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UPDATE: This story was updated at 3:00 p.m. PDT with comments from Helio about its retail strategy and merger talks with Virgin Mobile USA.

Virgin Mobile USA is expected to announce a deal to acquire fellow mobile virtual network operator Helio as early as this week, according to a story in The Financial Times.

The report cites sources close to the companies that say Virgin Mobile and Helio's majority owner South Korean cell phone operator SK Telecom have agreed in principle to a deal. As part of this deal, Helio's subscribers will become Virgin Mobile USA-branded subscribers. And Virgin Mobile USA will give SK Telecom a 20 percent equity stake in the newly combined company. SK Telecom is also expected to invest a nominal sum in Virgin Mobile USA, the article said.

While the combined mobile virtual network operator will still be dwarfed by the four major wireless operators in the U.S., it will have a wider subscriber base that includes both prepaid customers as well as highly valuable post-paid customers. Since Virgin Mobile USA and Helio each buy wholesale capacity from Sprint Nextel to run their separate mobile services, a combined company could help them negotiate better rates with Sprint.

The companies have been rumored to be in merger talks since May. And last month, Virgin Mobile and Helio each confirmed they were in "strategic" discussions.

Earlier this week, Gizmodo reported that talks between Virgin Mobile USA and Helio's parent company SK Telecom had stalled. And Helio confirmed rumors that is closing its retail stores.

A spokesman for the company said that Helio has been reviewing its distribution channels.

"We will be putting our emphasis on the most profitable direct channels, Web and telesales, and stepping away from others," he said in an e-mail. "This means we have made the decision to close our Helio stores and kiosks in the short term. Each location will have its own timeline with most kiosks closing immediately and stores closing in the coming weeks."

A spokeswoman for Virgin Mobile USA declined to comment on the Times story. And the Helio spokesman reiterated that Helio, SK Telecom, and Virgin Mobile are in discussions about "potential strategic opportunities." He said the company would give an update when an agreement is reached. The Financial Times reported that SK Telecom representatives in South Korea declined to comment on the merger speculation.

Virgin Mobile USA and Helio have confirmed that they are in early stages of talks to merge the companies.

On Tuesday Virgin Mobile issued a statement that the two companies were in talks, and a Helio spokesman confirmed the news. The company has been rumored to be in talks over a merger since last week.

"These discussions are in early stages and there are no assurances that any transaction will result," Rick Heineman, a spokesman for Helio said in an email. "We will not have additional comments unless an agreement is reached."

Virgin Mobile USA and Helio, which is a joint venture owned by Korean carrier SK Telecom and EarthLink, are both MVNOs or mobile virtual network operators. They lease network capacity from Sprint Nextel and resell the service to customers.

Virgin Mobile, which offers a prepaid service targeted at teen-agers and people with poor credit, has a reputation for being hip. It also happens to be one of the most successful MVNOs on the market with some 5 million subscribers.

Helio, which also appeals to young hipsters, goes after a different segment of the population with high-end phones and a comprehensive post paid service package that includes voice as well as data services like Internet surfing, music downloads and video. Helio has a much smaller subscriber base of only 200,000 customers.

As the U.S. market surpasses 84 percent penetration, growth in the market is expected to slow over the next few years. And experts expect smaller carriers to consolidate. Already the wireless reseller market has struggled with operators such as Disney Mobile, Mobile ESPN, and Amp'd calling it quits.

A merger between Virgin Mobile USA and Helio makes sense since they compliment each other. And it could keep the companies afloat as they compete more aggressively with larger players AT&T and Verizon Wireless as well as regional players like Metro PCS and Leap Wireless.

Virtual cell phone operators Virgin Mobile USA and Helio are rumored to be in merger talks, a move that could bring a lot of benefits to both companies.

The tie-up between the two MVNOs, or mobile virtual network operators, was first reported Thursday by the wireless blog MocoNews. According to the blog, SK Telecom, one of Helio's parent companies, would buy out Virgin Mobile USA and then Virgin Mobile would buy Helio in an all-stock transaction.

(Credit: Helio)

As the economy tightens and other larger wireless carriers look to consolidate, it makes sense for these smaller players, who essentially resell service from Sprint Nextel, to look for alternatives. The companies are also rumored to be in talks with private equity firms.

