Virgin Mobile USA confirms SK Telecom talks: Discussions could lead to MVNO merger

Following much speculation, Virgin Mobile USA Inc. confirmed today that it is in “preliminary discussions” with SK Telecom to “explore possible strategic opportunities.” Those opportunities are expected to include a possible merging of Virgin Mobile USA and SK Telecom-controlled mobile virtual network operator Helio L.L.C.
Virgin Mobile USA, which was one of the U.S. wireless industry’s first MVNOs and currently counts more than 5 million customers, has struggled financially since its initial public offering in October, which netted the company more than $400 million. Helio, which counts around 200,000 customers, has also struggled, posting an increase in net losses for the first quarter. (Helio’s results have been included in EarthLink Inc.’s financial results as EarthLink was an original partner in the MVNO with SK Telecom, but due to EarthLink’s own financial struggles the company is no longer funding Helio.)
Both Virgin Mobile USA and Helio target a similar youthful demographic, though through different means. Virgin Mobile USA’s offerings are strictly prepaid and thus revolve around a lower cost structure supported by average revenues per user of around $20 per month. Helio’s offerings are more upscale and include feature-packed, data-capable handsets and postpaid plans that have helped the MVNO generate ARPU’s well above the $50 industry average. Both carriers operate on Sprint Nextel Corp.’s CDMA network, which could ease any merger pains.
Virgin Mobile USA’s stock was up more than 30% this morning following the announcement to more than $4 per share.