The Death and Buyout of Helio

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Eddie Hold is the vice president of consumer services at Current Analysis and he says that even though other mobile virtual network operators (MVNOs) still exist, such as kid-focused Kajeet, Helio's end marks the deathof an era because Helio was the last of the big-profile MVNOs.

Despite its flashy brand and the star power of founder Sky Dayton, Helio still crumbled. The company was a joint venture between Internet service provider Earthlink and Korean operator SK Telecom. Dayton had also started Earthlink but did not have direct experience with the mobile industry. Hold says that he has never bought into the genius of Sky Dayton and he also asked what did Earthlink ever get right in the wireless market?

Helio's "best of both worlds" strategy of offering the coolest phones with advanced data services sounded great and paper. Not only that but Helio received kudos for introducing some innovative services, such as partnerships with Myspace, YouTube and Flickr. The premium offering also carried a premium price with plans that ranged from $65 to $99 a month.

Helio's phones had flaws and they were supposed to be the company's key selling point. The Ocean, its most eye-catching model, won early raves for its sliding QWERTY keyboard, fast 3G data access and global positioning system but overtime it suffered because of comparison to T-Mobile's Sidekick. Hold says that people either hate or love the sidekick but either way people probably wouldn't buy the Ocean phone because the market was already taken.

Other MVNO failures such as Amp'd Mobile to Disney Mobile to Mobile ESPN, may have scared off consumers. Hold says that when people sign a contract for two years they want to feel sure that the company will still be there two years from now.

Virgin Mobile is based in Warren, N.J. and is partly owned by Richard Branson's Virgin Group and Sprint Nextel. The company has five million customers and when Virgin launched in 2002 it seemed that it cultivated a brash, youth-oriented image and was supported by content deal with MTV. When Virgin failed to keep pace with the larger carriers the company became just another low-cost, prepaid phone service, according to Hold.

Virgin now gets Helio's 170,000 subscribers and it plans to leverage the the company's technology to launch advanced services and high-end phones in 2009. Dan Schulman is the Chief Executive of Virgin Mobile and he says that this could slow down the thousands of subscribers who leave Virgin Mobile each month in search of better phones and services.

Job losses at Helio are expected due to the acquisition as well as store shutterings to reduce costs and the companies have already took advantage of their leverage, due to their combined heft, and are negotiating better rates with Sprint, from which they lease airwaves. In 2009 Virgin Mobile anticipates at least an 8 per cent discount in network costs. On top of that, Sprint will also give the company a $10 million break up-front.

Analysts say that the wireless market is not a friendly place for MVNOs and with more than 80 per cent of Americans in the U.S. wireless market already owning a cellphone, carriers are targeting young consumers directly and they are also more cautious about who they allow onto their networks.

When all is said and done, the death of Helio may not ensure the revival of Virgin Mobile and Schulman said that his company had little choice but to buyout the rival. He also said that scale is the key to success in the wireless business and he said that if he did not buy Helio than Virgin would fall even further behind.

This is a smart move by Virgin Mobile and now they will have more tools and resources to keep growing and with more people wanting no monthly bills I can see Virgin making a huge comeback.