Highlighting the increasingly competitive nature of the prepaid market, Virgin Mobile USA Inc. posted second quarter results today that showed a loss of customers during the quarter. Despite the customer losses, the carrier did manage to post surprisingly robust financial results ahead of expectations.
The mobile virtual network operator, which last month announced it would be acquired by network host Sprint Nextel Corp., said it lost nearly 270,000 customers during the second quarter and more than 400,000 for the first half of the year due to “intensified competition” and a change in its handset mix that provided for fewer low-end devices.
A slight drop in customer churn during the quarter from 5.6% in 2008 to 5.3% this year, was not enough to compensate for a plunge in gross customer additions from 728,000 last year to 536,000 this year. Virgin Mobile USA did note that an increasing number of customer additions had signed up for its hybrid and unlimited plans with 21% of new customers going with the $50 per month unlimited offering during the quarter compared with 3% adoption of its previously offered $80 per month unlimited plan.
Average revenue per user dipped from $19.49 during the second quarter of 2008 to $18.98 this year, which the carrier attributed to formerly higher-paying customers migrating to its $50 per month unlimited plan, while cash cost per user and cost per gross addition remained relatively flat at around $12 and $113.50 respectively.
Virgin Mobile USA posted $290 million in service revenues for the quarter, which was down slightly from $293.8 million reported last year, but thanks to greater operational efficiencies the carrier posted an increase in net income from $5.5 millon, or 8 cents per share, to $21.8 million, or 27 cents per share.
Sprint Nextel’s $483 million acquisition of Virgin Mobile USA is expected to close late this year or in early 2010.
Prepaid competition hits VMU: MVNO losses customers, posts strong financials
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