Virgin Mobile to buy Helio for $39M

Virgin Mobile said Friday it would pay $39 million in stock for Helio, which has 170,000 subscribers, down from nearly 200,000 at the beginning of the year.

At the same time, British billionaire Richard Branson's Virgin Group and SK Telecom, the South Korean carrier that is the majority owner of Helio, will each invest $25 million in Virgin Mobile. That will give SK Telecom a 17 percent stake in Virgin Mobile.

Virgin Mobile indicated that it will keep operating Helio's advanced data services and its contract-based service plans. Virgin Mobile's own plans are prepaid and lack contracts.

But the Helio brand will likely be phased out, said Dan Schulman, Virgin Mobile's chief executive. It might be kept in the Korean-American market, where Helio is popular, he said on a conference call.

Before the acquisition closes in the next few months, Helio will be cutting costs, Schulman said. Helio had five company-owned stores and 50 company-owned kiosks and has already begun shutting them down.

The long-rumored deal is a poor payoff for Helio's founders. The company was launched in May 2006 as a joint venture of Internet service provider EarthLink Inc. and SK Telecom.

Since Helio was not a publicly traded company, data on its financials have been scant, but it has contributed to losses at EarthLink. Just last year SK Telecom invested an additional $270 million in Helio, cutting EarthLink's ownership share to about 22 percent. Friday's release said the company had an unsold inventory of 85,000 handsets, worth about $17 million.

The one bright spot for Helio was that its customers spend $80 per month on average for service, far higher than the industry average around $50. That's because Helio includes broadband data access for Web surfing, and downloads of music and games.

But Helio was unable to latch on to the burgeoning demand for data-capable "smart" phones. Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerry have dominated that market in the last year.