Virgin Mobile USA will buy mobile virtual operator Helio for $39 million in stock, the company said Friday.
The company said the acquisition will allow it to enter the more lucrative field of monthly contracts, cut operation costs, and reduce the amount it pays to purchase wireless capacity from Sprint Nextel.
As part of the deal, Virgin Group, which owns Virgin Mobile USA, and SK Telecom, the majority stakeholder in Helio, will each invest $25 million in the combined company.
"We believe that the acquisition of Helio and the related strategic investments by SK Telecom and Virgin Group are of enormous benefits to our business, both financially and strategically," said Dan Schulman, CEO of Virgin Mobile USA, in a statement. "It provides us with a firm foundation to create a truly holistic, leading-edge product suite to service all of our existing and prospective customers."
Helio has approximately 170,000 subscribers on one-year or two-year contracts who will be absorbed into Virgin Mobile's existing 5.1 million prepaid customer base. It should be a smooth transition, as both companies use Sprint's network to deliver service.
Both companies target a younger demographic, but the companies go for a different ends of the spectrum. With its prepaid services, Virgin Mobile targets customers who have little or no credit, or customers who don't want a contract. Most phones from Virgin Mobile can be purchased for $30 or less.
By contrast, Helio targets users who want data-heavy services like YouTube and Google Maps on sophisticated handsets like the Ocean. Its customers spent $80 a month on average for services, one of the highest averages in the industry.
Additionally, Virgin Mobile said it can cut costs by combining the companies. These saving will come mainly from reducing head count and streamlining operations.
The move also gives Virgin Mobile extra negotiating power with Sprint. The company said it already has renegotiated its contract with Sprint and expects to receive a minimum of an 8% reduction in the cost per minute in 2009.
Word of the deal leaked earlier this week, and the acquisition is expected to close in the third quarter of 2008. Helio is the latest mobile virtual network operator that's failed in the U.S. market, joining the likes of ESPN Mobile, Amp'd, Voce, and Disney Mobile.