Over the past 18 months, Helio and Virgin Mobile USA have seen many of their MVNO brethren die. ESPN Mobile, Disney Mobile and youth-targeted Amp'd Mobile have all closed shop.

And even though Virgin Mobile USA and Helio are still in business, the companies have not been immune to the increasingly competitive market place. For the first quarter of 2008, Virgin Mobile USA reported that its earnings fell 75 percent compared to a year ago. Meanwhile Helio, which is jointly owned by South Korean carrier SK Telecom and Internet service provider EarthLink, lost $327 million in 2007 on $171 million of revenue. All told, the company has lost more than $560 million since it was started in 2005.

While combining the two companies won't magically solve all their problems, they may fare better as a combined entity rather than individually.

The main reason is that the companies' businesses compliment each other nicely. Helio was originally created by Sky Dayton, EarthLink's founder, to bring cool and cutting edge devices and services to the U.S. market. The original idea behind the company was to target a young technically savvy crowd. Virgin Mobile USA, a subsidiary of the European-based phone company, has made a name for itself as a hip brand also focused on the youth market.

But it's the companies' differences that could really benefit a merged company. Even though both companies are going after a younger demographic, they are really addressing different segments of this population. For example, Virgin Mobile is a prepaid service that targets users who don't have a lot of money to spend and who have poor credit or no credit history at all. By contrast, Helio is targeting high-end users, who spend an average of $85 a month on their cell phone service. Most wireless users only spend $50 a month on service from bigger carriers like AT&T and Verizon Wireless.

Virgin Mobile could greatly benefit from Helio's high-end customers, who are voracious data users. In 2007, Helio subscribers sent an average of 550 text messages per month. And 95 percent of the company's subscribers accessed the Web through their mobile device compared the industry average of just 13 percent.

On the flip side, Virgin Mobile USA gives Helio the opportunity to expand its customer base. Initially, Helio only tried wooing a small niche of technology elite, a set of high-end consumers who wanted cool phones and were willing to spend a lot on new services and devices. But then came Apple's iPhone, which literally changed the game overnight. And the very people Helio wanted to entice with cool devices, such as the Ocean, were instead more interested in an iPhone.

Now Helio has shifted its strategy to appeal to a wider audience. And Virgin Mobile, which has relationships with a wide circle of retailers and over 5 million subscribers, could significantly improve Helio's reach.

Even if the companies merged, it will still be a difficult market for them to survive. More than 84 percent of the U.S. population already subscribes to a cell phone service. And as the bigger carriers more aggressively address both the high end and low end of the market, it could be harder for Virgin Mobile USA and Helio to compete.

Users will no longer have to hack their Helio to use Opera Mini.

(Credit: Heliocity.com)

For mobile service Helio, it's a sure sign you're doing something wrong if the most popular app among your user community is a hack. For Opera Software, the fact that it's your app is a sure sign you're doing something right.

Since last August, users at the Helio community site Heliocity have been peddling a re-engineered version of the Opera Mini browser that was specially hacked with the Ocean smartphone in mind. Seven months later, Rod Hamlin, senior vice president of sales and marketing at Opera Software, got on the phone to confirm that starting Wednesday, Opera Mini will be officially available on Ocean phones.

"We've always been really impressed with the Ocean as a device and (with) Helio for really listening to their user community," Hamlin said of the partnership. "Opera Mini became a popular hack, so the Helio folks came to us and wanted to make it an official download."

While Norway-based Opera has benefited from deals with American manufacturers--Opera Mobile and Opera Mini have shipped with select Motorola phones since 2003--this agreement with Helio marks the first time that the company has inked a deal with a U.S. mobile service provider.

Opera Mini for Helio Ocean will be available on Wednesday via the Ocean's on-deck Web portal and will also ship on Helio Ocean phones. According to Hamlin, the two companies may soon discuss support for other Helio models.

Sky Dayton, the founder and CEO of Helio, is stepping down as the top executive of the hip cell phone company.

