Will Blyk, an ad-based MVNO, work?

Free cell phone service in exchange for ads — that’s the pitch of a new London-based MVNO Blyk that plans to launch service in the Summer. We’ve heard variations of this idea before, including the bizarre Xero Mobile, but Blyk seems like it is getting off to a better start. The startup said today that Orange will be the company’s MVNO carrier partner, and Nokia Siemens Networks will provide backend services.

If the free ad-based mobile service manages to strike a chord with customers in the U.K., the company will have helped pioneer the ad-supported business model into the mobile carrier business. It’s already announced several brands like Coca-Cola, L’Oreal Paris and Buena Vista that will use the ad network when it launches. Google’s own CEO Eric Schmidt thinks that cell phones themselves could someday be free based on the ad model.

Carriers, media brands and content companies are all betting that mobile ads will grow into a substantial market over the next few years. Informa Telecoms and Media predicts mobile advertising will grow to around $11.3 billion by 2011.

While the idea of an ad-supported mobile operators does sound like a boom-time idea, many are convinced that the web-advertising model can be ported to the mobile world. (We think of it as telecos’ getting Google envy!)

At CTIA, the mobile convention last month, mobile ads were in almost every execs speech, including EMI CEO Eric Nicoli, who pointed to the company’s trial mobile video ad service with Rhythym NewMedia. Nicoli said 80% of users said ads were positive or did not take away from the experience.

With large companies chanting mobile advertising at every chance they get, it is hardly a surprise that investors are placing megamillion dollar bets on start-ups. Blyk is backed by private investors and Sofinnova Partners. Mobile ad startup AdMob took the CTIA opp to announce it had raised $15 million in fresh funding. Internet companies Yahoo and Google are trying to place their chips in the mobile advertising game, too. Yahoo announced at CTIA that it was expanding its mobile ad services.

If Blyk’s venture succeeds, it will be important to set consumer’s ideas about mobile advertising. It’s the dichotomy of free (or subsidized) service with ads, vs. paid without ads. The key being that consumers will likely balk if they are asked to pay twice, once through ads and again through a significant service fee.