Virgin Mobile USA, the prepaid mobile virtual network operator (MVNO), will add postpaid service under its brand for the first time when it acquires ailing postpaid-MVNO Helio.
Helio’s voice and data services will become available for the first time to large national retail chains in Virgin’s distribution channels.
Under the deal’s terms, Virgin Mobile USA will acquire Helio, jointly owned by Korea’s SK Telecom and EarthLink, for about $39 million. As part of the deal, SK Telecom and parent Virgin Group will each invest $25 million in the company, and SK Telecom will own 17 percent of Virgin Mobile USA. The merger is expected to close in the third quarter. The Helio name might be kept only for use in marketing to the Korean-American market, the company said.
Virgin’s sales come primarily through such mass retailers as Wal-Mart, Target, Best Buy, RadioShack and Duane Reade, a spokeswoman said. Virgin also sells through master agents to independent wireless stores.
Helio, on the other hand, sells through five company stores and 50 mall kiosks, all of which are in the process of shutting down per the merger agreement. Helio also sells through master agents, which sell primarily to independent wireless stores, and through authorized agents, whose ranks include wireless chains. Helio, which launched service in mid-2006, also set up shop inside campus bookstores and inside other retail locations, including video stores and music stores, where its target demographic of 18- to 32-year-olds could be found shopping.
Though sold through different channels, both MVNOs target a youthful audience, and both use Sprint Nextel’s CDMA 1x EV-DO network to offer service under their own names.
The merger will enable Virgin to quickly offer a postpaid option to customers who churn from its prepaid service to postpaid carriers, Virgin said. “With about 20 percent of our disconnects currently going to postpaid products, we believe this new platform will be a powerful retention tool as we offer unique and desirable postpaid alternatives to our customers,” said Virgin Mobile CEO Dan Schulman.
The merger will also bring scale to reduce handset costs and the per-minute fees that Virgin pays to use Sprint’s network. The scale, combined with “significant cost reductions” that Helio will undertake before the merger, means Helio’s customers will be “immediately profitable when brought onto our cost structure,” said Schulman. The $50 million cash injection will improve Virgin’s liquidity and reduce long-term debt, the company added.
Helio is just the latest MVNO that tanked soon after launch. The others are Amp’d Mobile, ESPN Mobile and Disney Mobile. Helio has only 170,000 subscribers, down from nearly 200,000 at the beginning of the year. Virgin had 5.1 million subscribers at the end of March but said it expects its subscriber base to shrink by 130,000 to 160,000 subscribers in the second quarter. It’s still one of the largest U.S. MVNOs, but it doesn’t disclose financials.