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Summary:

Sprint said today that it’s agreed to buy Virgin Mobile USA, a provider of prepaid cell phone service that runs on Sprint’s EVDO network, for $483 million in stock. With this deal, Sprint will get some 5.2 million prepaid customers, though its position as the No. […]

02Sprint said today that it’s agreed to buy Virgin Mobile USA, a provider of prepaid cell phone service that runs on Sprint’s EVDO network, for $483 million in stock. With this deal, Sprint will get some 5.2 million prepaid customers, though its position as the No. 3 U.S. cell company will remain unchanged. It’s taking on one of the prepaid carriers benefiting the least from the excitement surrounding the prepaid business, but since Sprint already owned 13.1 percent of Virgin Mobile USA, maybe it was a case of an unattractive suitor settling on his ugly cousin for a date to the prom.

In terms of new customers, the prepaid business has been a bright spot in the wireless industry (GigaOM Pro, subscription required) as the economy has soured, but rivalry among carriers has led to all-you-can-eat plans for around $50 per month that have lowered their annual revenue per user. Virgin Mobile hasn’t benefited as much as rivals TracFone Leap Wireless or Metro PCS when it comes to adding customers, but has still managed to boost its profits. It reported net income of $19.1 million in its fiscal 2009 first quarter compared to $4.7 million in the first quarter of 2008, a 301 percent gain. Meanwhile, Sprint’s own financial results were grim.

Sprint, which reports second-quarter results tomorrow, added 764,000 prepaid customers to its Boost Mobile subsidiary during its first quarter but saw 1.25 million post-paid subscribers — the source of the big money for any carrier — removed from the books. It posted a net loss of $594 million and blamed its continuing problems on the economy. Boost has helped Sprint’s business, but it also brings in less money for the carrier with annual revenue per user (ARPU) for prepaid subscribers at $31 vs. $56 for a postpaid subscriber. Boost also operates primarily on Sprint’s iDEN network, which it acquired when it bought Nextel in 2005.

The iDEN network has had problems keeping up with the volume of text messaging engaged in by Boost subscribers, leading to complaints that Sprint says it has since resolved. However, since Sprint recently signed a deal to outsource the day-to-day operations of its network to Ericsson, it might make sense for Sprint to shift its Boost brand over to the EVDO network and gradually shut down the iDEN network to consolidate operations and costs.

The Virgin deal may force Sprint’s hand, as it will mean the carrier has two separate prepaid brands running on different networks — a cost drain in a highly competitive business. When asked about the likelihood of consolidating networks, a Sprint spokeswoman said in an email that the two networks would remain separate. “We intend to keep Boost and Virgin Mobile USA operating as separate but complementary brands in the marketplace, each focused on a different end of the customer base,” she wrote. “Boost and Virgin Mobile USA will balance different offers and styles to appeal to different customer demographics.”

Following the close of the transaction, Sprint’s prepaid business will be led by Dan Schulman, currently Virgin Mobile USA chief executive officer, who will report directly to Dan Hesse, Sprint Nextel’s president and CEO. Schulman will be responsible for the business strategy and growth of the prepaid segment, while Matt Carter, who leads Boost Mobile, will report to Schulman.

  1. with all the cool GSM smartphones showing up for sale second hand what we really need in america is a cheap GSM MVNO prepaid option with cheap data.

    i am interested though to see what happens with current boost mobile data plans if and when the switch is made to EVDO. $49.99/month for unlimited everything is a great deal if it were not for the antiquated iDEN network. but am also very interested in whether or not sprint will now allow used sprint phones to be activated on virgin mobile plans. this could be a big deal. one of the main attractions of leap and metroPCS is that they allow any flashed over phone(from sprint, verizon, alltel, whoever) to be activated for use on there network. if the new virgin allows a cheap prepaid data plan to be setup on say a used palm pre this could be a really great deal.

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  2. SOCIAL MEDIA VS TRADITIONAL MEDIA: BLIND TASTING

    I did an experiment – I read this same story on Wall Street Journal online and GigaOM. The story on GigaOM had a lot more depth – I liked the GigaOM version. Of course, if this were a blind tasting, where I did not know the source of the article, I would not have known which came from the WSJ and which came from GigaOM. How is GigaOM different from traditional/mass media!

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  3. [...] cell phone business, which may face its own issues in the coming months as Sprint plunks down $483 million to buy Virgin Mobile USA — a deal it announced [...]

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  4. I really hope that if Sprint is taking over Virgin Prepaid Mobile, that they start making some kinds of changes to their offers and plans. Right now Virgin has $10 prepaid cards with 120 minutes that are only available to buyers with low income. Why am i not fond of this? Because it’s not available to me! If Virgin is going to be making these kinds of “special offers” and is being socially conscious (all of a sudden mind you), then i think that they should make this offer available to everyone and not just the select few. I have used Virgin for almost a year now, and I have yet to get a discount. Help ME out Virgin, THE PERSON WHO IS ALREADY A CUSTOMER!!! :/

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  5. [...] industry (as evidenced, most recently, by Sprint’s announcement last week that it plans to buy Virgin Mobile USA as part of a move toward more prepaid clients), we thinks it’s an important area on which to [...]

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  6. [...] | Monday, August 10, 2009 | 7:51 AM PT | 0 comments Virgin Mobile USA, which recently agreed to be acquired by Sprint for $483 million in stock, said today its sales for the second quarter were largely unchanged from [...]

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  7. [...] we’re watching Sprint buy Virgin Mobile [for the prepaid market] and you’ll see more acquisitions and mergers like that from [...]

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  8. [...] Om Malik | Tuesday, August 25, 2009 | 7:31 AM PT | 0 comments Sprint’s $483 million purchase of prepaid phone services giant, Virgin USA has been approved by the Federal Trade Commission [...]

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  9. [...] VirginMobile USA provides wireless products and services.  Press Release   VentureBeat   GigaOM [...]

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