updated 08:45 am EDT, Tue July 28, 2009
Sprint Buys Virgin Mobile
Sprint this morning said it would buy out Virgin Mobile's US division for an equity value of $483 million. The deal cancels out Virgin's $248 million in outstanding debts and is intended to bolster Sprint's efforts in the arena of prepaid phones. Although Sprint already had a 13.1 percent stake in Virgin, the company now says it will use the takeover to unite its entirely self-run Boost Mobile service with Virgin under a single roof.
Folding Virgin into Sprint also gives the larger carrier freedom to sell its devices to a wider audience and to streamline its business; it's implied there will likely be cost and job cuts, but none have been mentioned so far. A successful merger won't immediately end the Virgin Mobile brand in the country as Sprint indicates it will pay the wider Virgin Group to keep using the name until at least 2021 and as late as 2047.
Completing the deal hinges on government approval, but the agreement is expected to receive approval either in the fall or in early 2010.
The move gives Sprint the clearest lead in prepaid phones and potentially averts a collapse of the segment due to Virgin's struggling financial health. It also gives Sprint control over the Helio brand and reduces Sprint's dependency on MVNOs, or Mobile Virtual Network Operators, for its income. These third parties often have to pay carriers like Sprint for blocks of voice or data on its network but don't generate as much revenue as direct customers.
Other carriers, such as AT&T, have their own prepaid services but depend almost exclusively on regular subscription customers for their business.