Virgin Mobile Buys Helio, Moves into Postpaid Market

Virgin Mobile has just announced that it is acquiring Helio and will be merging Helio's 170,000 customers into its network. This leaves Virgin as the only significant mobile virtual network operator (MVNO) in the country. The deal is worth roughly US$39 million to Helio parents SK Telecom (of Korea) and Earthlink Communications (of the U.S.). When all is said and done, SK will end up with a roughly 17% stake in the new Virgin Mobile company and will control two seats on its board of directors.

Virgin Group, Virgin Mobile's majority owner, and SK will each put an additional $25 million into Virgin Mobile and will also make additional funds available in a line of credit that the company will use to pay down Helio's debts and to cover integration costs.

Virgin Mobile intends to use the acquisition of Helio to make its entrance into the often lucrative postpaid market. Virgin has offered only prepaid or hybrid accounts in the past. Virgin claims that Helio's platform and infrastructure will allow it to save 12 months worth of effort that it otherwise would have had to expend in order to offer postpaid contracts to customers. Additionally, Helio's extra voice and data volume will allow the new combined company to pay lower rates to host network Sprint, saving the company an expected 8% over its current network costs per unit.

The press release also stated that Helio is required to make "significant cost reductions" before the deal closes, which is expected in Q3 of this year. This likely will mean a lot of lost jobs, and possibly the closure of Helio's retail locations. On the up side, Virgin appears intent on keeping Helio's services going and will use the merger as a means to move into the high-end handset market. It will inherit a stockpile of 85,000 Helio handsets worth roughly $17 million.