

Ask HN: Would any VC fund a new telco/cell provider? - count

Virtually nobody has good things to say about Verizon, Sprint, or AT&#38;T.  Competing with them requires significant capital, but there is considerably money in the market.  What's missing?  Why isn't a new VC backed company coming in to 'do it right'?
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gs8
It can't work without an investment of $10B or larger if you want to make even
a small dent in the wireless industry, due to spectrum rights (in the USA).
This type of money is not VC money but more private equity firms.

MVNOs don't work because the wireless carriers hold all the cards and they
don't let you in on any profits. Most successful MVNOs are owned by the major
carriers for a reason. If you think retail wireless data prices are high try
looking at what wholesale wireless data costs are, you can't operate a
successful business with those prices. AT&T won't even sell MVNOs data, it's
voice&text only. Even if you become successful carriers can shut you down
whenever they want. Having been down the startup MVNO road I have learned my
lessons, unless the government forces competitive wholesale pricing the best
you can do is build a customer base and than sell it all back to your carrier
like what Boost & Virgin did. MVNO is possible with VC funding but the success
rate will be even worse than the current social apps, and there is no big
payday.

WiFi networks sound great but can't work because the range isn't there, even
in highly populated areas you will run into interference which will bring data
speeds due to every slow speeds. There is a reason Google WiFi didn't work
even in Mountain View.

The cheapest method is probably "buying" exclusive rights (franchise rights)
to be the local phone or cable company, like the large telcos do one at time
and building a fiber network. In most cities ATT/Verizon/Comcast/etc... will
just outbid you. Than you have to convince (buy/lobby) city council members
and/or mayor. To do a decent sized city you are looking at tens of millions in
bootstrap mode.

If anyone out there thinks they can get VC invest in the 7 figures or higher
for a MVNO or local landline/cable company project. Feel free to get in touch
with me I am always interested in an adventure.

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keiferski
I feel like the future competitor of telcos won't be a telco. It will be
something like an interconnected wifi network spread across a vast area.
Imagine a city like New York or SF, with wifi access points _everywhere_. You
use a "phone" to access this network. In other words, an iPod touch that's
designed specifically for communication over wifi networks.

Obviously that's a wild prediction, and I really don't know much about
cellular network, but hey, it seems possible.

~~~
count
I was thinking an IP-only, no 'voice' service network, with no caps. Just
assume from the start that your users will be heavy users, and work from
there?

~~~
Gizzle
LTE (4G) cellular networks are actually full-IP networks. However they support
"voice"-devices due to transition issues.

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ig1
Because there's not enough reward for high risk.

VC (and PE & Sovereign Wealth funds) do make multi-billion dollar investments,
but mainly in areas like energy where they can get a huge pay-off.

Say you wanted a fund to invest $20bn for 100% equity, generally early stage
investment funds look for at least a 10x return, so they'd be looking for a
company that can be worth $200bn.

The biggest cell provider in the US in Verizon, and their market cap is around
$100bn. To justify the investment you'd need to build a company that pretty
much controls 100% of the US cell phone market. And even then there's no
upside for the investor, they might get 10x if they're amazingly lucky,
there's pretty much zero chance of 20x or 100x return.

~~~
count
That's a very good point, thanks.

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runT1ME
I think this is like asking why there isn't a new Gas company that is
perfectly happy with smaller margins.

Significant capital doesn't begin to describe the problem. It's easier to
start a car company than telco/utilities, and you don't see too many venture
backed car companies.

Are you asking just because, or is this something you're going to try?

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emintzer
I think the bigger problem is because, like your aware, that you would need a
lot of capital to compete with the major telco/cell companies like the ones
listed, it would be more reasonable to create a company that requires less
funding by starting with a smaller market to fine tune the company and then
seek out larger investors. The problem with this is that even though you won't
be initially concerned about the competition from Sprint, Verizon, AT&T, and
Tmobile as you would be applying yourself to a less mainstream (aka:
different) market, there are still many competitors that have 'fixed' the
complaints about the big companies who have a head start over you (ie: Boost
Movile, Cricket, even Virgin Mobile). So unless you have an idea superior to
these smaller upcoming companies, it will be a very difficult industry to
enter in to and raise capital for.

~~~
count
For what it's worth, Boost, et. al are MVNOs - they simply resell/rebrand
Sprint service. They're not 'real' cell carriers.

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RyanGWU82
There are certainly VCs that would take on large entrenched companies. VCs
invested $33 million in Cuil, for example, even though Google had cornered the
search engine market long before. And VCs fund companies that require huge
capital investment, like medical devices and alternative energy. But both of
these issues are big red flags that will make it a lot more difficult to get
your company funded.

In a situation like this, I'd expect you'd need to convince an investor that
(1) you have a sustainable competitive advantage against the big players, so
they can't just take your idea and destroy your business, (2) your business
model can generate enough profit to justify the outlandish capital
requirement, and (3) you have the right team to make all that happen. #3 is a
lot easier when you don't have such big hurdles with #1 and #2.

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Swannie
Because building the right executive team is hard... who do you go to for
great guys?

Based on this the current generation of telco execs is a no go. So do you look
outside the USA? Now we're talking hard work for a pretty risky venture.

That said, there is certainly a market for this, especially for M2M.

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simonk
Canada did this with Wind Mobile that is shaking up our industry a bit but it
had to get funding from an Egyptian telecom giant.

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linuxdo0d
because we're not raving lunatics?

