As the Virgin Mobile rumor factory continues to pump out news stories, Sprint PCS finally brought some substance to the situation. The wireless carrier issued a brief, two-sentence release confirming that the two companies were in discussions, but that no definitive agreement had been reached.
Sprint representatives declined to elaborate beyond the statement, which said Virgin Mobile and Sprint have agreed on “certain preliminary matters” involving the sale of Virgin-branded wireless service in the United States.
Sprint’s announcement is significant in that it is the first statement about Virgin Mobile’s entry into the United States that doesn’t involve an anonymous industry source. Media reports in recent months have detailed talks between Virgin Mobile and a variety of carriers, including Nextel Communications Inc., VoiceStream Wireless Corp. and AT&T Wireless Services Inc. Virgin Mobile has made a lot of news since setting its sights on the United States, which RCR Wireless News first reported last year.
Virgin Mobile, a 50-50 joint venture company between Virgin Group and Deutsche Telekom’s One 2 One, is a mobile virtual network operator and boasts close to a million subscribers. The United Kingdom-based company piggybacks on One 2 One’s network and uses unique marketing tactics like single tariffs and lower unit prices-along with its hip, teen-savvy image-to attract new customers. Virgin Mobile, like most MVNOs, interconnects with its parent’s network and provides its own customer acquisition, customer service, billing and collection services. A Virgin Mobile customer knows only of Virgin Mobile, not the parent company.
And for close to a year, Virgin Mobile has been wheeling and dealing with companies in the United States in hopes of setting up a similar piggyback situation. It seems Sprint is the leading contender, but Sprint cautioned that there are “no assurances that any transaction will be consummated” with Virgin Mobile.
“Anything can happen in this crazy market,” said Jane Zweig, chief executive officer of The Shosteck Group. “My guess is that they (Virgin Mobile) are considering Sprint’s network because Sprint is launching their 1xRTT network.”
Sprint plans to upgrade its current CDMA network with 1xRTT enhancements, which the company said will significantly improve its network capacity and efficiency. The result could be especially beneficial for Virgin Mobile, which-if a deal is inked-would be in the unique position of competing against Sprint PCS while adding more subscribers to Sprint PCS’ network.
While Virgin Mobile has proved a force to be reckoned with in the United Kingdom, it may not be as much of a player in the U.S. market, Zweig said.
“In the U.S. (the Virgin brand name) is not as strong,” she said.
In the United Kingdom, Virgin Mobile relies on name recognition, which it uses to sell everything from airline services to books. As a virtual network operator, Virgin Mobile has caught the attention of carriers excited about the revenue prospects the Virgin name can bring to the wireless industry. This is especially true for third-generation technology, where revenue prospects aren’t so certain. In Europe, Virgin has deep pockets, extensive distribution channels and a large appeal to newer demographics like teens.
The situation might be a little different in the United States, however, because Virgin doesn’t have as extensive a reach as it enjoys in Europe. In the United States, Virgin is mainly known for its hip music stores.
Zweig said Virgin Mobile’s prosperity stems from its solid pricing plans, its large distribution channels in Europe and its vested interest in the network.
“Those three points are what we feel is behind Virgin’s success,” she said.
And while Virgin Mobile’s reach is not as strong in the United States as it is in Europe, it may well be able to market wireless services to customer segments-most notably the teen market-that have been relatively overlooked by other carriers.
According to the Yankee Group, the youth and teen market could become the most profitable wireless customer segment in the next few years. And that group has been grossly ignored by today’s wireless carriers, the Yankee Group said.
With this in mind, Virgin Mobile USA could become a force to be reckoned with, snapping up mobile-happy teens with savvy marketing and targeted pricing. That is, of course, if it manages to score a U.S. partner.
