Virgin Mobile USA is in talks with SK Telecom over a possible deal involving Helio, the U.S. mobile operator that gears itself toward affluent youngsters but has struggled to make a profit since its launch.
The talks, which could potentially lead to an acquisition or an investment, are in the early stages, and Virgin said Wednesday that it didn't expect to comment further unless an agreement is reached.
Helio was founded by SK Telecom and EarthLink in 2005 and launched the following year. It is known as a mobile virtual network operator (MVNO) because it rents capacity from a third party rather than owning its own network. SK Telecom became the majority owner after EarthLink reduced its ownership to 22 percent last year.
Both SK Telecom and EarthLink have sunk hundreds of millions of dollars into Helio, which continues to post losses despite boasting some of the best customer spending and usage metrics in the mobile industry.
At the end of last year, Helio said its users spent more than US$85 per month, compared with an industry average of $50. Helio customers send an average of 550 text messages per month, and 95 percent of Helio users access the Web from their phones, the company said at the time.
Still, EarthLink expected Helio to report a year-end loss for 2007 of as much as $360 million on revenue of as much as $170 million. That's after SK Telecom and EarthLink started the company with a combined $440 million. Since then, both companies have made additional investments in Helio.
Virgin Mobile USA's earnings for the first quarter were down from the same period a year earlier. It had 5.1 million subscribers in the first quarter, compared to Helio's 200,000 at the end of 2007. Like Helio, Virgin Mobile USA is also an MVNO, and both use Sprint's network to deliver their service.
The companies have different types of customers, however. While Helio is after big-spending mobile users, Virgin offers only prepaid services and targets people looking for a lower-cost service. Combining the companies could allow the new entity to offer both pre- and post-paid service and attract a wider spectrum of the market.
Helio and Virgin aren't the only struggling MVNOs. Amp'd, which was also geared toward young mobile users, filed for bankruptcy and then shut down last year. Other MVNOs such as ESPN Mobile and Disney Mobile have suffered similar fates. In addition, Qwest dealt a blow to the concept of MVNOs earlier this month when it decided to stop selling its own branded mobile service, using Sprint's network, and begin selling service branded by Verizon.