The company sent out a press release late Monday saying that Dayton, who also founded the Internet service provider EarthLink and Wi-Fi hotspot provider Boingo, would relinquish his CEO position. Wonhee Sull, formerly Helio's president and chief operating officer, will take over as CEO. And Dayton will become chairman of the company, replacing Jinwoo So, president of global business at SK Telecom.

Helio, a joint venture of EarthLink and the South Korean phone company SK Telecom, officially launched its service in May 2006. The company, which doesn't have its own network but instead leases capacity from Sprint Nextel, is supposed to appeal to a hip, tech-savvy youth market. The original idea for the company was to bring cutting-edge handsets and feature-rich data applications already available in Korea to the U.S.

Helio has been downplaying Dayton's departure. Brook Hammerling, Helio's spokeswoman said in an e-mail that Dayton's departure should not come as surprise, since he "loves to start things, build teams and brands and then pass the reigns onto a more day to day ops person."

The company pointed out that Dayton typically leaves his start-ups after three years. He supposedly followed similar timelines with EarthLink and Boingo Wireless. Now three years into the Helio venture, Dayton is handing the day-to-day operational reins over to someone else.

"Helio has reached a point in its development where I feel the timing is right for this change," Dayton said in a statement.

Because Helio is a privately held joint venture, it's been difficult to tell how well it's been performing financially. For the most part, the company has kept quiet about subscriber numbers and other details of its performance.

EarthLink and SK Telecom each put in $220 million into the project in the beginning. But last year, the companies agreed to contribute another $50 million to $100 million to the company.

In what appears to be an effort to deflect any speculation that Dayton is leaving because the company is in trouble, Helio has decided to share some information about its business. In today's press release it claimed that the company now has more than 200,000 subscribers. And while this is tiny compared with the millions of customers who subscribe to Verizon Wireless or AT&T, the company claims to have some of the highest average revenue per user (ARPU) in the industry, with users spending more than $85 a month. The company said it closed its first full year of operation, which was 2007, with a revenue run rate of more than $240 million based on financial figures available in December.

The company also claims its subscribers are "voracious users of its data services." For example, users send on average more than 550 text messages per month. And roughly 95 percent of Helio subscribers access the Web from their mobile phones. The company also claims that it is seeing strong uptake in customized services for its users. For instance, 60 percent of Helio customers access MySpace via their Helio phone each month. And Helio claims that 57 percent of subscribers who had the Ocean handset downloaded Helio's exclusive YouTube application within two weeks of the launch.

More detailed financial information could become available when EarthLink reports its fourth-quarter earnings on February 7.

Internet service provider EarthLink said Tuesday that it would lay off approximately 900 employees as the company restructures in an attempt to boost its sagging stock price.

EarthLink will lose about half its staff in the restructuring as it shuts down operations in Orlando, Fla.; Knoxville, Tenn.; Harrisburg, Pa., and San Francisco. It will also substantially reduce its presence in Pasadena, Calif., and Atlanta, the company said in a press release Tuesday.

The reductions are expected to cost the company $60 million to $70 million. But it will save EarthLink $25 million to $35 million through the remainder of 2007, the company said.

And these cuts may only be the tip of the iceberg, according to statements made by EarthLink's new CEO, Rolla Huff.

"While we see this as an important first step in unlocking the underlying value that we believe is in our company, we are only eight weeks into the process of repositioning EarthLink for the future," he said in a statement. "These changes get our cost structure in line, but there is much more to do. We expect to announce additional steps as we continue our work over the coming weeks and months."

The shake-up comes as EarthLink struggles to find ways to balance losses in its traditional Internet service provider business with the high cost of building its municipal Wi-Fi and cellular phone businesses.

The company has won several citywide Wi-Fi contracts with cities such as Anaheim, Philadelphia and San Francisco. The way these deals are structured, EarthLink builds and runs the networks in exchange for using city-owned infrastructure like utility poles.

But the Wi-Fi projects haven't gone as smoothly as EarthLink had hoped. For example, EarthLink is still in contract negotiations in San Francisco for its planned citywide Wi-Fi network. And projects in Arlington, Va., and St. Petersburg, Fla., are supposedly on hold.

The GigaOm blog has also reported that Don Berryman, head of EarthLink's Muni Wi-Fi business, left the company three weeks ago. I haven't confirmed Berryman's departure yet, but I will be talking to EarthLink's CEO later Tuesday.

