Virgin Mobile USA-Helio merger: ‘What do they get out of it?’

Mobile virtual network operators Virgin Mobile USA Inc. and Helio L.L.C. have few things in common other than a subscriber base that operates on Sprint Nextel Corp.’s network. And yet the struggling companies are said to be in merger talks nonetheless, according to media reports.
“One has a lot of customers and low ARPU (average revenue per user) and one has a few customers and high ARPU,” said Roger Entner, senior VP of the communications sector at IAG Research. There is a correlation, Entner added, because “if you want a lot of customers, ARPU has to come down.”
According to the Wall Street Journal (subscription required), that a tie-up would primarily be a move to stave off competition from flat-rate carriers Leap Wireless International Inc. and MetroPCS Communications Inc. and address the economic recession that’s hitting the low-end market especially hard.
Indeed, Virgin Mobile and Helio clearly target different types of customers, with Helio hyping an array of data-heavy applications, postpaid plans and unique devices while Virgin Mobile goes after a customer base more interested in cheaper minutes and SMS.
“Helio, in a way, are the rich, cool kids and Koreans, and Virgin are more like the average kids,” Entner said. “But there are a lot more average kids out there than rich kids out there that desperately want to be cool and have $100 a month to prove it.”
“What looks attractive from the Helio side is that they could bring a lot of things over to the Virgin platform,” Entner said.
Still, Entner doesn’t see much for Virgin Mobile to gain through the deal, as Helio’s total subscriber base of about 200,000 would merely be a “good quarter for Virgin.” Virgin Mobile ended the last quarter with 5.1 million customers.
“Helio would need this merger more than Virgin does. Virgin’s success is not contingent on having Helio or not,” Entner said. “Helio is the one that isn’t getting anywhere.”
Entner concludes: “I’m not surprised that they are talking, but it’s like what do they get out of it?”
A Helio spokesman declined to comment, saying only that it was “rumor and speculation.” SK Telecom, which is the parent company of Helio, couldn’t be reached for comment. However, an SK Telecom spokesman denied that the company is in talks to merge Helio with Virgin Mobile USA, according to Dow Jones.
Rumors of a Helio-Virgin Mobile linkup was first reported by Moconews.net and later by Reuters.