IPO Time for Virgin Mobile USA?

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Rival Innovators

No doubt the iPhone will resonate with the same young crowd that other carriers are going after, says Michael Mahoney, managing director at EGM Capital hedge funds, which, he says, might consider investing in Virgin if it goes public. "I don't think Virgin's brand is as strong as Apple's brand," he says. "Apple has the strength as a technology leader and a strong brand."

What's more, newcomers to youth-oriented wireless services appear to have grabbed Virgin's spot as wireless-services innovator. Amp'd Mobile, financed by the likes of chipmakers Intel (INTC) and Qualcomm (QCOM), as well as MTV, began offering its services in January, 2006. Helio, a joint venture between Internet service provider (ISP) EarthLink (ELINK) and Korea's SK Telecom, debuted last May. Both companies focus on a tighter age range than Virgin, and on pricey but cool applications and content.

"We've reached the state of the industry where the large wireless brands are like large department stores, and we're like Urban Outfitters," says Sky Dayton, CEO of Helio and the founder of EarthLink.

Helio, for instance, offers its users exclusive phones (see BusinessWeek.com, 5/3/06, "Helio's Hot New Line"). One handset, the Drift, announced in November, is a slim slider phone with a global positioning system (GPS) powering Google Maps for mobile. Armed with this phone, users can figure out where they are and get directions and information on how to avoid traffic jams. Helio has some 70,000 users who pay an average of more than $100 a month for the service. Mainstream mobile carriers manage to eke out a little more than half that much in revenue per user.

Instant Access

Amp'd, which offers prepaid and postpaid plans, provides users with exclusive content, such as the popular Lil' Bush: Resident of the United States cartoon (see BusinessWeek.com, 11/1/06, "Amp'd to Tap Japan's Mobile Market"). Amp'd recently inked deals for exclusive content with Hollywood heavyweights like comedian Jack Black and Icebox, a Web animation company co-founded by Howard Gordon, the executive producer of 24 and The X-Files.

Amp'd's 100,000 subscribers buy up to 10 times more content than users of most major U.S. carriers—and more than 30% of the music and video they buy is original content vs. clips available elsewhere. "We're seeing tremendous traction," says Bill Stone, president of Amp'd, which hopes to gain hundreds of thousands of new subscribers this year. Many of these users are coming from "other youth carriers," he says.

Another rival in the under-24-year-old category, Boost, also is gaining on Virgin thanks to several popular features. Wholly owned by Sprint, Boost markets a service called CHIRP—a walkie-talkie function allowing customers to instantly reach other Boost and Sprint users. "We're the largest youth brand now," claims Darryl Cobbin, chief marketing officer at Boost.

Swimming with Sharks

Virgin says its young subscribers get among the lowest prices in the industry, and that its users don't want many of the bells and whistles other carriers offer. Virgin uses focus groups to evaluate new product ideas, and the company's offerings are based on that feedback, says Schulman.

Schulman says Virgin Mobile USA continues to innovate: It became among the industry's first to offer customers free minutes for watching relevant mobile ads. It's expanding its lineup of plans and retail partners and making its phones easier to recycle. Indeed, surveys show that 95% of Virgin's customers would recommend the service to a family member or a friend, and 75% of them have done so. "So far, so good," says Schulman.

Some of Virgin's rivals brag of similar metrics, but Schulman warns that they won't have clear sailing ahead. "These waters are cold, with a lot of sharks," he says. "It's not as easy as it looks." But so far, it seems, Virgin's rivals haven't hit any shark-infested waters.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.