Monday, June 4, 2007 - Page updated at 12:00 AM

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Wireless startup Amp'd Mobile files Chapter 11

Los Angeles Times

LOS ANGELES — Amp'd Mobile, became the latest wireless company to falter in bringing mobile entertainment to cellphones, quietly filing for bankruptcy protection barely 17 months after launching its service.

The Los Angeles startup, which garnered more than $360 million from a broad range of well-heeled investors, hopes to revive and reorganize itself under a Chapter 11 petition filed Friday night in U.S. Bankruptcy Court in Delaware.

Amp'd, which counts MTV Networks and Universal Music Group among its investors, has marketed its phone and mobile-entertainment services to young, hip consumers by sponsoring motocross, surfing and other action-sports competitions.

Its "Lil' Bush: Resident of the United States" cartoon was such a hit on its mobile phones after being introduced in September that pay television's Comedy Central picked it up for an initial run.

But Amp'd is burdened by more than $100 million in debts, including $33 million owed to Verizon Wireless for using its network and $16.4 million to Motorola for cellphones.

It leases access to Verizon's networks, then markets its voice and other services under its own brand.

The bankruptcy filing is likely to wipe out not only the company's debts but ownership stakes and preferred stock, totaling nearly $18 million, held by MTV, UMG, Redpoint Ventures, Highland Capital Partners, Columbia Capital Equity Partners and Amp'd's founder and embattled chief executive, Peter Adderton.

Adderton is the biggest single shareholder, with 900,000 shares, or 5 percent of the stock.

For the past two weeks, rumors abounded about a rift developing between Adderton and some directors and about his possible departure.

The company said in a statement over the weekend that its "senior management team remains largely intact."

Its chief operating officer is Susan Swenson, a former executive at Bellevue-based T-Mobile USA. Swenson was delayed from joining Amp'd until last fall, after a judge ruled in 2005 she had violated a non-compete clause by taking a job virtually the same as her T-Mobile position.

Adderton could not be reached Sunday, and an Amp'd spokeswoman did not return requests for comment.

The company said it would try to restructure its debts while continuing to serve its 200,000 customers, including those in Canadian and Japanese markets it recently entered.

"As a result of our rapid growth, our back-end infrastructure was unable to keep up with customer demand," it said. "We are taking this step as a necessary and responsible action to sustain and strengthen our momentum in the marketplace."

Some analysts figured it was only a matter of time before the company went into bankruptcy.

"They got eight different types of venture-capital firms backing them. They got high subscriber-acquisition costs. And they are having a hard time getting additional financing," said Alex Besen, whose Besen Group consulting firm in Oakton, Va., helps small cellphone companies.

Relying on mobile media to sell phone and data service is "a very hard business model," Besen said, and Amp'd Mobile hasn't created the marketing muscle it needs.

It didn't help that soon after Amp'd started, EarthLink and SK Telecom, South Korea's largest mobile-phone company, launched their Helio joint venture, targeting the young and tech-savvy customer who wants content and capabilities that U.S. cellphone companies aren't offering.

Only two months ago, privately held Amp'd said its average revenue was more than $100 a month, about twice the industry average, as customers paid extra for its music downloads, videos, mobile games and other content.

But Besen said the company's high costs have made it slow to pay its creditors. He estimated that 7 to 8 percent of Amp'd's customers quit every month, a rate far in excess of the 1 to 2 percent enjoyed by established mobile-phone companies.

"There's no customer loyalty there," he said.

Amp'd, Helio and the much larger Virgin Mobile are examples of what the industry calls mobile virtual network operators (MVNOs) because they lease networks from major carriers. But the MVNOs have to come up with unique content or better service to compete.

The business is tough. Walt Disney Co.'s ESPN cable network found last year that it couldn't transfer its established customer base to its mobile phones, ditching the service after a short-lived effort.

And relatively few cellphone customers in the U.S. use the phones to regularly watch TV and listen to music.

Information from Seattle Times files was included in this report.

Copyright © 2007 The Seattle Times Company


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