Why Europe's Mobile Startups Sing

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Strand estimates that surviving U.S. MVNOs such as Virgin Mobile USA, Movida Cellular, and Helio are losing anywhere from $7.60 to $833 per customer.

No Champagne on a Beer Budget

Such problems might be avoided if U.S. MVNOs took the same approach as their European counterparts, says Telmore founder Rasmussen. "You don't need to have shops and consultants," he says. "If you want to be competitive on customer service let people do things by themselves." With full-service operators, for instance, customers who want a copy of their bill typically call a service representative, who sends one out in the mail. But at MVNOs like BiBoB, subscribers fetch their own records over the Internet and print them out themselves.

Using the Net to cut costs isn't the only thing that sets apart European MVNOs. Many use clever marketing tactics, such as distributing SIM cards (the chips that link a phone to a specific user account) through supermarkets and convenience stores. Telmore did something even wilder: It blew 60% of one year's marketing budget on a giant party for all of its customers, offering live music, draft beer, and free hot dogs. Rasmussen figures the 6,500 people who showed up became roving ambassadors for Telmore, helping it nab 250,000 new customers that year.

Consultant Strand says that only one U.S. MVNO appears to be on the right track—and it was founded by a European. Sonopia, based in Silicon Valley, was started last April by Danish entrepreneur Juha Christiansen, 42. The mobile industry veteran co-founded British mobile-phone software maker Symbian and later served as Microsoft's (MSFT) vice-president for mobile software and server products. Sonopia, which raised $12.7 million in May in a second round of venture financing, "is definitely using the European MVNO model as opposed to the champagne budgets of the U.S. MVNOs," says Christensen.

Your Name Here

The Danish entrepreneur insists his lean approach will be the path to success. He notes that even though Virgin Mobile's five-year-old U.S. operation has attracted nearly 5 million customers, it's still struggling. The company, which is planning an initial public offering, has lost money every year since it was founded, though it turned in a $26.5 million profit for the first six months of 2007.

Sonopia, by comparison, should break even with only 100,000 customers due to its lower cost structure. The company doesn't subsidize handsets, for instance. And it has hired a low-cost team in Kiev to manage its network operations and write network and handset software.

"When you start adding all these things up, it makes a real difference," Christensen says. "We have the same average revenue per user as the other MVNOs, but while it takes them something like 20 months to earn their money back on a subscriber, it takes us only eight or nine months."

Sonopia also has started signing up organizations that want to offer their own mobile services to members and customers—a concept similar to affinity credit cards. The company has logged deals with the National Wildlife Federation and Minor League Baseball's Long Island Ducks. The Ducks package includes a customized green Motorola (MOT) Razr phone emblazoned with the team's duck emblem and featuring the team's quack ringtone.

If Sonopia does well in the U.S. market, Christensen's plan is to tackle Europe. But he could find it a tough go. After all, that's where guys like Rasmussen have shown the rest of the world how to make a mobile startup fly.

Check out the BusinessWeek.com slide show to learn more about how particular MVNOs have fared.

Schenker is a BusinessWeek correspondent in Paris.