Boosting Sprint Prepaid With Virgin

The recent announcement that Sprint Nextel intends to acquire Virgin Mobile USA for total equity value of about $483 million leaves little doubt about Sprint’s level of commitment to the prepaid wireless segment.

Coming only months after Sprint shook up the prepaid wireless market with the Boost Mobile $50 unlimited offering, this step dramatically increases Sprint’s total prepaid subs while also delivering Sprint industry-leading brands to leverage within the growing prepaid market. With its postpaid subs continuing to decline, it makes sense for Sprint to pursue prepaid, where it has had considerable success recently. One question that remains is how it will position its directly competitive brands within the marketplace, and what folding Virgin into Sprint will mean for its revenue.

This acquisition will give much needed revenue to Sprint, and perhaps the efficiencies realized by bringing Virgin into Sprint may make the division’s profits. While Sprint was already earning considerable wholesale revenue from Virgin, it will benefit from the retail value of the Virgin customer base. Eliminating redundant positions between the two companies and eliminating the cost of managing their current relationship, will boost profits as well.

One of the most significant benefits to Sprint is its ability to better address the prepaid market, which continues to evolve. Sprint has changed the game with Boost, with both the unlimited offering and the positioning of the company. Boost is clearly taking steps to move prepaid up market and to appeal to consumers who might otherwise consider a postpaid competitor. While providers like Tracfone and Virgin offer handsets for as little as $10, the lowest priced phone offered by Boost is $49.99. In addition to appealing to up market customers with nicer handsets, Boost’s unlimited plan offers all the features of postpaid services without a contract. Boost is positioning to reach more midmarket customers, by selling Boost through college book stores and even opening Boost only stores to create a truly independent brand image.

The up-market prepaid play was a failure for brands like Amp’d and Helio, but it appears to be working thus far for Boost. In the past year it has pumped its ARPU from $30 to $34, and churn has fallen from 7.35 percent to 6.38 percent. Boost attributes this in part to its unlimited plan, which draws in more stable customers who are willing to make a month-to-month commitments, and also to a new incentive structure that encourages Boost reps to keep customers coming back to their stores to pay their monthly bills. This up-market movement by Boost makes Virgin, which has consistently billed itself as the pop/youth brand, a very suitable complement to Sprint’s prepaid arsenal.

Bringing Virgin Mobile into Sprint will not make up for Sprint’s continued postpaid losses, but it will provide Sprint with a very strong position in the prepaid market. The Virgin brand is well established, and as Boost is clearly moving toward becoming a more midmarket offering, the degree to which the two brands will cannibalize one another is minimal. Sprint can now broaden the scope of its prepaid target, and will have the nationwide network (two, in fact) and presence to continue growing its prepaid revenue. While Sprint’s prepaid offerings will continue to face pressure from competitors like Tracfone, MetroPCS and Leap, it has an advantage when it comes to brand image, and if it can separate its Boost and Virgin brands, which remain fairly strong, from the parent company’s image (which seems to be flagging), it has the potential to create a real money-making prepaid strategy for the future.

Fedor Smith is president of ATLANTIC-ACM, a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools. In addition, he has authored several studies on telecommunications industry growth and opportunities. Prior to joining ATLANTIC-ACM, he worked at Alloy Media and Marketing in New York developing youth-oriented marketing programs around the evolving technology consumption and adoption habits of high-school and college-age consumers. He holds a degree in history and economics from Hamilton College.

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