Struggling telecommunications giant Sprint has announced it is buying pre-paid MVNO Virgin Mobile USA in a deal worth upwards of $480 million—although only $248 million will come out of Sprint’s coffers when the deal goes through. The acquisition in designed to help Spring become a bigger player in the growing market for pre-paid calling: as financial times have gotten tough, consumers have increasingly opted out of pricey subscription plans and opted for pay-as-you-go mobile plans. The deal will add about 5 million new customers to Sprint’s remaining 50 million-or-so wireless users.
“The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment,” said Sprint CEO Dan Hesse, in a statement. “Prepaid is growing at an unprecedented rate with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand.”
Virgin Mobile is the second largest MVNO operating in the U.S.—the largest is TracFone—and Virgin Mobile has always used Sprint’s wireless network. Virgin Mobile and Sprint don’t have much overlap on devices: Virgin Mobile has focussed on relatively inexpensive handsets from the likes of Kyocera and Samsung, while Sprint has aimed at higher-end devices—most recently the Palm Pre. Sprint plans to operate Virgin Mobile as a second pre-paid mobile brand, similar to how Virgin was handling Boost Mobile.
The deal raises questions about the future of Helio, another Sprint-based MVNO that Virgin Mobile acquired a little over a year ago for $39 million. Currently, the companies indicate Helio customers will not be impacted by Sprint’s acquisition of Virgin Mobile.
The deal values Virgin Mobile at $483 million; when the deal closes in the fourth quarter of 2009, Sprint plans to pay off about $205 million in Virgin Mobile debt.
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