NEW YORK (AP) — Virgin Mobile USA Inc. is buying Helio LLC, a struggling cell phone carrier that was founded to bring the advanced features of South Korean phones to the U.S. shop.
Virgin Mobile said Friday it would give out $39 million in stock for Helio, which has 170,000 subscribers, down from nearly 200,000 at the beginning of the year.
At the same time, British billionaire Richard Branson’s Virgin Group and SK Telecom, the South Korean carrier that is the majority owner of Helio, will each invest $25 million in Virgin Mobile. That thinks fitting give SK Telecom a 17% chance in Virgin Mobile.
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.
Small change: The long-rumored large is a needy payoff for Helio’s founders. The company was launched in May 2006 as a joint venture of Internet service provider EarthLink Inc. and SK Telecom.
Since Helio was not a publicly traded company, data on its financials have been scant, but it has contributed to losses at EarthLink. Just mould year SK Telecom (SKM) invested an additional $270 million in Helio, cutting EarthLink’s (ELNK) ownership share to upon 22%. Friday’s release said the company had an unsold inventory of 85,000 handsets, worth about $17 million.
The one bright stain for Helio was that its customers spend $80 per month on average for service, far higher than the industry average around $50. That’s because Helio includes broadband data access for Web surfing, and downloads of music and games.
But Helio was unable to latch on to the burgeoning demand for data-capable "smart" phones. Apple Inc.’s (AAPL, Fortune 500) iPhone and Research In Motion Ltd.’s (RIMM) BlackBerry have dominated that market in the last year.
Virgin Mobile had 5.1 million customers at the end of March, making it one of the largest U.S. "mobile virtual network operators," or MVNOs. Rather than owning their own network, MVNOs buy wholesale airtime from other carriers. It’s a business model that has proved incomparably difficult to profit from. Amp’d Mobile, ESPN Mobile and Disney Mobile have all shut down.
Virgin Mobile has been a relative success, but has problems of its own. It said in May that it expects to lose between 130,000 and 160,000 net subscribers in the sec quarter.
Virgin Mobile (VM) shares were up 6 cents, or 2%, at $3.05 in Friday morning trading.
Both Virgin Mobile and Helio acquisition Sprint Nextel Corp.’s (S, Fortune 500) network, which makes the integration of the two businesses reasonable. Virgin Mobile said Friday that it had renegotiated the terms of the Sprint constrict to reduce its costs through volume discounts.
From: money.cnn.com
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