Talking About MVNO's

Mobile Virtual Network Operator's (MVNO's) are mobile operators that do not own any spectrum or any network infrastructure. Instead, MVNO's have business arrangements with traditional mobile operators to buy minutes of use (MOU) for sale to their own customers.

In general, MVNO's have full control over the SIM card, branding, marketing, billing, and customer care operations.

The market is seeing a number of these businesses cropping up since the huge success of Boost Mobile. I may be a little dense, but I don't really get the value proposition and sustainability of these businesses. Most of these new businesses cropping up seem to be purely lead generation businesses, with very little long-term value creation other than a brand (possibly). I feel like this rash of new companies is a little reminiscent of the days of CLECs. After all, wireless voice/data services are pretty much a commodity (today).

I would argue that for a new MVNO to be truly successful (over the long term), they need to find some meaningful differentiator other than some trendy urban or language brand push. But, I hope that someone out there can prove me wrong...

Fixing the Auto Business

The auto industry is not dead. People still buy cars in this country. In the first half of this year, 8.3 million cars & light trucks were sold in the United States. Last year, people bought 17.0 million vehicles, up from 16.9 million in 2004. Since 2002, the market has grown steadily. So, if cars are still selling, what gives? Auto divisions in other parts of the world are extremely profitable (in the case of Ford, both Brasil and Asia are doing well).

Having spent a number of years in operating roles in the auto business, I have absolutely no idea why anyone would think that a merger of GM and Nissan-Renault would be good for shareholders. The WSJ had a commentary today that a tie up between GM and Ford would be a good idea. That's a tough one to understand, but I guess everyone's allowed to an opinion.

The savings would be tremendous -- far larger than anything the Nissan Motor-Renault alliance presents. If a merged GM-Ford reduced costs equal to 2% of sales -- one common M&A benchmark -- the capitalized value of the savings could be some $40 billion -- well above their $30 billion of combined market cap today. [...] Because a merger would only make sense if it eliminated entire brands -- such as Buick, Pontiac and Mercury -- further market-share losses would also be anticipated.

This is a ludicrous concept. First of all, there are several key reasons why the automotive industry has not been faring well: (a) the union pensions, employee benefits, & legacy healthcare costs are crippling, (b) the management of these giants are bloated and laden with generational politics, (c) Ford and GM are partially vertically integrated and partially horizontally integrated, and (d) they synergies of multiple brands under one roof are extremely tough to capitalize on.

So, given that people still buy 17.0 million vehicles in this country alone, how could it be that eliminating consumer choice (by killing brands) be a good thing? And, since one of the reasons that the companies have struggled is bureaucracy, how could a merger of two giants be a good thing? It pains me that these are the ideas that are most prevalent in the wires.

Most the Detroit is plagued in the belief that market share is the most important goal to strive for. It doesn't help that journalists and analysts chime in about this all the time. Given the state of affairs today, I would argue that profitablity and sustainability are orders of magnitude more important than market share. I know, that's an unusual concept, but I'll step out on a limb. Come on Detroit, bigger does not mean better.

To believe in what I'm saying, there is one fundamental concept that needs to be grasped -- it is possible to make money on a low volume vehicle. Many on Wall Street think that high volume is the only way to make money, therefore giant companies make sense.

If I were running GM or Ford, I would spin off some assets to raise capital and re-focus the company's on their core competencies -- designing, assembling, branding, & selling products. Smaller, more nimble companies would be apt to succeed in this globalising market. If the companies were more focused, then employee satisfaction would be ten times greater and unions could be fended off simply treating people well. Didn't Toyota do that?

Fundamentally, I think that the auto business could learn a lot from the PC industry. Why do Ford and GM need to have full control of their powertrain divisions? In my experience, these divisions within these companies are complete disasters; always way over-budget and fraught with quality issues. Why? Because no one wants to work in those departments. Cars take a long time to develop, about 3-4 years. Powertrains are even longer than that. Is there not an opportunity to spin out these powertrain divisions and outsource that entire portion of the vehicle? Isn't that what Intel and AMD are for the PC business, or Qualcomm for the mobile phone business? This is a very very controversial idea, but I'm convinced that there are very few business synergies in keeping powertrain in house.

If these auto companies were more focused on only a handful of competencies, they would likely be more apt to succeed.

Dealership networks should be completely blown up. Why do these auto companies not have direct control of their customers? They're extremely dependent on dealers who they cannot control. What if pricing for vehicles were standardized at the OEM level and there was no haggling over price? Didn't Honda do that? Today, dealers for Ford and GM are not value added; they're a pain in the ass.

Lastly, on the concept of synergies: (a) they don't exist and (b) when they do, they destroy product value. The baby Jaguar shares common components with the Taurus. What a disaster! Who the hell wants to pay for a Jaguar and get a Taurus? The Mercury vehicle line is basically comprised of Ford's with a slight different fascia. What's the point!

There are only two synergies that can come from multiple brands under one roof: (a) purchasing / pricing and (b) assembly / manufacturing. I would argue that new forms of communication, the Internet, and globalisation have pretty much made purchasing / pricing transparent and extremely competitive. So, there's no need for a common purchasing department. And, as for assembly / manufacturing, these giant auto companies are incapable of even managing volume across multiple plants. Determing capacity needs is extremely challenging. Excess capacity and under capacity are the most crippling challenges to the business. Whereas some vehicles can't be assembled fast enough, other plants are sitting idle. It's this lack of capacity where vehicles are in demand and these empty sites that are a drag on a company's profits. This has nothing to do with platform synergies, but rather with extremely poor planning.

Smaller, stand-alone, focused, non-integrated vehicle lines are the way to go. I want to buy my next Jaguar with Bosch brakes, a Honda powertrain, Lear leather seating, and Motorola electronics. I'd like to be able to buy that car at the same price as my neighbor.

This industry needs some new blood and new ideas. How about KKR or TPG buy Volvo from Ford and put Michael Dell in as the CEO? How about Blackstone or Warburg buy GM's powertrain group and put Andy Grove in as the CEO?

So it goes... four more years.

Brasil was clearly outplayed by France, and lost 1-0. We started the match playing fairly well, but fell apart shortly thereafter and allowed France to run the field. Zidane was no doubt the player of the match - clearly jogging alone. Although France was certainly better technically, Brasil's defense was like swiss cheese -- it seemed as if no one ever challenged Zidane.

As to our pathetic offense; Ronaldo should have been taken out earlier on. Robinho and Adriano probably could have supported the Roberto Carlos and Cafu flanks with vigor. But, Parreira’s last minute changes were too little, too late. There was no need to let Ronaldo continue to play after the first 30 minutes of sub-par approaches...

Basically, the offense fell, literally, and the defense was checked out. Hopefully, a younger team four years from now will have a better shot.