GSM Nation: Selling Any Smartphone You Want
Photograph by Sean Gallup/Getty Images
GSM Nation has spent the past two years selling unlocked smartphones through its online retail portal, and in the process it has steered tens of thousands of customers toward contract-free voice and data plans offered by the newly emerging class of mobile virtual network operators (MVNOs). GSM Chief Executive Officer and co-founder Ahmed Khattak, however, is getting tired of handing off the potentially lucrative service business. So this fall, GSM Nation plans to launch its own MVNO.
For those unfamiliar, an MVNO is a sans-network operator that resells the data and voice services of a major carrier. What will set GSM Nation apart from the growing hordes of MVNOs popping up on AT&T’s (T) and T-Mobile’s networks is its own already highly developed retail business. It’s not quite Amazon.com (AMZN) or Best Buy (BBY), but it sells more than 200 different models of unlocked smartphones and tablets on its website, all of which are sourced directly from manufacturers or global distributors. It buys its iPhones from a reseller in Korea and imports Samsung (005930:KS) Galaxy phones from Latin America.
“No other MVNO has these types of relationships,” Khattak says. Typically an MVNO will source a handful of new or refurbished smartphones from manufacturers or resellers, but for high-end devices like the iPhone it supplies only SIM cards and relies on customers to bring their own handset, he says, adding: “We will be the first MVNO to sell high-end unlocked handsets straight from the manufacturer.”
GSM Nation has decided to partner with T-Mobile, tapping into the operator’s high-bandwidth HSPA+ networks and possibly even its future LTE network. Those data speeds are of particular importance to the company because it plans to target more sophisticated users who live for their data services and spend relatively little time talking on their phones.
Khattak says GSM’s cheapest plan will run about $33 and will include roughly 250 voice minutes and 2 gigabytes of data. Customers will be able to buy bigger buckets of data, and the higher-tier plans will offer truly unlimited data. They can purchase more minutes as well, but Khattak believes those voice-centric customers will be the minority. “Smartphone users are already migrating their voice use to Skype (MSFT) and other VoIP services,” he says. “I doubt there will be that much demand.”
This approach is the opposite of the one taken by Verizon. The new shared plans it unveiled last week give customers an unlimited amount of services consumers are using less—voice and messages—while giving them relatively less of the service they’re consuming more—data. GSM Nation will reveal more specifics on its plan pricing as it gets closer to its planned launch in four to five months, Khattak says. It has the paperwork with T-Mobile in order and its back-end infrastructure. GSM now has to bring its customer service—which is focused on selling devices, not service plans—up to par.
GSM Nation is a small operation. It brought in about $35 million in revenue last year, primarily from business customers, Khattak says. But the costs of creating an MVNO aren’t huge. GSM is funding its new venture from the profits of its retail business and $700,000 in seed funding, $200,000 of which came from Khattak’s dentist.
It may not be a big company, but its ambitions are. Khattak says he and co-founder Junaid Shams created GSM Nation with the idea of replicating in the U.S. the mobile retail model of Europe, where most customers don’t buy their phones from carriers. Khattak finds the idea of phone subsidies abhorrent, not only because they lock customers into long-term contracts but also because they come part and parcel with higher plan rates, which ultimately cost customers far more than they save on the initial phone discount.
“In five to six years we’re going to be in the same place Europe is in,” Khattak says. “We’ll be buying our phones and SIM cards separately.”
One of the key features of the GSM Nation retail portal is a savings calculator that shows customers just how much they would be saving in plan fees if they switched to a contract-free prepaid plan. It refers its customers to the cheapest carriers for any given voice and data plan, and in the case of MVNOs Red Pocket and Simple Mobile, GSM resells their SIM cards.
With the MVNO’s launch, GSM Nation will, of course, prioritize its own mobile plans over its competitors’, but Khattak says it will keep some separation between the MVNO and retail businesses. Customers can buy an unlocked smartphone and leave, taking their device to any carrier they choose. GSM will also sell straight-up SIM cards to any customer who brings in her own device. In fact, Khattak hopes to see a lot of former AT&T customers bring their newly unlocked iPhones to his company.
For now, GSM Nation will continue sending business to such AT&T MVNOs as Red Pocket and H2O Wireless for the simple reason that it has to. T-Mobile is in the middle of a large-scale network conversion that, once complete, will plant its HSPA+ network firmly in the PCS band. The transition is gradual, starting with an initial upgrade of 2,500 cell sites in July, but by the time GSM Nation launches this fall, a good deal of T-Mobile’s 3G network will still be off-limits to most smartphones—including the iPhone.
GSM Nation plans to solve that problem in part by focusing initially on its stock of pentaband phones such as the Samsung Galaxy Nexus that can work on any GSM operator’s 3G network, as well as the smaller set of T-Mobile optimized quad-band phones such as the HTC (2498:TT) One S. For customers who buy an iPhone or any other smartphone that doesn’t support T-Mobile’s Advanced Wireless Services airwaves, GSM Nation will advise them in which markets they will be able to receive a 3G signal, steering them toward an AT&T MVNO if they are outside coverage. The process may be a bit awkward, but it will only be temporary. T-Mobile will likely complete the PCS conversion long before it launches its new LTE network in 2013.
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