Virgin Mobile USA Confirms Helio Acquisition

• Posted: Sunday, June 29, 2008
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• Author: pradhana
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• Filed under: Merger-Acquisition

By Jason Ankeny

Virgin Mobile USA officially confirmed it will acquire rival MVNO Helio from SK Telecom and EarthLink. Per terms of the deal, SK and EarthLink will receive limited partnership units equivalent to 13 million shares of Virgin Mobile USA class A common stock, valued at $39 million based on June 26 closing prices. The transaction is expected to close in the third quarter. Parent firm Virgin Group and SK Telecom will also invest $25 million each of equity capital in the post-merger Virgin Mobile USA--through its holding of limited partnership units and preferred stock, SK Telecom will own approximately 17 percent of Virgin Mobile USA, and will take two seats on the company's board of directors.

The deal enables Virgin Mobile USA to transition into the postpaid subscriber market-- last month, the MVNO reported first quarter net income of $4.8 million, down 75 percent year-over-year, and announced anticipated Q2 subscriber losses between 130,000 and 160,000.

According to Virgin, roughly 20 percent of those lost subscribers move on to postpaid operators. Helio reported in January subscriber totals approaching the 200,000 mark, with ARPU of roughly $80. The acquisition also allows Virgin to add a suite of new data applications and services, including partnerships with YouTube, Google and MySpace.

Virgin Mobile USA will also revise its network capacity agreement with Sprint Nextel, and said it expects to achieve a minimum of an 8 percent reduction in its effective cost per minute in 2009, with further reductions over the next three years. The new deal means Virgin Mobile USA's cost per minute is now tied directly to the volume of network traffic it generates, and will no longer be dependent on Sprint's network costs.

According to Virgin, the new volume discount structure allows additional flexibility in pricing--moreover, effective July 1, Sprint will provide a $2.50 network usage credit to Virgin for each gross customer addition, with a cap at $10 million. Some may suggest Helio's demise heralds the official end of the MVNO era. But as long as P Diddy lives, MVNOs will never die. [FierceMobileContent]

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