Sprint Nextel (S), the third-largest US carrier, announced that it will discontinue the postpaid wireless service (marketed under the “Helio” brand) of its wholly-owned subsidiary Virgin Mobile USA effective May 25, 2010. However, the prepaid service, which is being offered under the “Virgin” brand, will not be affected by the decision.
 
Virgin Mobile USA, which is predominantly a prepaid operator, began its postpaid operation following the acquisition of mobile virtual network operator (MVNO) Helio in August 2008. Before the acquisition, Helio was a joint venture between South Korean wireless kingpin SK Telecom (SKM) and US-based Internet service provider Earthlink. The MVNO was the first to introduce an unlimited monthly access plan which bundles unlimited voice and data for a single monthly flat tariff.
 
The move to discard Helio represents a part of Sprint’s initiatives to delve deeper into the prepaid wireless market. The struggling top-tier carrier is restructuring Virgin Mobile USA to focus exclusively on this lucrative market. Sprint operates its own prepaid business through its Boost Mobile subsidiary. 
 
The decision will affect roughly 86,000 remaining Helio contract customers who have to switch to Sprint’s own postpaid service to avoid loss of their services. These customers will be offered a $50 credit on purchase of a new Sprint phone under a fresh two-year contract.
 
Moreover, they will also receive $150 off on handsets as part of Sprint’s existing new customer scheme. However, Helio customers will no longer be able to use the widely popular Ocean and Ocean 2 mobile devices.
 
Sprint acquired Virgin Mobile USA in November 2009 for $483 million. Prior to the acquisition, Sprint held a 13.1% stake in the entity. The acquisition has strengthened the company’s foothold in the fast-growing prepaid market as it leverages two complementary brands (Boost and Virgin) to target different customer demographics with distinctive service offerings.
 
Sprint’s core postpaid business, which is in a shambles, is gradualy shrinking as reflected by a net loss of approximately 3.5 million customers in 2009. The carrier is losing contract customers to its bigger rivals Verizon (VZ) and AT&T (T) due to intense pricing pressure and technical problems associated with integrating its CDMA and iDEN wireless networks.
 
In contrast, Sprint continues to register healthy growth in its prepaid subscriber base, which is offsetting the losses in its postpaid business. The company’s $50 monthly unlimited prepaid plan continues to gain significant traction, facilitating prepaid subscriber retention and ARPU (average revenue per user) growth.
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