Customized Cell-Phone Service

Verizon, AT&T, Sprint Nextel, and the other big players in the U.S. mobile-phone business may not quake with fear when they hear names like ODK Mobile, Farthing Wireless, and Long Island Ducks Mobile. But these tiny do-it-yourself cellular networks are part of a trend that could remake the market for mobile-phone service–perhaps fracturing it into thousands or millions of pieces in the same way that the profusion of small Internet service providers decimated big companies like Compuserve, Prodigy, and AOL.

One company counting on this trend is Sonopia, based in Menlo Park, CA. CEO Juha Christensen, the originator of the Symbian mobile operating system, says he and his fellow wireless engineers had spent decades building extremely sophisticated devices–essentially, small multimedia computers–only to see carriers limit the number of software applications available to their customers. (Most new cell phones, for example, include location-finding technology such as a Global Positioning System receiver to meet requirements for emergency 911 dialing, but until recently, only one U.S. wireless operator–Nextel–allowed customers to load third-party software that taps into this technology for uses such as navigation.)

The dearth of creative applications, in turn, discouraged customers from using the devices as anything but phones. “We asked ourselves, what will make people take real advantage of the technology?” says Christensen. “That’s when we looked at the service side of the industry and realized that people just aren’t excited about the one-size-fits-all situation with the major carriers.”

In April, Sonopia launched a service that makes it easy for any individual, family, or group to bypass the big carriers entirely and become their own mobile virtual network operator (MVNO). More than 2,400 individuals and organizations have signed up as MVNOs.

Sonopia’s customers include TBF Wireless, which operates a cellular network for members of the Bass Federation, a nonprofit grassroots group promoting sport fishing and conservation. By operating a branded cell-phone network through Sonopia, groups and families can not only provide their members with an important service, but they can also keep a share of the revenues from users’ monthly mobile-phone bills. “You know that you’re going to pay somebody a cell-phone bill every month,” says Robert Cartlidge, president and CEO of the federation. “This way, at least you feel good knowing it’s going to support what you enjoy doing.”

The “virtual” part of the network means the operator doesn’t have to own cell towers, switching stations, or even a license to use certain wireless frequencies. All those infrastructure details are outsourced to a real network operator, while the MVNO takes responsibility for functions such as branding, marketing, hardware selection, billing, and customer service.

These virtual networks have been luring subscribers away from traditional wireless carriers for almost a decade; one of the best known, United Kingdom-based Virgin Mobile, signed up its first million members in just 19 months after its 1999 launch. But while it’s far easier to start an MVNO than to build the next Nextel, the barriers to entering the MVNO market have been high. To date, the companies offering the virtual networks have still had to supply much of their own expertise in the area of cellular network operations. They’ve had to spend millions setting up billing procedures, signing up customers, ensuring responsive customer care, and the like. And once an MVNO is set up, companies have had to deal with uncertainty over demand.

Sonopia handles details such as shipping phones to customers and processing bills and payments, but every interaction with customers occurs via the MVNO’s own brand, not Sonopia’s. Sonopia keeps the lion’s share of subscription fees–it’s the one, after all, providing the expensive technological back end–but it gives each MVNO three to eight percent of the revenue from cell-phone payments. And members who buy their phones through Sonopia MVNOs get access to a large catalog of programs that run on BREW, a common platform for mobile software applications.

Christensen says the biggest challenge in building Sonopia’s service was not building the phone-networking infrastructure, but creating simple Web-based interfaces that nonexperts could use to create, brand, and customize their networks. “We spent a lot of time distilling the sign-up process into as few steps as possible,” says Christensen. “And building tools that enable the common man, as opposed to a programmer, to create content that is going to appear on many models of mobile phones was a major design hurdle.”

As part of Sonopia’s service, customers can join interest-based social networks consisting of people across many Sonopia-powered networks, and operators can send daily news blurbs, blog entries, and alerts to their members’ cell-phone screens.

If the idea behind Sonopia catches on, it could help undermine the highly centralized structure of today’s wireless industry, ultimately increasing the variety of content and applications available on mobile phones. The essence of Sonopia’s business, says Christensen, is to help operators tailor their services to their members’ interests and needs. “To make the economies of scale work, the big carriers have to find a common denominator and try to make as many customers as possible happy as much of the time as possible,” he says. “We have turned that model upside down. For us, the smaller the network, the better. Even if there were millions of Sonopias, each with only one subscriber, we would still be profitable because we’ve built our system to have a very low incremental cost per new Sonopia.”