were concerned that T-Mobile might not give us access to 3G, so we wanted to bid ourselves.
Our consortium decided to stick at ?1.5 billion, and when bidding for licences began, we were decisively outgunned by silly money. On 5 April 2000 we pulled out of the bidding. At the end of April, the winners were announced: TIW, the Canadian Telecoms company in which Hutchinson Whampoa, better known for 3, have a stake, paid ?4.3 billion; BT, One2One and Orange, around ?4 billion; Vodafone paid a swingeing ?5.9 billion!
We had had a lucky escape by sticking to our principles and only bidding what we thought the licence was worth, not allowing ourselves to get carried away by the open gambling nature of the process itself.
In February 2001, as I was speaking at Cannes, describing what I believed was the future for mobile telecommunications — even as I was juggling, or trying to juggle, all those unlovely capital letters, like something out of Dr Seuss — Virgin Mobile’s plans were gathering pace in the United States.
In America, the problem with the mobile market wasn’t so much that the government had sucked the blood out of it, but more that everyone was reeling from the sheer cost of creating the infrastructure you need to take full advantage of the 3G standard. In the wake of deregulation, companies had piled billions of dollars into new communications gear to deliver everything from telephone services to viable TV networks to high-speed Internet capacity. The capital spending on infrastructure was massive — more than $100 billion in 2000. Dozens of telecoms start-ups set in place during the previous few years began running out of money and folding. Between June and September 2000, the telecoms giants in the US also began to melt down.
Annual revenues — increasing at a respectable 10.5 per cent a year — were simply not keeping pace with the cost of these soaring capital projects. Investors were getting their fingers burned. This was what made Virgin Mobile’s MVNO such an intriguing option for our new partners, Sprint.
The problem was, Sprint was hurting just as much as everybody else. They were spending more and more time firefighting, less and less time thinking strategically. Shaken by a bad set of quarterly results, Sprint began to lose their enthusiasm for our innovative scheme. Things began to look dodgy and after nearly a year and a half of discussions and investment there was pressure from the finance team to shut it all down. Charles Levine, the president of Sprint PCS, the wireless division of the US telecoms giant, wanted to go ahead, but he was facing strong opposition. It was time for a last-gasp effort. Gordon encouraged me to phone Sprint’s group president, Ron LeMay, and the chairman and chief executive, Bill Esrey.
I said it wouldn’t cost them a lot.
No response.
I said it would make money for them in a new category.
Nothing.
I wheeled out the big guns. I told them we could transform their stuffy image.
Nothing.
‘Look,’ I said, fairly desperate by this time, ‘you need a brand like Virgin. Right now you’re the phone company of choice for… for
And Bill changed his mind.
We were on.
In June 2000
We needed to be more focused and show we could deliver an outstanding product to tough international markets. We needed to prove ourselves in the right place. And that place was the United States.
In October 2001, Sprint and the Virgin Group officially announced our joint venture — a Virgin-branded MVNO running on Sprint’s PCS digital system. Our aim was to target fifteen- to thirty-year-old consumers in the United States.
Our eyes and ears in America was Frances Farrow. I’d asked her to join the board of Virgin Atlantic back in 1993 and she was a thoughtful and incisive person. She was now CEO of Virgin USA, the headquarters of the Virgin Group in North America, responsible for expanding the Virgin brand, developing new business and managing investments in the region.
Conventional wisdom had it that the prepaid market simply wouldn’t work in the United States. Prepay phones effectively guarantee anonymity, and people told me that the only people wanting phones like this were the three Ps market: pimps, pushers and prostitutes! We were less than charmed by that argument. We said that it was fundamentally wrong; that the prepay phone was an attractive category for younger people who didn’t want to lumber themselves with niggling financial commitments.
We were reminded of an extremely smart guy called Dan Schulman, the CEO of Priceline.com, one of the most recognised brands on the Internet. Dan, who had previously been president of AT&T’s consumer markets, was just then bringing Priceline.com into profit. We had already been talking to him about Virgin Atlantic flights on his price comparison site; now we began talking about the future of mobile phones. On 15 June 2001, we were able to confirm the rumours — and we launched Virgin Mobile in the USA.
In the UK, we had now signed up our one millionth customer. In just nineteen months we had established a record as the fastest growing mobile business Britain had ever seen. (It had taken Orange more than three years to hit a million customers, One2One in excess of four years, Vodafone more than eight years and Cellnet almost a decade!)
We were already rolling out Virgin Mobile Australia to a market that was gasping for innovation; Virgin Mobile Canada, France and South Africa would follow once we had perfected the business model. In a Memorandum of Understanding with Sprint, we said our intention was to launch a Virgin Mobile-branded joint venture company in the USA.
Sprint would be hosting the first MVNO in the US. This gave us a head start; but I knew that others would be watching with interest, and it wasn’t long before Disney tried — and failed — to do their own MVNO deal. We soon needed a larger injection of capital. We needed a bigger corporate hitter. We asked the executive headhunters Heidrick & Struggles to scour the market and they coincidentally suggested Dan Schulman who moved to us from Priceline.com in May 2001.
Complex as this account has been, I hope it’s clear by now that you don’t necessarily need an accounting or a legal brain to run a successful business. Our approach has come by asking questions.
What if we create a product and it’s the best in the world — will there be a market for it? The answer to this isn’t as obvious as it looks at first. If quality always won out in the marketplace, the Betamax videotape format would have trounced VHS and there would be more Apples than PCs.
If, on the other hand, I asked you: ‘Do people want to fly with the best airline in the world?’ Without any figures or numbers, your answer would be ‘Yes’.
When you’re first thinking through an idea, it’s important not to get bogged down in complexity. Thinking simply and clearly is hard to do. It takes concentration and practice and self-discipline. Reducing those initial reports on the MVNO model to a simple business proposition took work. It also, dare I say it, took a pinch of courage on the part of Virgin risking its brand and on the part of those who left cosy jobs to make the vision a reality.
It’s easy to be hoodwinked by technical-sounding detail, and to parrot it at others, and to feel important in doing so. It’s hard to ask the naive question. Nobody wants to look silly.
But I would say you can never go too far wrong by thinking like a customer who’s new to the business. Why do these mobile charges make no sense? Because they make no sense, that’s why! Because they are there to fool you! It staggers me to this day that, when we entered this lucrative and exciting young market, we were the only one in the crowd pointing and laughing as the emperors of the phone industry strode by.
It’s easy — too easy, in fact — to relinquish your responsibility for your idea to experts. This is almost always a mistake, because experts are only experts in their field. They’re not experts in your idea. At this stage, the only person qualified to assess your idea is you.
Your initial business ideas may lack detail. That’s fine — but it doesn’t give experts anything to work with.
