Is Helio's cool factor enough?

Helio, the cell phone service for the mega-cool hipster crowd, is bleeding cash, a scenario that will likely force its deep-pocketed investors in one of two directions: either dig deeper still or bid the business adieu.

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."

[bradyjfrey]

Not. Cool.

"There's no doubt the service is cool."

What? Those phones are lame - I thought about switching, then I
realized it wouldn't work on mac or linux and so wouldn't sync
with all my stuff. Then I went to go play with the phones - albeit
they're much better with a little bit of software than the
competition, but the plastic feels somewhat cheap and clunky,
and the overall look and feel doesn't seem cool or sexy. The lack
of compatibility I almost looked over, but the rest just left it
dead. I'll keep my Razor until iPhone hits the streets, sad to say.

I found their marketing and advertising entertaining... but other
than that, I don't get how they fit cool. Amp'd seems to suffer
the same problems, but their commercials aren't even
entertaining - trying too hard to fit in doesn't fit in.

[Miklay]

What?

You're not to into this, are you? My Ocean is hooked up to the Mac as we speak!

[alenas]

They need FREE incoming calls

US is probably one of the few places in the world (if not the only) where you have to pay for incoming calls.
Helio is cool - and devices are cool - and they could easily give free incoming calls - that would make revoliution in US cellphone market...

[jsmooy]

Cell phones anywhere?

What about basic service connection that's available anywhere on the planet? NYC lost all cellular service as the towers came down because the Cell phone towers were atop the WTC. What happened to satellite service for cell phones that can pick up calls in any rural or remote area? Might this have saved James Kim's life?

[eeemang]

what a dumb comment

Let's all introduce 8 different topics at any time ! All with silly questions ! !
The WTC was NOT the only cell tower for all of NYC.

[Stating]

Everybody's Chasing The 20 Somethings

The subtext of Helio's "cool factor" marketing is that they are targeting the twenty-something crowd. This seems to be the same market that all the other cellular and media company players are courting. You would think that anyone over age 35 doesn't exist.

One of these days maybe vendors will get a clue and start marketing again to the over 35 crowd. The first ones to do this will find that they have the field wide open to themselves, while the laggards continue to chase after the same baby-bust, limited income, crowd.

[iokinetics]

margin matters

35-something = higher income, but price conscious + resist changes

20-something = limited income, but reckless spending + resist status quo

For growth and margin improvement, the later makes more business sense to chase after.

[heliorider]

$99 Unlimited $99 Helio Ocean

Helio now has unlimited calling for $99 and through the dealer promotions at www.heliopromo.com you can have the Helio Ocean for under a $100. That is a compelling offer for anyone that uses a lot of minutes.