the Hispanic community. Leap Wireless International serves a higher proportion of certain ethnic groups compared with the industry at large, and a flat-rate rival, Metro PCS, launched services in the Los Angeles market this year, meaning the competition could get even fiercer there.

 

But Robinson says Movida has built up a good brand that customers trust, and it will be spending more on brand management in the coming months. “We’re very culturally relevant,” he says. “We are oriented toward the Spanish-speaking U.S. resident,” with Spanish being the first language option. “It’s not just a transactional business. It’s more of a relationship business and nurturing that.”

 

One of the unfortunate things about smaller carriers is some of them are trying to buy market share with price, and that doesn’t pencil out in the long run, Robinson says. Everybody tries to drive competitive rates with their calling plans, but the industry can’t go overboard or it will end up like the long-distance days of old, with the industry commoditizing itself out of business.

 

MVNOs also have to be wary of trans-shippers that buy up loads of phones on the cheap and reflash them to be sold overseas. That’s something with which TracFone, Virgin Mobile and others have had to contend.

 

But as long as newcomers move to the United States, it looks as though service providers of one form or another will be there to cater to their needs.

 

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