Virgin Mobile USA treads a quirky path to success

— -- Big cellphone carriers such as AT&T and Verizon Wireless are famous for herding customers into long-term service contracts. Virgin specializes in prepaid plans that allow its customers — half of them under 35 — to pay as they go, by the minute or by the month.

That difference is what distinguishes Virgin, CEO Dan Schulman says. It's also what keeps Virgin on its toes. Because there's no contract, there's nothing to prevent people from leaving, Schulman says. "You really have to earn your keep every single day."

Virgin has about 5.1 million customers, a fraction of the 140 million-plus controlled by AT&T and Verizon, the No. 1 and No. 2 U.S. carriers. But Virgin is one of the biggest "MVNOs" in the USA.

Short for "mobile virtual network operator," MVNOs lease network capacity from other carriers. In Virgin's case, that's Sprint. Most MVNOs simply re-brand the services of another wireless carrier under their own names. Not Virgin: It retains control over all "backroom" operations, including customer service and billing.

"If you're trying to differentiate yourself by focusing on the customer, you don't want to be beholden" to another carrier, Schulman says.

Virgin's approach appears to be working. The carrier has won the coveted J.D. Power award for top service in the prepaid category for the past two years. Its impact is undeniable, particularly among younger consumers. Roger Entner, a senior vice president at IAG Research, calls it "the original youth carrier in this country."

Entner credits "tight focus on a really defined market segment" for Virgin's success and gives kudos for that to Schulman. An 18-year veteran of AT&T, Schulman launched the label in 2002.

Part of the magic is Virgin's counterculture approach, says Charles Golvin, a senior wireless analyst at researcher Forrester. For years, traditional wireless carriers made it difficult for younger consumers who had no or short credit histories to get service contracts.