Mobile and a Venture, Helio, Discuss a Merger,
By Andrew Lavalle - 10th May 2008
The Wall Street Times)
Virgin Mobile USA Inc. and Helio
LLC, two cellphone companies that offer service
through re-sell agreements with Sprint Nextel
Corp., are in advanced merger discussions and
could announce a deal in coming weeks, people
familiar with the matter say.
discussions reflect consolidation pressure among
mobile virtual-network operators, which resell
wireless service from larger wireless carriers,
as the wireless market nears saturation. While
the market's slowing growth has hurt some big
players, such as Sprint, resellers have particularly
struggled, with some failing. Walt Disney Co.
shuttered its Disney Mobile service in September,
and Amp'd Mobile, a Verizon Wireless re-seller,
declared bankruptcy last year.
Virgin and Helio have faced difficulties. Virgin,
which markets prepaid plans popular with lower-income
customers, is being squeezed by increasing competition
from other low-end providers such as Leap Wireless
International Inc. and MetroPCS Communications
Inc., as well as the economic downturn, which
has hit less affluent customers like Virgin's
especially hard, said Michael Nelson, a telecom
analyst at Stanford Financial Group. "Their
customers are purchasing fewer minutes,"
which has 5.1 million subscribers, reported disappointing
first-quarter results earlier this week, announcing
that its profit shrank 75% to $4.8 million, compared
with $19.2 million a year earlier. Its October
initial public offering was a flop, with Virgin
shares dropping from a debut of $15 to $3.16 as
of 4 p.m. composite trading Friday on the New
York Stock Exchange.
which sells high-end handsets and services that
tend to be more expensive and data-intensive,
appeals to younger, tech-savvy consumers. It has
relatively high average revenue per user of more
than $85 per month, but only a few hundred thousand
subscribers. That has hurt its bottom line. A
venture between SK Telecom Ltd Inc. and EarthLink
Inc., Helio said in September that it expected
a full-year net loss of $340 million to $360 million.
EarthLink reduced its stake after Helio's weak
performance weighed on its own results last year.
merger would help both companies diversify the
types of customers they target. Since they both
offer wireless service on Sprint's network, it
would also be relatively easy to merge them from
an operational standpoint, said Ranjan Mishra,
president of research firm ESS Analysis.
serving Virgin's prepaid customers and deeper-pocketed
Helio subscribers could present marketing and
technical challenges, he added. "These two
customers are distinct, and their requirements
are different," he said.
analyst Kevin Roe noted that Virgin has previously
expressed interest in consolidating other mobile
resellers. It benefits from competitive pricing
arrangements with Sprint, which it could pass
on to a partner, he said. But he questioned Virgin's
timing, saying the market would be more confident
after a stronger quarter. "Once they deliver
that, then pursue these other opportunities like
a Helio," he said. For now, "They should
stick to their knitting."
discussions between Virgin and Helio were previously
reported on mocoNews.net, a mobile-industry Web