July 23, 2002 3:55 PM PDT

Can Virgin get into the phone groove?

Sir Richard Branson's teen-friendly cell phones will make an entry at their own debutante ball Wednesday. But Virgin Mobile might have a tough time finding dancing room in a crowded U.S. cellular marketplace.

After weeks of slowly letting its products trickle out, Virgin Mobile is expected to announce on Wednesday that its cell phones, "top-up" cards of additional airtime, and accessories are now available nationwide, sources outside of Virgin Mobile said.

But at least three of the five major retailers selling Virgin Mobile equipment say they've decided on cautious rollouts for the flashy phones and accessories packaged in candy-apple-red boxes.

Virgin Mobile phones and top-up cards are being sold in more than half of the 1,900 Best Buy, Media Play and Sam Goody outlets in the United States, all owned by Best Buy. A Best Buy spokeswoman said the company is limiting its launch in order to test the market before deciding on whether to add the products to more stores.

The Virgin Mobile line-up, which includes the $99 "Party Animal" phone with 200-person directory, is targeted at teenagers. Other features are also geared at attracting younger buyers. For instance, the phones will feature a music download service called "Hit List" and a call scheduler named "Rescue Ring," which lets customers time calls--for example, to ring 20 minutes after a blind date is supposed to start.

7-Eleven, another Virgin Mobile partner, opted to sell top-up cards only--not the phones or accessories--in its section devoted to pre-paid items like long-distance calling cards and Internet access. Its convenience stores already carry pre-paid phones from Verizon Wireless and AT&T Wireless.

"We only have three feet of room; we need the right product mix," said 7-Eleven spokeswoman Margaret Chabris.

Not all of the retailers are cautious, however. Target, another Virgin partner, plans to sell the phones and accessories in 900 of its 1,081 stores, in all the areas the phones operate, a company spokeswoman said.

Good timing?
Branson's Virgin Mobile debuts nationally at a time when the telecommunications sector is in a general state of financial meltdown, with network equipment makers posting quarterly losses and laying off employees, wireless carriers expecting to merge this year and handset maker Nokia predicting an unprecedented second straight year of decreasing global cell phone sales.

And Virgin Mobile is entering the new United States market just weeks after Branson's version of Virgin Mobile in Singapore was shuttered because of limited sales, the company said.

Virgin Mobile is targeting 18 to 25 year olds, who make up one of the last untapped wireless marketplaces left in the United States, where 140 million people own and use wireless phones.

"They have the right target in mind," said Gartner wireless analyst Bryan Prohm.

The retail rollouts could be critical for the company, Prohm said. Tens of thousands of stores in the United States already sell at least six different carriers' phones. Virgin Mobile needs to have its phones alongside theirs, if anything other than just to get customers to realize there's a new cell phone carrier in town, Prohm said.

"It's a start within the retail channels, but Virgin Mobile will obviously have to bulk up," Prohm said.

Virgin began selling its brand of pre-paid phones on a limited basis beginning June 20, promising a broader rollout sometime in the next few weeks.

Virgin Mobile is the first example in the United States of a popular idea elsewhere--the virtual network operator (VNO). Such a company doesn't own a telephone network nor build its own phones, but instead partners with a phone maker and network company. Kyocera built Virgin Mobile's phones, which operate on the Sprint PCS network.

Such arrangements allow companies with a strong brand name to enter into the phone business, even though they have no previous experience.

A Virgin Mobile representative was not immediately available for comment.

 

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