Will Amp'd spoil Virgin Mobile's IPO?



What impact will the failure of ESPN Mobile and Amp'd Mobile's troubles have on Virgin Mobile's impending IPO? The five-year-old MVNO, which targets the youth market with prepaid voice and data services, filed for an IPO last month and could raise around $100 million. It has been touted as a model of MVNO success given its large subscriber base of nearly 5 million and some nice revenue metrics--$1.1 billion at the end of last year.

But the publicized troubles of Amp'd--which is targeting a similar demographic, albeit with more expensive handsets and services--combined with the fact that Virgin has not turned a profit since its inception could leave investors quite nervous. Simply put, the MVNO model still isn't proven to be a long-term viable one.

Can Virgin successfully operate in the next five years? It must continue to have a razor-sharp focus on costs, and that is made more difficult by the fact that the MVNO operates in a prepaid environment, where churn is usually higher and ARPU is usually lower. Virgin's ARPU has declined from $24.24 in 2004, to $22.54 in 2005 and $21.48 at the end of last year. Churn runs around 4.8 percent, and the company's cost of acquisition per subscriber isn't falling very fast. Moreover, operators are becoming much more aggressive in the prepaid space.

I have a feeling Virgin may just withdraw its IPO for now. Rather than being raked over the coals by the investment community, it can continue to bask in the glory of being the most successful MVNO to date. - Lynnette

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