Marek’s Take: Boost Mobile’s strange rise from niche MVNO to billion-dollar asset

Marek's take

Boost Mobile is suddenly in the spotlight because of T-Mobile’s proposed $26.5 billion acquisition of Sprint. The FCC last month said it would approve the merger with the condition that Sprint divests of Boost. Sprint and T-Mobile are still awaiting approval from the Department of Justice before completing the merger.

Potential buyers of Boost range from well-known big brands like Amazon, Charter, or Dish Networks to niche players like Q Link Wireless (a little-known prepaid provider with 2 million subscribers) to STS Media, owner of wireless brand FreedomPOP, which is in the midst of selling FreedomPOP and using the proceeds to bid on Boost.

RELATED: Dish may be a deciding factor in the Sprint, T-Mobile decision

Perhaps the most vocal potential bidder is Peter Adderton, the former founder of Boost Mobile. Adderton has been an outspoken critic on social media of T-Mobile’s acquisition of Sprint and has been calling for prepaid divestitures since the deal was first announced. He has also made it clear that he intends to try to buy Boost Mobile.

Adderton told FierceWireless last month that he is still the largest shareholder of Boost in Australia (which is where the company first launched an MVNO on Optus’ network in 2000). And he said it’s been his dream to see Boost become a global brand by combining MVNOs across Europe and the U.S.

Adderton’s aspirations for Boost are notable. The MVNO launched back in 2001 and was the first MVNO to use Nextel’s iDEN network. iDEN featured a unique push-to-talk capability that was immensely popular with industrial users like construction workers. Boost made that capability popular with a whole new demographic of users.

RELATED: Boost Mobile founder awaits further details on T-Mobile/Sprint deal

Boost’s strategy was to go after the young adult market in inner cities. The company tailored its advertising to this group by working with hiphop artists and action sports stars. It also used the slogan “Where you at?” in its marketing messages.

When Sprint purchased Nextel in 2005 for $35 billion, it also acquired Boost Mobile and maintained that business on the Nextel iDEN network for a few years. But in 2009 Boost launched an unlimited plan and tried to expand its user base beyond that core demographic. That ended up being a problem because the new unlimited plan was so popular with customers it strained Nextel’s network. Shortly after that, Boost announced it was going to start offering CDMA handsets so users could migrate to Sprint’s network, and in 2013 Sprint shut down the iDEN network.

$3 Billion or higher

How much will potential bidders pay for Boost Mobile?  Reuters says that bidders have indicated that the price-tag could be $3 billion or higher. I spoke with Alex Besen, founder of the Besen Group, which is an advisory group that works with MVNOs. He said he’s heard Boost will fetch anywhere from $3 billion to $5 billion but that it will depend upon the quality of the subscriber base.

Besen believes that Amazon is the most logical buyer of Boost because of the company’s mobile commerce initiatives, and he said Boost could help Amazon build loyalty with its Amazon Prime customer base.

He also thinks that a cable company like Charter Communications or Comcast might want to buy Boost to supplement their existing MVNO efforts.

But he is skeptical about some of the other potential bidders, particularly Adderton, who he said will need to come up with funding for the purchase. “The landscape has changed dramatically since Peter left the business,” Besen said, noting that Boost Mobile wasn’t Adderton’s only foray into the MVNO world.

Anyone else remember Amp’d Mobile? That’s the mobile entertainment-based MVNO that Adderton founded in 2004. He raised more than $360 million in funding, and investors included MTV and Universal Music. 

Amp’d launched in 2005 and targeted 18- to 35-year-olds with downloadable content and music. The MVNO’s underlying network was Verizon Wireless. Amp’d spent a lot of money getting content for its offering and even built its own studio in Los Angeles. The MVNO claimed to have more than 100,000 subscribers by the end of 2006 and said its average revenue per user was more than $100 per month.

But Amp’d Mobile spectacularly crashed in 2007 and filed for bankruptcy after burning through all its cash. Industry experts say the company’s downfall was that it loosened the credit requirements for potential subscribers so it could boost its base.

Amp’d Mobile’s demise is just another reminder that the MVNO business is not for the faint of the heart. In fact, I can think of more examples of MVNO failures than I can of MVNO success stories. Perhaps the Boost Mobile potential bidders should take a deeper look at the history of this business before they make their next move.