Virgin Mobile Confirms SK Telecom/Helio Acquisition Talks

Helio Ocean deviceWhen Helio launched two years ago, the mobile service touting a sleek handset and backing from SK Telecom and EarthLink promised to pull in 3 million subscribers by 2009.

With some 200,000 customers in mid-2008, struggling Helio is now the subject of acquisition talks between Virgin Mobile USA and SK Telecom, the South Korean wireless carrier that has poured more than $440 million into the mobile startup along with EarthLink.

Virgin Mobile on Wednesday confirmed the talks, but declined to comment further unless a definitive agreement is reached. Helio's difficulties underscore the woeful record of so-called mobile virtual network operators, or MVNOs, that rely on existing wireless networks to offer branded voice and data services.

Amp'd Mobile, Disney Mobile and Mobile ESPN are among the most prominent MVNO failures. Like Helio, they aimed to lure upscale mobile users with an array of exclusive content and feature-laden phones. But the MVNO's high-priced devices and mobile data costs failed to catch on with large numbers of subscribers.

These ventures also withered in competition with Apple's iPhone, which has quickly amassed more than 5 million subscribers by setting a new standard for user-friendliness and efficiency among consumer smart phones.

With Helio possibly disappearing as a brand under Virgin Mobile, the era of entertainment-oriented MVNOs appears to be over. "The notion of the branded, content-heavy, hip MVNO has run its course," said Chris Collins, a senior analyst covering the mobile industry at technology research firm Yankee Group. "Consumers have figured out that if they can afford it, they can just get an iPhone and go with a major carrier (AT&T Wireless)."

And with 90% cell phone penetration in the U.S., he added that there are few potential new customers left for new mobile services to go after.

Where MVNOs have seen some success is in targeting users at the lower end of the mobile market. Virgin Mobile, for example, has pulled in 5.1 million customers with its teen-oriented service offering prepaid plans that do away with contracts. Likewise, TracFone Wireless' pre-paid phones have become popular with people who don't want to deal with wireless contracts.

"Other than Virgin and TracFone, none of the MVNO's have made a go of it," said Avi Greengart, research director for mobile devices at Current Analysis.

But analysts raised questions about the logic of a Virgin Mobile taking over Helio. While both operate on the Sprint network and are youth-focused, Helio requires subscribers to sign contracts. The services also target different ends of the economic spectrum, with Virgin Mobile aimed at cash-strapped teens and Helio geared to slightly older, more affluent hipsters.

"Helio's whole value proposition was to offer a very niche, advanced phone to more advanced mobile users," said Collins. "Virgin is more of a straightforward, prepaid offering." He speculated that Virgin Mobile could try to upsell users to Helio's high-end Ocean device after they become more sophisticated mobile customers.

Virgin Mobile has had its own problems lately. Last week, the company reported that net income dropped 75% to 4.7 million in the first quarter because of growing competition for prepaid customers. It also forecast net customer losses of between 130,000 and 160,000 in the second quarter.

After going public last year at $15 a share, Virgin Mobile's stock closed Wednesday at $3.37.

Next story loading loading..