Editor's Corner

It's been almost four years since Virgin Mobile USA launched the first high-profile MVNO in the U.S. targeted at the youth market, and it launched to a chorus of skeptics. Today, Virgin Mobile is seen as a model of MVNO success, supporting 4 million customers and reaching EBITDA positive. I had the unique opportunity to speak with Dan Schulman, CEO of Virgin Mobile, recently about the state of the MVNO market, the company's new pricing plans and features, future plans for high-speed data and of course, Sugar Mama, that new program that give users free airtime in exchange for watching advertising. Here's some interesting excerpts from our conversation that I'll run in a two-part series today and tomorrow.

On the state of today's MVNO market: "It's a very difficult business. The incumbent carriers are just getting more and more competitive because they are focusing on niches they previously overlooked because they had larger segments to go after. As the penetration goes up in other segments, they cast their eyes toward lesser penetrated segments. Pricing follows a downward curve and will continue to ... The waters always seem crystal clear but when you dive in, it is quite cold and a lot of sharks are swimming underneath. We've made it look easier than it is because we have worked quite hard to get to where we are right now ... You really do need to stay one step ahead of the big carriers. The rock in our slingshot is our focus, and theoretically we should be able to use the fact that we are more nimble in a jujitsu sort of move against carriers. But don't underestimate them. They can block you from distribution or lower prices. I'm thankful we're at 4 million customers. The scale is good. We'll soon have Top Up cards in 100,000 retail locations ... I truly believe a giant shakeout is ahead. I think you may have only two or three MVNOs that are of any significance out the market."

On what Virgin Mobile's secret to success is: "Focusing on the right market and the right value proposition. For us, that was the youth market that had about a 25 percent penetration when we launched. We basically came in and tried to redefine the value proposition with pay-as-you-go ... Focusing on the right market is not as easy as it seems. It means not getting seduced by technology trends or by pundits who may say this is the next hot thing. It's really focusing on what customers really want, not what you or I think is cool ... A lot of MVNOs out there are putting out neat user interfaces and applications, but is that really what the customer wants? ... I think a lot of MVNOs build around aspiration but not reality ... We also turned the value proposition on its ear and turned the product into a consumer electronics product that enabled a grab-and-go purchase. We took the cell phone from being locked behind a case to being on a peg and have it be appealing to our target market ... Making sure you have a great network partner who is in the long-term with you really matters. We received very aggressive network rates as cost improvements came down ... We are the only MVNO company to have spent tens of millions upfront to create our own back office infrastructure, and we control every touch point of the customer. It costs more upfront but enables us to control and be much more nimble in meeting the needs of this market. We did not want to be beholden to other people. As I look in hindsight, that is one of the keys to our success. MVNEs enable companies to enter the MVNO market at lesser cost, but over the long-run, it's much more difficult for an MVNO really trying to super serve their customer base not to control the touch points that enable them to do that."

On some of Virgin Mobile's financial metrics: "We experienced the strongest financial performance in our history as we turned over into this year. We have 4 million customers, and we are EBITDA positive as a company. Our customer satisfaction rates measured in an extensive survey have never been below 92 percent, and we've gotten as high as 95 percent. The scale is a 4 or 5 ... We've consistently seen from the beginning is a good viral effect in that 70 percent of our customers have referred us by a friend or family member ... ARPUs because they are prepaid are lower than typical postpaid ARPUs, but our data ARPUs as a percent of our overall ARPU is at least two times the rest of the industry's."

Stay tuned tomorrow for more insight from Virgin Mobile USA CEO Dan Schulman.-Lynnette