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David Kuan — Fri, 20 Jun 2008 10:56:35 -0700

Merger of US wireless MVNOs - Virgin Mobile and Helio

David Kuan — Thu, 19 Jun 2008 12:35:57 -0700

Virgin Mobile has been touted as a success story for US wireless MVNO. However, since IPO, the company has continued to report losses. Helio despite the deep-pocket funding from Korea has also been consistently losing money since launch.

Why would a Virgin-Helio deal make sense? (from http://www.alleyinsider.com/2008/5/why_a_virgin_mobile_helio_deal_makes_...)

Scale: Both operate using Sprint Nextel's (S) network. So more subscribers means more wholesale service they could buy in bulk, on one bill. And, a nice touch, their phones are more compatible than if one of the two used AT&T (T) for its network.

Complementary, not competitive services: Virgin Mobile targets the low- and mid-level of the prepaid wireless business. Its average subscriber spends $20 a month on service. It's also aiming at people who want to spend about $40 a month. Helio's subscribers, meanwhile, spend $85 a month for lots of goodies, including video, 3G Internet access, etc. Minimal overlap, and a good opportunity to upsell to Virgin customers who want to upgrade.

Distribution: We don't expect to see many of Helio's high-end phones next to Virgin's on the shelf at Sears or Wal-Mart. But Virgin has plenty of distribution, and Helio needs more of it.

Cool phones and software: Helio's phones are pretty slick, and the Helio Ocean YouTube app is excellent.

Profitability: Virgin Mobile's stock has not fared well since its IPO: It's down 80% from its 52-week high. But Virgin made $4.2 million of profit on $1.3 billion of revenue last year, while Helio lost $327 million on $171 million of revenue. We imagine there's quite a bit of synergy and cost-cutting that could occur if the companies joined up.

This is a prediction that a merger of both companies to be announced prior to end of 2008. The merger need not require approval not be completed before Jan 1, 2009 to be judged favorably.

The Industry Standard - Merger of US wireless MVNOs - Virgin Mobile and Helio - Comments

Latest development

Merger of US wireless MVNOs - Virgin Mobile and Helio