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Sprint's Virgin Mobile Deal To Expand Prepaid Division

8/03/2009 02:00:00 AM Eastern

Sprint Nextel will buy prepaid mobile virtual network operator (MVNO) Virgin Mobile USA to complement its existing Boost Mobile prepaid division under a definitive purchase agreement approved by the Sprint and Virgin Mobile boards.

Both prepaid brands will remain on the market because they feature complementary offerings and “appeal to different customer demographics,” the companies said. Boost's demographics are typically more urban and younger, whereas Virgin's are “really mass market, from 9 to 90,” a Virgin spokesperson said.

The two brands' networks are also complementary. Boost operates largely on Sprint's iDEN network and Virgin purchases airtime from Sprint's CDMA network. The companies did not say how or whether marketing programs would change or whether distribution would change, but both brands are sold by many of the same major retailers. “Overall integration of products, services and operations fall into a category of decisions that will be examined between now and the closing of the transaction,” a Sprint spokesperson told TWICE.

The purchase, which will close in the fourth quarter or in early 2010, will strengthen Sprint's position in the growing prepaid segment and will generate cost efficiencies by reducing general and administrative expenses, operational efficiencies and “streamlined distribution,” the companies said. Sprint also contended the transaction will “enhances cross-selling of a full suite of Sprint products and services across a larger target audience.”

With the purchase, Virgin will also eliminate the cost of buying Sprint airtime on a wholesale basis at a time of hyper competitiveness in prepaid airtime rates to consumers, marketers noted. Although Virgin has been profitable its first-quarter numbers “were a little weak,” a spokesperson admitted.

The purchase will also enable Sprint to gain “deeper managerial talent with additional expertise in the prepaid segment.” That talent will include Virgin Mobile USA CEO Dan Schulman, who will manage Sprint's entire prepaid operation, including Boost. Matt Carter, president of Boost, will lead Boost Mobile and will report to Schulman.

Sprint, which already owns more than 13 percent of the MVNO, will purchase publicly held Virgin for a total equity value of about $483 million. At closing, Sprint will also retire all of Virgin Mobile USA's outstanding debt, which was $248 million as of March 31 but is expected to be about $205 million on Sept. 30.

Boost is sold through about 16,000 outlets, including 4,200 RadioShack stores nationwide, Sprint-owned stores, independent wireless dealers, and major retailers such as Best Buy, Walmart and Target. Boost's Re-Boost prepaid cards are available at about 100,000 locations throughout the U.S.

Virgin Mobile is primarily sold through big-box retailers, including Target, RadioShack, Best Buy and Walmart, a spokesperson said. Some Sprint-owned stores have also carried Virgin products, “but it's not typical and not a factor in our sales.” For now, the Virgin spokesperson said, “our distribution will remain the same as it has been a strategic success.”

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