Telecommunications II Daniel H. Schulman, CEO of Virgin Mobile USA Virgin territory With a value proposition that challenged conventional thinking in the wireless industry, Virgin confounded skeptics to become a credible player in the United States. Here's how this executive plans to stay competitive in a constantly changing market. Hard to believe, but Virgin Mobile—young and hip, the wireless company with an attitude—is the senior citizen of mobile virtual network operators. (For more on MVNOs, see page 78.) Virgin Mobile UK debuted in 1999, making it the first MVNO out of the gate anywhere in the world. Today, it enjoys a healthy share of the overall UK market; with more than 4 million customers, it is the country’s fifth largest mobile operator. In 2002, as a joint venture with Sprint, Virgin Mobile USA was the first MVNO to enter the US market. The company is now the eighth largest wireless company in the United States, with more than 4 million customers. What’s different about Virgin Mobile? Just walk into Virgin headquarters and you’ll get an idea of what it’s like to work for the selfproclaimed “most fun-loving wireless provider.” The walls are red, and MTV is blaring from large-screen TVs. A few of the workers might be taking a break, preparing for the Virgin-sponsored “thumb wrestling championships.” (It helps to educate customers, suggests the company’s press release, tongue firmly in cheek, on “proper thumb conditioning to avoid injury.”) 84 www.accenture.com/Outlook At the same time, don’t let Virgin’s youth-oriented approach fool you. This is a savvy company that understands its market and knows how to deliver service and a customer experience that breed intense loyalty. The service itself—strictly pay as you go—is just right for its youthful market. No contracts, no monthly bills—just prepaid airtime minutes that customers can replenish in a number of ways as needed. And the distinctive Virgin corporate personality is clear to anyone phoning a call center, using the automated phone service or visiting the website. (The section of its website that some companies might have labeled “Our Competitive Differentiators,” Virgin Mobile calls “Why We Rock.”) Outlook Managing Editor Tish Burton and Contributing Editor Craig Mindrum spoke with Dan Schulman, CEO of Virgin Mobile USA, about some of the elements that propelled his company to the top of its class—and how he intends to “keep rocking” in the face of a slew of new competitors. Schulman: Making pay-as-you-go services “both relevant and cool.” Telecommunications II Daniel H. Schulman Chief Executive Officer Virgin Mobile USA Born: 1958 in Newark, New Jersey Education: B.A., Middlebury College M.B.A., New York University Professional highlights: 1981: Joined AT&T 1994: Vice president, small business marketing of the AT&T Business Markets Division 1995: Vice president, business services marketing of the AT&T Business Markets Division 1997: President, AT&T WorldNet Service 1999: President & CEO, Priceline.com 2001: CEO, Virgin Mobile USA Competitive tennis player, formerly ranked No. 3 in New Jersey Outlook: With the recent surge of interest in MVNOs, it’s easy now to forget the fact that these kinds of companies were initially considered to be quite a marketplace gamble. What was it that excited you about that gamble? Schulman: Yes, there was quite a bit of skepticism initially, at least in the US market, about why anyone would need another wireless carrier. But there were a couple of reasons why we felt we had an opportunity to make our mark in the wireless industry here in the U.S. First, most of the wireless companies were treating everybody the same way. They were primarily technology driven and not customer driven. We felt that, increasingly, the technology itself—the network—was going to become a commodity, and that the real value of a wireless company now needed to be in what was surrounding the network: the brand, the service and how customers felt about their personalized experience with their mobile devices. The second part of the success story was in focusing on an underserved market segment. We felt early on that in a battle of David versus Goliath, the rock in our slingshot would be focus. The market that we decided to target was the youth market, because at that point, they were underserved and, frankly, unloved. Yet it was a market with very attractive characteristics. Penetration at that point was only 25 percent or so, compared to 60 percent penetration overall in the industry. What was distinctive about your value proposition? We challenged the conventional thinking of the wireless industry in that we worked to hyper-serve a focused segment of the market by making pay-as-you-go services both relevant and cool. That meant focus- 86 www.accenture.com/Outlook ing on the youth market across all elements of the value proposition— from not only our pricing model but also in the applications we created with partners like MTV and the distribution touch points that we developed with the country’s largest retailers, including Best Buy, Target, Wal-Mart and Radio Shack. And obviously you’ve gone to great lengths to apply your distinctive brand to the way you sell to and service that youth segment. We try very hard to have our customer service mirror our brand attributes. We don’t have scripts for our customer care people to follow because that immediately drains away any distinctive spontaneity. Instead, we give them general outlines to follow. Even our customers using our automated self-service functionality over the phone will get a very “hip” experience—we’ve purposely recorded it in a distinctive voice appropriate for our primary customer base. We’ve enabled our customers to do as much on self-service as they want to—because our target customers are generally more open to self-service— but they can also automatically default to a live operator if they need one. Over 90 percent of our base replenish their accounts without talking to a customer service representative. What were some of the other keys to your success? We were successful at designing our company in a way that allowed us to meet the needs of our customer segment. We felt strongly that in order to hyper-serve a particular market, we had to own all the touch points of the customer—everything except the network itself, of course. We made substantial investments in the back-office infrastructure—every- thing from our own billing platform to our own application platform to our own messaging platform. In fact, we actually introduced text messaging before Sprint, our network carrier, did. We customized our Siebel system to reflect our distinctive customer care. Anywhere that the customer could touch us, we wanted to control that. Although it cost us quite a bit of money initially, it’s been one of the things that has enabled our success to date. We’re able to respond to the market very rapidly and adjust our value proposition quickly, because we own the back office. An MVNO’s relationship with its carrier is obviously crucial. How would you characterize your relationship with Sprint? We were fortunate to find a kindred spirit in Sprint, who not only agreed with the vision that we were creating but enabled us to create a variable cost structure—allowing our costs to come down as overall costs came down in the industry. It’s been a win-win partnership from the beginning. I give