Virgin Mobile USA will pay $39 million in stock to buy operator Helio, the company said Friday.
The deal ends more than a month of speculation that the two troubled mobile virtual-network operators would combine forces.
As part of the purchase, Virgin Group, which owns Virgin Mobile USA, and SK Telecom, the South Korean phone giant that holds a majority stake in Helio, will each invest $25 million in the combined company. In exchange for its investment, SK Telecom will be given a 17 percent stake in Virgin Mobile.
Helio, which was created to bring advanced cell phones and services to the U.S. market, will add its 170,000 post-paid customers to Virgin's 5.1 million prepaid customer base.
Virgin Mobile hopes that Helio's offering will also help it retain existing customers. About 20 percent of those ditching Virgin Mobile's service leave for subscription services, said Dan Schulman, CEO of Virgin Mobile USA.
Helio's customers are considered to be among the industry's most valuable, spending on average about $80 per month on voice and data services.
I have said in previous blog posts that this merger simply makes good sense. For one, the companies each use Sprint Nextel's network to deliver service. In anticipation of this deal, Virgin Mobile has already renegotiated terms with Sprint to review the terms of its existing network contract. Virgin Mobile expects to achieve a minimum of an 8 percent reduction in cost per minute in 2009. And it anticipates further reductions over the next three years.
Virgin Mobile also anticipates that it can cut costs in other areas by more than 70 percent by combining the companies. Most of these savings will come from combining operations and reducing headcount.
The companies also have complimentary strategies that target the youth market. But Virgin Mobile, which is considered a hip brand, has targeted customers with little or no credit. The prepaid service allows them to get a cell phone with no credit check or contract. And it offers them great value. The company just introduced its $79.99 unlimited talk time plan, which beats similar plans from competitors.
Helio has gone after customers at the other end of the spectrum by targeting tech-savvy hipsters with cool new phones like the Ocean, and voice and data plans with unlimited usage. It also offers integration with popular Web sites, such as MySpace and YouTube. Other unique services allow subscribers to share or recommend music, and track their friends using GPS.
The cost savings and strategic synergies should help the combined company compete more effectively against the big four nationwide carriers: AT&T, Verizon Wireless, Sprint Nextel, and T-Mobile USA. These operators have been aggressively trying to meet the needs of value customers, such as the ones Virgin Mobile addresses. And they've also been introducing new phones to attract high-end data subscribers, such as the ones Helio has targeted.
"We believe that the acquisition of Helio, and the related strategic investments by SK Telecom and Virgin Group, are of enormous benefit to our business, both financially and strategically," Schulman said in a statement. "It provides us with a firm foundation to create a truly holistic, leading-edge product suite to service all of our existing and prospective customers."
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 will now offer a flat-rate, unlimited calling plan to compete with the big four cell phone operators in the U.S.
Starting July 1, the new prepaid service called "Totally Unlimited" will include free nationwide calling with no roaming charges for $79.99 a month. For $10 more a month, Virgin Mobile users can add unlimited text messaging, IM, e-mail and picture messaging.
Because it's a prepaid service, Virgin's customers won't need to sign a contract. And at $79.99--or $89.99 with the messaging plan--Virgin Mobile's plan is less expensive than most of the other flat-rate offerings on the market.
Verizon Wireless announced in February that it was offering a $99 plan for voice. AT&T and T-Mobile followed with their own plans, which cost $99 and include text messaging. Sprint Nextel then revealed its flat-rate service, which includes unlimited voice, text messaging, e-mail, Web surfing, video, and other premium services for $99 a month.
"'Totally Unlimited' for 79.99 per month is simply a better value than postpaid plans offer," Bob Stohrer, chief marketing officer for Virgin Mobile USA, said in a statement. "It is simply not necessary to sign a two-year contract to get real worth with your wireless plan."
Virgin's unlimited plan comes as the company struggles to grow its customer base. At the end of the last quarter, it reported its net additions fell by 94 percent.
