Saturday, May 10, 2008
Virgin Mobile and Helio considering merger
I'll be away on Monday, so I'm doing the Monday blog on Saturday.
Virgin Mobile USA and Helio, two cellphone companies that re-sell service from Sprint Nextel, are in advanced merger discussions and could announce a deal in coming weeks.
The discussions reflect consolidation pressure among mobile virtual-network operators, ("MVNOs") as the cellphone 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.
Both 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 and MetroPCS, as well as the economic downturn, which has hit less affluent customers especially hard.
Helio, which sells high-end phones 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 and EarthLink, 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 hurt its own finances last year.
A merger would help both companies diversify the types of customers they target. Since they both use Sprint's network, it would also be relatively easy to merge them from an operational standpoint; but serving Virgin's prepaid customers and deeper-pocketed Helio subscribers could present marketing challenges. (info from The Wall Street Journal)