February 7, 2007 12:55 PM PST
Is Helio's cool factor enough?
Helio, which launched in May, is backed by Korean mobile operator SK Telecom and U.S. Internet service provider EarthLink. The companies have each committed about $220 million to the venture, and EarthLink said during its fourth-quarter 2006 conference call on Tuesday it will likely pour an additional $50 million to $100 million into the company this year.
The additional infusion of cash comes as Helio is expected to lose $300 million to $360 million in 2007, according to EarthLink's chief financial officer, Kevin Dotts. Since its launch in May, EarthLink reported it lost $192.5 million, $74 million in the fourth quarter.
Dotts also said that Helio would likely be cash-flow-positive sometime in 2009. But with losses mounting and new competition entering the market such as Apple's new iPhone, which is also aimed at the same hip, music- and gadget-loving crowd, profitability in 2009 is far from a guarantee.
The real question is, how much are Helio's backers willing to spend to keep the venture afloat until they see big returns? Fortunately for Helio, both of its backers may have little choice but to continue pouring money into it.
"The thing that Helio has going for it is patient Korean money," said Dave Whetstone, co-founder of Virgin Mobile USA, an early mover in the mobile virtual network operator, or MVNO, market in which Helio operates. "If you're SK Telecom and you want to get into the U.S. mobile market, it might be less expensive to throw a couple hundred million dollars every year into Helio than to spend billions on spectrum or a nationwide operator."
EarthLink, Helio's other backer, also has little choice than to keep throwing money at the venture. Over the past couple of years, the company has been forced to rethink its strategy as a series of regulatory decisions drastically changed the market for the Internet service provider.
As a result, EarthLink is looking to new business models to drive revenue. It's using unlicensed wireless technology to build citywide Wi-Fi networks in several cities around the country. And it's hoping to cash in on the burgeoning cell phone business with its investment in Helio.
"Municipal Wi-Fi and Helio are high-risk bets," said Charles Golvin, a senior analyst with Forrester Research. "But they are risks that have to be placed. And with Helio, just being a 'me too' service won't cut it. They have to be unique."
Noble high-tech provenance
It also helps that Sky Dayton, Helio's chief executive officer, also founded EarthLink and still sits on the company's board of directors. Still, experts say, Helio has a long and tough road ahead as it works toward becoming a sustainable business.
After six months of aggressive marketing, it had only about 70,000 subscribers, as of December 31, 2006. That number is expected to increase to 100,000 by the second quarter of 2007. While these figures may be slightly better than other MVNOs, such as Amp'd, which signed up only 30,000 subscribers within eight months of full marketing, it's much less than what bigger carriers are adding on a quarterly basis and what other MVNOs reported in their early days.
"Seventy thousand subscribers after nine months of operation is pretty pathetic," said Iain Gillott, founder of iGillottResearch. "And given the level of investment, you'd think they'd be able to do better than 30,000 new subscribers a quarter."
8 commentsJoin the conversation! Add your comment