The mobile virtual network operator market continues to proffer a mixed bag for those that continue to dabble in its murky waters.
One of the segments stalwarts, Virgin Mobile USA Inc., posted third-quarter results last week highlighting struggles, but industry analyst expect the current economic malaise could spell a life line.
The MVNO reported that despite an 8% increase in gross customer additions during the quarter, an increase in customer churn to 5.5% saw the carrier lose 3,267 customers during the quarter compared with the gain of nearly 46,000 customers last year.
The carrier also saw its average revenue per user sink year-over-year from $20.59 in 2007 to $20.19 this year, but managed to offset the decrease in consumer spending by cutting operational expenses: cash cost per user slid from $12.81 to $12.62, while cost per gross addition dropped from $127.35 to $105.86. This helped Virgin Mobile USA turn around a third quarter 2007 loss of $7.4 million to a return this year of $4.1 million.
“Despite a challenging economic environment, we have not stood still,” said Dan Schulman, Virgin Mobile USA’s CEO. “In the third quarter we closed the acquisition of Helio, and just 21 days later announced the launch of Shuttle, our first EV-DO phone with integrated Helio data services offered to our prepaid and hybrid customers. . We are pleased with the trajectory of the business as we enter the holiday season.”
During the conference call Schulman said the MVNO’s holiday lineup is the strongest its ever had, providing a range of handsets from high to middle to low end quality. He also noted that the company is better positioned than it was last year to go into Thanksgiving weekend for “black Friday” shopping.
Upside ahead
And even though shopping might be a little downgraded this year, Dan Longfield, industry analyst for Frost & Sullivan, said Virgin Mobile USA will have nothing to worry about.
“I think they’re going to do fantastic if the economy stays bad,” he said. “[When the] economy is doing that well, people tend more to look at pre-paid or off-brand mobile carriers.”
Longfield said another factor that will bring customers to Virgin Mobile USA. About 75% of the U.S. population already has a mobile device and the penetration will go to 100%, but that last 25% is by no means the rich people; it’s a lot more likely for that demographic to go with a low-cost carrier like Virgin Mobile USA, he said.
Virgin Mobile USA said it expects to bring another 60,000 to 100,000 customers on board during the fourth quarter. To do that, Longfield said it’s critical for the operator to offer a smartphone.
“Smartphones are a bigger funnel of money going from customers’ wallets to the carrier,” he said. “What Virgin Mobile needs is inexpensive smartphone selections.”
Longfield also believes it will bode well for Virgin Mobile to continue to market to low end customers and not try to fight Verizon Wireless for its subscribers. Besides, Longfield noted, the economy is in a downturn and although he doesn’t expect it to have a big impact on Virgin Mobile USA, it might hit more expensive carriers where it hurts.
“They’re (Virgin Mobile) going to lose customers, that’s for sure,” he said. “But for everyone who quits Virgin Mobile, you’ll have 5 who drop off their $80 a month post-paid phone. They’ll gain more from people who can’t afford Verizon Wireless or Sprint Nextel, but can afford $20 a month.”