In an effort to boost its customer base and compete more effectively with the bigger players, Virgin Mobile has supposedly been in talks to combine forces with another mobile virtual network operator called Helio. Virgin Mobile and Helio, which is owned by SK telecom and EarthLink, both use the Sprint Nextel network. Helio, which is geared toward tech-savvy hipsters, already offers flat rate plans.
Virgin Mobile, which addresses the cost-conscious youth market, also competes with regional providers like Leap Wireless International and MetroPCS Communications. These providers have been offering unlimited voice services for a long time. But because they are regional operators, they charge roaming fees when customers are outside their coverage areas.
Virgin Mobile USA and Helio have confirmed that they are in early stages of talks to merge the companies.
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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.
One man's prostitution scandal, apparently, is another man's marketing angle.
(Credit: Virgin Mobile Canada)Virgin Mobile Canada knows how frustrated people can get with the lack of personalized service these days. Faster than Eliot Spitzer could say, "Um, oops," the company came out with a print ad that features the newly former New York governor, aka Client #9, musing as follows under a thought bubble: "I'm tired of being treated like a number..."
"At Virgin Mobile," the ad goes on to say, "you're more than just a number. When you call us we'll treat you like a person, not a client. Whether you're #9 or #900, you'll get hooked up with somebody who'll finally treat you just how you want to be treated."
According to Nathan Rosenberg, chief marketing officer at Virgin Mobile, the ad will run in two Toronto daily newspapers this week as part of the company's "You call the shots" campaign. "We weren't planning on an ad featuring Governor Spitzer, but he caught our attention this week," said Rosenberg.
The campaign is also featuring Hillary Clinton and Barack Obama. What, Canada doesn't have any joke-worthy targets of its own?
Richard Branson is one to go against the grain, and usually to good effect. He has built a major business empire by taking chances on innovation.
Small wonder, then, that his company Virgin Mobile has selected MySQL to manage a critical component of its business: SMS messaging. According to MySQL's release on Thursday:
Over 500GB [of SMS data] are contained in MySQL data tables, and subject to thousands of queries per second. This solution handles the processing of Virgin Mobile's SMS messaging--where each individual text message can generate over 100 database queries on average (analysis, processing the response, and annual statistics)....[Using MySQL and LAMP]...ensures the operator a significant return on investment compared with a proprietary system.
Virgin Mobile could have chosen MySQL's Community product for this, but it recognizes that mission-critical applications generally require a real company behind them. Hence, the decision to go with MySQL Enterprise. Evaluating MySQL was free; going into serious production for free would be less intelligent.
... Read MoreWhen Creative Commons first surfaced, it was heralded as a means to share media without being ensnared by the complications accompanying traditional copyright.
With six different licenses available, media creators were provided the opportunity to dial in the exact rights they wanted. Or at least that was the plan.
In reality, this bevy of choices has led to significant confusion and as CNN reports, 16 year-old Alison Chang recently learned her picture is being used for a Virgin Mobile ad campaign in Australia. She didn't give her permission, and it appears that the ads exploit confusion around Creative Commons.
... Read More
The UTStarcom Super Slice.
(Credit: Virgin Mobile)We hinted at this a couple months ago, but Virgin Mobile has now made it official. The carrier's first Bluetooth phone, the Super Slice from UTStarcom, will be available by mid-September for $59.99. Besides Bluetooth, the Super Slice adds a VGA camera and a new user interface. All other features are carried over from the original Slice handset, including its thin (0.4 inch) profile. Check back soon for a review.
The Aloha from LG
(Credit: Virgin Mobile)Virgin Mobile is taking a break from its slew of Kyocera and UTStarcom cell phones by adding its first LG model. Like all handsets from the carrier, the Virgin Mobile Aloha sports a simple design and a feature set that shuns most expensive extras. Inside you'll find support for MP3 ringtones, a speakerphone, voice dialing, and some integrated games. We're never fans of flip phones without an external display but at this price we'll let it pass. The Aloha will be available in September for a very affordable $34.99.
The Aloha from LG
(Credit: Virgin Mobile)
