Chicago (IL) – Sprint Nextel is going more aggressively after the prepaid cellphone market. The company today said it is acquiring Virgin Mobile for about $483 million, including the 13.1% stake it already owns. The purchase is expected to put T-Mobile under pressure, the only other major carrier that is targeting the entry level portion of the cellphone market.
Sprint Nextel will pay approximately $483 million for Virgin Mobile, which includes the value of Sprint’s current 13.1% fully diluted ownership interest in the company. Sprint will also cover Virgin Mobile’s outstanding debt, which is currently $248 million, but is expected to decrease to $205 million by the end of the current quarter.
Sprint indicated that it will keep the ‘iconic Virgin Mobile brand” and operate it next to its Boost Mobile business. The carrier said that it will maintain the positioning of both prepaid brands in the market, which appeal to different customer demographics. Virgin Mobile has been using Sprint Nextel’s network to provide service to its customers already, but generated far less revenue per user from its customer base. While the four large carriers typically receive well more than $50 per customer on average, with AT&T and Verizon leading the charge, Virgin Mobile’s average revenue per user is about $20.
Virgin Mobile had come under increased pressure earlier this year, when Sprint Nextel introduced a $50 per month prepaid flat rate, undercutting Virgin’s own $80 per month plan. Virgin reduced the price of its flat fee in April of this year to $50 per month.
“The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment,” said Sprint Nextel CEO Dan Hesse. “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.”