SK Telecom Eyes Virgin Mobile USA

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Helio and Virgin both use Sprint's network to provide wireless service and account for about 10% of Sprint's subscribers and more than half of its wholesale users. "Sprint is in a very different spot within the slowing wireless industry," says Chris King, an analyst with Stifel Nicolaus & Co. "Everyone's been feeding off [Sprint's] subscribers." (Sprint declined to comment on SK Telecom and Virgin's discussions.)

Virgin's Higher End?

Virgin Mobile has hit on rough shoals since its initial share sale (BusinessWeek.com, 2/14/07) in October, when it made its at 15. The stock has since tumbled amid the company's sluggish subscriber growth and a heavy debt load. Shares were worth 3.04 the day before the discussions with SK Telecom were made public and rallied to 3.43 as of the close of trading on May 16.

Virgin Mobile eked out a profit of $4.7 million on sales of $304 million in its most recent quarter. "They need to be more creative about products and services," says Samir Sakpal, an analyst at consultancy Frost & Sullivan. Virgin has been experimenting with more expensive calling plans, and a tieup with SK could help the company grab higher-end users.

A Helping of Helio

SK Telecom would surely try to use a link with Virgin Mobile to shore up Helio, which has not lived up to expectations. Last year, Helio lost more than $90 million a quarter, or nearly twice its revenue. Helio's subscribership is about 200,000 users, where it has remained since December. SK Telecom could reduce expenses in part by combining Helio and Virgin Mobile's IT and other operations.

The two smaller companies would also benefit from combining their hip, youth-focused applications. Helio offers mobile access to social networking site MySpace, while Virgin provides access to Facebook and Xanga.com. Helio also offers advanced video applications and an over-the-air music service that Virgin may want to copy.

Teaming up may be the last, best hope for Helio and Virgin Mobile. Several in their peer group, including Disney Mobile, ESPN Mobile, and Amp'd Mobile, have recently exited the market, leaving customers in need of a new home.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore. Moon is BusinessWeek's Seoul bureau chief.