On the Hot Seat with Virgin Mobile USA CEO Dan Schulman

Ever since Virgin Mobile USA went public last fall, the MVNO has been under fire from financial analysts. The company was chastised when it reported a net loss of $14.7 million during the fourth quarter last year and reported fewer net new customer adds than expected. Virgin Mobile USA CEO Dan Schulman blamed "economic conditions" for the loss and warned that the conditions will continue to affect the consumer market and wireless industry during 2008. FierceWireless editor Brian Dolan talked with Schulman at last month's CTIA Wireless 2008 conference in Las Vegas about Virgin's troubles.

FierceWireless: How is the slowing economic environment affecting Virgin Mobile USA?

Schulman: There is a real fear that a slowing economic environment will lead wireless users to cut back on usage. It doesn't have to be though. The real issue and key to [Virgin Mobile USA's] value proposition is that it's tailor made for this kind of environment. Just because we're in a difficult economic environment doesn't mean we should cut back on our offerings. So our new service plans show that we're not sitting still, that we are still innovating. If you're like 75 percent of the U.S. population, you're using 200 minutes to 1000 minutes per month. So we're sticking to our roots--flexibility--and offering great values without having to sign long-term contracts--like our 5 cents-a-minute plans. For $50 a month, a customer can now get 1000 minutes with rollover. That's new for a prepaid offering.

FierceWireless: How has Virgin Mobile USA changed since going public? Any comments on the economic downturn and Virgin Mobile USA's share price?

Schulman: We try not to operate any differently because we are a public company. We still try very hard to put customers first. But, of course, we also have new constituencies like public shareholders and we think hard about that constituency. We believe that the best way that we can best serve them is by hyper-serving our customers. Look, we're not happy with the share price. We went public in October [2007] and that's pretty much when the economy started showing strains-in the fourth quarter. Those strains manifested themselves in the first quarter [of 2008]. It has been a difficult time to go public. The ability to provide good long-term forecasts suffers in a changing environment. We tried very hard in our last call to give conservative guidance and acted under the assumption that the difficult economic times will last through the entire year. At the same time we are confident and determined that if we stay true to providing customers with flexibility, then we will come out of 2008 strongly positioned to enter 2009.

I would point out, though, that Virgin Mobile has made a lot of progress over the past three years. [Virgin Mobile USA] is just shy of being a Fortune 1000 company. This was the first year of profitability and the first year we were free cash flow positive. Sure, growth is not what we had hoped it would be, but if that's because we continue to offer flexibility to consumers then we believe that philosophy will help us come out of this on top.

FierceWireless: Regulatory issues in the wireless industry have been top stories as of late.  Does Virgin Mobile get involved with issues (like the open access provision for the 700 MHz auction) or does is hang back because it's an MVNO?

Schulman: We do get involved in regulatory issues more than you might imagine. We are one of the leading advocates for privacy. We make sure that every transaction is required to have a PIN number, that way it's hard to steal other people's identity. We also pushed quite hard to make sure [Universal Service Fund] rules are not discriminatory against low income customers. So we do believe in basically championing what customers want and we can focus on that since we don't have an embedded network to defend. That does provide a tremendous amount of freedom by not having to have one to protect so we can exist to provide what customers want. Maybe we can do that in an innovative way and with a focus that no one else has because we have no network. But being at the forefront of these issues is very important to us. We aren't against VoIP-types of solutions since we don't have a postpaid minute base to protect.  

There has been a lot of talk about open networks and handsets being unlocked in the past year. We believe that at the high end of the market--where somebody is willing to spend $200 to $300 for a handset-those users ought to have the flexibility to move from one carrier to another. However, on the prepaid side of the market, low and middle income households can't afford these higher prices so subsidies [on handsets] are critical to allow penetration into these households. Also, if you force everyone to unlock all phones, and you can no longer subsidize them at the low end, then you are going to take out a chunk of the market that has yet to be penetrated. It's a much, much more nuanced situation than many publications are making it out to be.

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