Virgin Mobile's Dan Schulman talks about data growth and hybrid plans

On the Hot Seat with Virgin Mobile USA CEO Dan Schulman

Virgin Mobile USA just reported their fourth quarter and full-year 2008 earnings. As the economy continues to deteriorate, prepaid service is getting more attention. FierceWireless associate editor Phil Goldstein talked with Virgin Mobile USA CEO Dan Schulman ahead of the earnings release about Virgin's place in the market, the effects of its acquisition of Helio and how he sees prepaid service being impacted by the economy in 2009. 

FierceWireless: Is Virgin Mobile USA still dedicated to the youth market?

Dan Schulman:
I think we have broadened our reach and focus. I think when we launched our move into hybrid plans maybe two and-a-half years ago, the majority of that age demographic coming into the hybrid plans is between 18 and 34. So we definitely saw a shift in the demographic that was coming into our service from more predominantly in the teen market to really more coming into the 18 to 34 [demographic]. I'd still say young adult is probably more of where our focus is. But I wouldn't call us exclusively a "youth play" anymore.

FierceWireless: It's been about six months since the close of the Helio acquisition. At this point, do you think that it has fulfilled its goal of getting Virgin subscribers who deliver higher ARPU?

Dan Schulman: Well I think as I look back on the acquisition in hindsight, I'm still as pleased as I ever was in terms of what we hoped to get out of that transaction. There were a couple of things we were looking to do. One is we wanted a postpaid platform that allows our customer base to be able to migrate to postpaid services and more advanced handsets, because we had 20 percent of our disconnects moving to postpaid services, and we wanted to be able to offer a full menu or suite of services to our base to be able to assure them that they did not need to leave Virgin Mobile.

No. 2, we wanted more robust data applications and user interface expertise than we had. I'm not sure if it's in the press release or not, but our percent of revenues from our data services has gone from 16 percent in the fourth quarter of last year up to 20 percent of our revenues coming out of data and messaging services. So we wanted to be able to take really the expertise Helio brought in the data application and user interface side and port that over into our prepaid base. We've had some early successes in that and I'd say that's going reasonably well.

The third thing that was very important with the transaction, and is paying tremendous dividends to us right now, is that we were able to strengthen our balance sheet and improve our liquidity, which allows us to be much more opportunistic in the market than we were able to be before the transaction. So we were able to pay down $50 million of our long-term debt... It really strengthened us tremendously from a balance sheet perspective...

FierceWireless: How do you think the prepaid market in general is going to be affected for the rest of 2009 because of the economy, and how do you see that affecting Virgin Mobile?

Dan Schulman: First of all, I think in this environment, value and flexibility is no doubt more important than ever to the average American consumer. Budgets are being slashed, people are having trouble making ends meet at the end of the month. And consequently, they're looking for a lot more flexibility than a contract plan that locks them into paying a certain amount per month. They want the ability to be able to control that spend, to pick it up one month perhaps if they're looking for a job and have to make a lot of phone calls and be available. Another month, they may want to take that expense down. So the whole idea of value and flexibility is coming much more to the forefront of the consumer consciousness. I think it's a good time to be in the prepaid business because of that.  

I think monthly and hybrid plans on the prepaid side offer value that you could argue is quite similar to postpaid, at least from a value perspective. They are, as best we can tell, still growing a double digit percent as we go into 2009. So I do think that it's a good place to be in the market. I do think on the flip side of that, that it's an unsettled environment out there for everybody. Retail traffic is down. People are devastated by the drop in value in their home equity, the drop in value of their 401(k), their retirement plans. Unemployment is going up, consumer confidence is at an all-time low. And consequently, I don't think you can steer by the wake of the ship any more. I think you really need to keep your eyes firmly ahead for potential changes in consumer behavior. And so I think we all need to keep our eyes wide open, our ears quite attuned to the market and make sure that we stay nimble and flexible to meet what will no doubt be increased demands and changing needs from the marketplace.

FierceWireless: What would you say are the biggest growth opportunities for Virgin in 2009?

Dan Schulman:
I think it's a combination of our data services and our messaging. Our messaging volume in December was over 1.1 billion messages sent. That's up 175 percent over December a year ago and up 30 percent sequentially from September. So there's no question that messaging associated with social networking will continue to be a growth driver. There will be substitution, by the way, from voice to messaging and that can put a dampening impact on ARPU as well. But as long as customers are engaged in using the phone, my view is let's give them the best possible value and allow them to utilize the phone the way that they want to.

I do think this hybrid space, these monthly plans with no contract are a big opportunity, and I am willing to sacrifice quantity of gross adds to make sure that we go after these high-quality consumers. I'm much less interested in playing a $4.99 handset price point to attract customers simply to drive acquisition numbers on LTV-marginal customers. I do think there is a very large space and very profitable opportunities around these hybrid plans, and we will be focused on those.