EarthLink is also pouring huge amounts of money into Helio, a cellular joint venture it started with Korean cell phone provider SK Telecom. The mobile virtual network operator, or MVNO, started with $440 million from both partners. But recently, each of the partners agreed to contribute another $50 million to $100 million to the company.

And all of this comes while EarthLink continues to lose subscribers in its traditional dial-up Internet business. At the end of the day, EarthLink has some very hard choices to make as it moves forward. Look for a news analysis later Tuesday on CNET News.com.

Helio's Fin is thin

(Credit: Helio)

Helio has just come out with what it's calling the thinnest flip phone in the U.S. Dubbed the Fin, it's a Samsung device that has a thickness of only 0.45-inch, which is even thinner than the Razr. The Fin is quite the supermodel phone, with a blue-black magnesium shell coupled with an understated yet simple design. From the looks of it, it appears to be an improved version of the Samsung D830, which is a GSM phone currently only available in Europe and Asia.

While the D830 has a 2-megapixel camera and 80MB of memory, the Fin will have a 3-megapixel camera and 100MB of memory. In addition, the Fin has EV-DO speeds, a full HTML browser with page zoom, a 2.3-inch QVGA display, a microSD card slot, built-in GPS, stereo Bluetooth, a music and video player that supports MP3s, AACs, MPEG4s, and H.264 video, and full-featured messaging options. Email options include POP3 and IMAP support, web email access, and push mail support for Yahoo, AOL, Windows Live, and Helio Mail. Similar to the other Helio devices, the Fin also supports GPS services like Buddy Beacon and Google Maps for Mobile.

But that's not all--the Fin comes with Helio's recently updated HelioUP software that will allow you to upload photos and videos directly to Flickr and YouTube. Since the Fin has GPS, you're able to automatically geo-tag your photos and videos with location information. This means you can have your photos appear on Flickr's World Map, letting friends and family know exactly where you are on, say, your epic summer road trip.

And what's a summer road trip without GPS-enabled navigation? Yes, Helio is debuting a new service with the Fin called Garmin Mobile, a moving map with turn-by-turn directions in real-time, complete with voice instructions. There are almost six million points of interest programmed into the service already, with gas stations, ATMs, and more. Garmin Mobile is available as an option for $2.99 a day.

Also, at long last, Helio has made its H.O.T. (Helio On Top) feed reader customizable, meaning you can now add all of your favorite RSS feeds to the feed reader and have the latest headlines stream in on your phone's home screen. Previous feed "channels" from MTV, The Onion, and so forth are still available of course, but at least now you can choose to have feeds from your favorite blogs too.

We're excited to see such a fully-featured phone like this in such a slim package, and thankfully it's not too pricey either. Available at only $175 with a $50 discount, the new Helio Fin sounds like a good deal.

Helio Ocean

(Credit: Helio)

Happy Helio Ocean day! Yep, the highly anticipated dual-slider phone from Helio has finally launched today, at $295 each. You can get one from Helio's online store or from any of its retail stores. You can also pick one up from EB Games or GameStop starting next week. We're still busy reviewing it over here, but until we unleash the full review unto you, here are a couple of our first impressions.

You will be mine soon.

(Credit: slashgear.com)

I don't know about you, but I'm more excited about the Helio Ocean than Apple's iPhone. Call me a heretic if you must, but I like a phone that has a QWERTY keyboard and 3G support but doesn't cost an arm and a leg. So, I was stoked to see a rumor that the Ocean will be launched as early as May 21.

The Boy Genius Report said the Ocean will be in "general release on May 21" and "limited/internal/partner release is five to eight (days?) prior." I called Helio, and it stuck to its "spring 2007" timetable, but a few vendors were more candid.

A local Gamestop said it would have the Ocean "possibly at the end of the week, and definitely by the start of next week." A clerk at EB Games actually checked the computer and said it would have the device in May 12, for $294.99. (Remember though, you'll have to switch to Helio's services to use this phone.)

Any way you slice it, this feature-packed dual slider will be available soon, and be sure to keep a lookout for our full review. And in the meantime, check out our first take of the Ocean to read our initial thoughts and see more pictures.