The Mobi Blog.com

The most interesting thing about Disney's decision to dump its self-branded MVNO into the garbage bin is not that another US MVNO went belly up.

To many of us, the unfortunate fate of Disney Mobile was becoming increasingly evident (the vintage themed "Steamboat Willie" phone introduced in January showed how little the firm understood its potential customers). Disney Mobile's demise was almost a foregone conclusion. But what really intrigues me about this event is how it reflects on the entire open-access debate.

If you recall, one of Google's demands during the summertime debate over open access rules for the 700MHz spectrum that will be auctioned in 2008, was that the US Federal Communications Commission (FCC) require licence winners in the C-Block to wholesale network access to resellers.

Google did not convince the FCC to make that requirement, though it did get the FCC to create a set-aside of 22MHz in the 700MHz C block, requiring that any network built in the spectrum cannot unreasonably block third party devices and software applications. Rules for that set aside are under fire from numerous critics, but that's another story.

The thing I want to focus on here is wholesale network access. Existing FCC rules do not discourage wholesale access. In fact, widespread wholesale availability has driven the entire MVNO phenomenon in the United States. And what we have learned about the US market, contrary to comments from critics such as Google, is that the market is already so competitive that many MVNOs and resellers have a tough time claiming a beachhead.

"The MVNO model has proven, as we've seen with other companies this past year, to be a difficult proposition in the hyper-competitive US mobile phone market. In assessing our business model, we decided that changing strategies was a better alternative to pursue profitable growth in the mobile services area," said Steve Wadsworth, president of the Walt Disney Internet Group, announcing Disney Mobile's pending closure.

If Google buys up the entire 700MHz C-Block in January (a very big and unlikely if), then it can offer wholesale access to any company offering any service over any device, in line with Google's open access tenets. Yet why are we supposed to think that companies will flock to resell network access under an open-access model or that they will fare much better than today's raft of folding MVNOs?

In less than a year, Mobile ESPN, Amp'd Mobile and now Disney Mobile have all crashed and burned, and these were companies with significant financial backing behind them. Another MVNO, Helio, is hanging on by a thread, thanks to co-parent SK Telecom's recent $270m infusion - an investment that its other parent, Earthlink, has declined to match. There's clearly a message here.

The US MVNOs with the strongest balance sheets are not those going after the sexy postpaid high tier consumer of eclectic mobile data services, but rather those chasing the lowly, yet underserved, prepaid mobile market.

America Movil's TracFone operation, Movida Communications and Virgin Mobile USA are all going after prepaid customers and continue to build their businesses. Movida, which is focused on the US Hispanic market, recently attracted $40m in venture capital funding. Virgin, meanwhile, intends to launch an initial public offering of stock that could gross up to $467.5m.

But are low end, prepaid customers the kind of users that Google has in mind when it demands open-access availability and mandated wholesaling in the 700MHz spectrum? Google isn't about a prepaid mobile voice play when it comes to open access, as best I can tell. It's all about innovative mobile services and applications, and so were the now defunct Mobile ESPN, Amp'd and Disney Mobile.

Walt Disney now seeks to create a licensing model for Disney Mobile's parental control application. It also pursued a content licensing strategy when it shuttered its Mobile ESPN MVNO less than 12 months ago.

In the end, Disney learned that reselling service, even when it includes innovative applications and content, in the "hyper-competitive" US mobile market can be a real rat trap.

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