Nearly six months after United Kingdom-based Virgin Group and Sprint PCS announced they formed Virgin Mobile USA, the U.S. wireless industry continues to wait for the launch of the highly touted mobile virtual network operator venture.
But, since the announcement last October, there has been little hint of the partnership that was going to shake up the U.S. wireless industry the same way it did in the United Kingdom when Virgin launched as the fifth wireless carrier, piggybacking on One 2 One’s wireless network.
While both Virgin Mobile, which invested $50 million in cash in the venture, and Sprint PCS, which invested $50 million in services, declined to comment on the status of the partnership, saying they were in a quiet period, many analysts expect the service to launch soon.
“I think they plan on launching services this year,” said Tole Hart, senior analyst at Gartner.
Sir Richard Branson, founder and chairman of Virgin Group, said recently at the 3GSM World Congress in Cannes, France, that the partnership plans for Virgin Mobile USA would be announced imminently.
Sprint PCS also hinted during the recent Cellular Telecommunications & Internet Association show that the venture would launch this year, perhaps as early as summer.
One of the proposed advantages of the venture is Virgin’s ability to tap into the rapidly growing youth market with its prepaid offering. A report from The Strategis Group projected the 15- to-19-year old wireless consumer market is expected to increase 184 percent by 2007, with the 20- to 29-year old market rising 93 percent in the same period.
Virgin has signed up more than 1.5 million customers to its U.K. network since it launched in late 1999, and it recently said it expects to add more than 500,000 subscribers this year, outpacing Vodafone plc, Orange, MmO2 and One 2 One. Virgin was also the only U.K. carrier to increase its net customer additions during the fourth quarter of 2001 compared with the previous year.
While there may be some trepidation in catering to the U.S. prepaid market, Branson said network operators should embrace Virgin’s business model. “I believe no self-respecting GSM or future UMTS network could afford to be without an MVNO,” Branson said in Cannes.
Virgin outlined benefits of MVNOs including a share of new revenues and the creation of a business with sizeable capital value; lower set up costs; risk diversification; a different brand to attract different customers; and an MVNO’s ability to attract a churning customer instead of letting them go to a rival.
But while Virgin’s U.K. mobile business continues to grow, its other international operations have seen their share of trouble. Virgin recently cut the price of its SMS offering in Singapore in half to compete with rivals, and reportedly had signed up less than 10,000 subscribers in the Asian country since it launched.
The somewhat slow response has not tempered Virgin’s international plans. The company expects to launch service in other European markets, Africa, China, India, Indonesia, Hong Kong, Taiwan, Vietnam and throughout Southeast Asia and the Pacific Rim.
Virgin faces a U.S. wireless industry that has slipped into a funk since its deal with Sprint PCS was announced, leading some to question the value of adding prepaid customers at which Virgin’s pay-as-you-go service is targeted. Instead, carriers are trying to focus on subscribers they can sign up on long-term contracts, guaranteeing they see a return on their investment.
Adam Guy, senior wireless analyst with The Strategis Group, said Sprint PCS should be able to bypass any potential downward pressure Virgin’s customer base may have by reporting the results separately from its own. This should leave Sprint PCS with the incremental revenue advantage the venture will provide without dragging down its average revenue per user or customer churn results.
Virgin also will have to deal with a U.S. market that has not been as accepting of its brand name as U.K. consumers. The company has had to close a number of its Virgin megastores recently and who can forget, or remember, Virgin Cola.
In addition, analysts have noted Sprint PCS already offers a similar service through its Clear Pay program, which the carrier has aggressively marketed since last summer.
Gartner’s Hart noted that while there could be some conflict between the two services, Virgin’s specific targeting of the youth market should allow both to co-exist.