Sprint a lot of credit for allowing us to literally tap into the crown jewels of their network and directly control the network from our own back-office systems. In effect, we have a seamless network and backoffice infrastructure because Sprint allowed us to tie into their network through their signaling systems. How did you go about putting together the right team of people to get you started? Basically, it’s about finding people who understand what it takes to start up and then scale a business. Any startup is tenuous at best and faces a series of daunting challenges getting into the marketplace—from raising money to making an idea a reality to building relationships with some of "We try very hard to have our customer service mirror our brand attributes." the biggest players in the market. We are now in almost 90,000 retail locations and work with the largest retailers in the country. It’s essential that the people on your team are resilient— and can live with the inevitable ups and downs of launching a business. We obviously had tremendous technologists on our team, but we also wanted to challenge the traditional mindset in this business, so we did not hire many folks from the telecommunications industry. Marketing and branding are critical components of this business model. What was the key to getting those elements right? We had the chance to hire some outstanding marketing people from the wireless industry, but instead we hired the former chief marketing officer of MTV. We hired one of the lead media people from the National Football League. We really wanted to understand the demographic we were focusing on and to find the right voice to attract that market. So the skill sets that we brought in were not traditional, but they gave us a distinctive voice and feel. Did having a successful European model as a precedent help with the US launch? We were fortunate to learn a lot from our counterparts at various Virgin Mobile companies throughout the world—from the success in the U.K., but also from the failure of the mobile business in Singapore. Those experiences enabled us to set up our contracts and our infrastructure the right way. I can’t emphasize enough how important the right contract structure, the right cost structure and the right Outlook 2006, Number 3 87 Telecommunications II back-office infrastructure are if you’re going to be successful. So we were lucky to learn from our fellow MVNOs in different parts of the market. However, in establishing the look and feel of Virgin Mobile in the U.S., we really had to invent most of that ourselves. In the U.K., the Virgin brand has 99 percent recognition and is more trusted than the Bank of England. In the U.S., we had only about 25 percent brand recognition in the overall market. "You have to marry application, experience and pricing together to really have an application that is going to gain traction in the marketplace." What changes did you have to make to address the brand recognition challenge? We redefined the proposition and packaging completely for the US market to be able to sell through the retail stores where young people shop. At those stores, you won’t find a salesperson who can talk about service plans and how the phone works. So we designed the product to be simple and straightforward, and the packaging to be more like a consumer electronics product. That way, a customer is attracted and can quickly understand our value, take it to the checkout line, purchase it and then activate it on their own within minutes. That’s very different from the way our UK counterparts operate, who have the benefit of the Virgin megastores at the retail level. Do you see yourself getting into some of the newer services out there—IPTV, for example? I do think that MVNOs should have the ability to be on the leading edge of application development. How88 www.accenture.com/Outlook ever, I’d give a cautionary note here. We try very hard not to be seduced by technology. We basically look at three things before we decide to launch an application. One, we need to know if an application under consideration is one that our customers and prospective customers are actually interested in. But that’s only one element—many companies make the mistake of stopping there and immediately developing the technology to support that application. The next step is to figure out what the customer experience needs to be if a customer is truly to enjoy interacting with that application. With video over a small screen, and short battery life, we want to be careful that we don’t turn off our customers by giving them something that they say they want but in fact ends up frustrating them. When they ask for something, they expect it to be delivered with the right customer experience. And, finally, if you have the application right and the experience right, you still have to get the pricing right. You have to marry all three of those things together to really have an application that is going to gain traction in the marketplace. So we’ve tried to be as disciplined as possible in not offering applications before their time, before the customer experience and pricing are right from our perspective. As in the sports world, everyone wants to take on the champion. You’ve been the MVNO market leader, but what are some things you’re doing to stay ahead of all the new players coming into the game? I think the impact of all the new entrants into the marketplace is unclear. There are actually more barriers to entry than when we first launched. The marketplace is much more competitive. I think the jury is still out as to how many of the new entrants will get to the scale they need to be a stand-alone, successful player. itive market—especially with a young market that is constantly shifting in response to cultural trends—is never standing still . . . never being quite satisfied with where you are. The moment that one thinks that they’ve got this thing licked is when they’ll start to fall behind. However, what those new players do for us, certainly, is to create even more motivation to focus on our customers—to innovate, to create new applications, new pricing plans, new exclusive content. Our current scale also gives us some market advantages. We’re the eighth largest wireless company in the U.S. right now. Our distribution reach and the amount of annuities that we generate for our retail partners are quite attractive for them, and we always look to see how we can enhance that benefit to our partners. We’ll also continue to develop unique applications that keep our young customers engaged with us. That’s always been one of our distinctive capabilities. For example, when we first launched, one of our current most popular applications was the “rescue ring.” It takes the alarm clock functionality of the mobile phone and turns it into an escape mechanism for a blind date gone bad. The phone rings you and then we provided a prerecorded voice message that could walk you out of a bad date. Seems like that feature could be an enterprise application too . . . getting someone out of an interminable business meeting. Yes, I’ve been tempted to use it that way more than once. Well, thank you for not using it during this interview. One last question: How would you sum up Virgin Mobile’s success and drive to stay on top? I think the most important part of being successful in this very competOutlook 2006, Number 3 89