Virgin Mobile acquires Helios to enter postpaid zone

28 June 2008

Virgin Mobile USA Inc said yesterday that it plans to buy Helio LLC, the American mobile arm of South Korea's SK Telecom Co Ltd., for $39 million in equity.

Helios was launched in May 2006 as a joint venture of internet service provider EarthLink Inc. and SK Telecom to bring the advanced features of South Korean phones to the US market. However, it has been unable to deliver on its promise and had been accumulating losses and losing customers of late. The number of subscribers currently stands at 170,000, down from 200,000 a year ago.

Since Helio was not a publicly traded company, data on its financials have been scant, but it has contributed to losses at EarthLink. Just last year SK Telecom invested an additional $270 million in Helio, cutting EarthLink's ownership share to about 22 per cent. Friday's release said the company had an unsold inventory of 85,000 handsets, worth about $17 million.

Virgin Mobile, which is partly owned by Richard Branson's Virgin and Sprint Nextel Corp, serves more than 5 million customers. Its growth has been slowing amid growing competition from rivals and a weaker US economy.

In contrast to traditional mobile service operators like Vodafone, Virgin Mobile is a mobile virtual network operator (MVNO). Rather than owning their own network, MVNOs buy wholesale airtime from other carriers. It's a business model that has proved exceedingly difficult to profit from. Amp'd Mobile, ESPN Mobile and Disney Mobile have all shut down.

Virgin Mobile indicated that it will keep operating Helio's advanced data services and its contract-based service plans. Virgin Mobile's own plans are prepaid and lack contracts. But the Helio brand will likely be phased out, said Dan Schulman, Virgin Mobile's chief executive. It might be kept in the Korean-American market, where Helio is popular.