Helio shutting down retail stores and kiosks – another MVNO’s death in the making?
By Will Park on Friday, June 20th, 2008 at 1:33 PM PST In Helio, Partnerships, Rumors, Virgin Mobile
With SK Telecom (NYSE: SKM)’s Helio MVNO talking to Virgin Mobile over possible merger or buy-out deals, it seems an odd move to actually shutdown much of Helio’s operations throughout the US.
But, we’re hearing that the negotiations between Helio and Virgin Mobile aren’t exactly making waves. Add to that the rumor that Virgin Mobile is planning to back out from the deal altogether unless Helio declares bankruptcy or liquidates their assets in a big way, and the recent move to shutter the doors to many retail stores starts to make sense.
Helio seems to be dead in the water from a financial stand-point, and unless they can work out some sort of deal with Virgin Mobile (which these store closures may or may not affect), SK Telecom’s huge investment in the US market is looking like a huge mistake.
If Helio does indeed go belly-up and isn’t absorbed by Virgin Mobile, we’ll see the last true MVNO finally folding its cards.
[Via: Gizmodo]
Helio is actually going very strong and June was one of the best performing months so far.
Helio will be launching the Helio Ocean 2 the most anticipated device of the year.
http://www.ocean2promo.com
The move to eliminate the direct distribution channel is to comply more in regards to how Virgin Mobile operates. As you can see Virgin Mobile has zero direct distribution and all indirect.
If you check Virgin’s business plan you will see that the business model is based on spreading the distribution costs to the indirect channel. This allows the MVNO to ride out economic downturns as the indirect channel absorbs most of the cost while allowing the MVNO to carry on being a margin player.
This is very different then the Helio model and works on a cost plus basis where Virgin makes money on the difference between the wholesale rates and what is charged by the customer. This will be a great addition to Helio’s model where they make money on exclusive value added services.
Here is where the merger makes a lot of sense:
1. Savings in operations by merging overlapping areas such as IT. This can reduce Helio’s current operating costs by as much as 40%.
2. By pooling the minutes, Helio saves on Virgin Mobile’s current lower wholesale rates. This could result in savings for cost of goods sold by nearly 15%.
3. By rolling out Helio’s exclusive services to the Virgin community it increases margins for the business without any additional investments. Imagine 5 million people now being able to use exclusive services such as Answer Rings, Google Maps, Buddy Beacon, Tell Me, Opera Mini Browser and other innovative services only found in Helio.
Lets say Virgin Mobile customers are willing to pay just $5 a month for the exclusive service package which on data services the margin is around 90%. This would increase the earnings of Virgin Mobile by 75M per quarter or roughly equal to 15 times it’s current quarterly earning.
4. Ability to take advantage of Virgin Mobiles current distribution channels allowing it to reduce its own direct distribution footprint. Which it is currently doing right now by shutting down their current distribution and streamlining operations.
5. Equipment cost savings by taking advantage of SK Telecom’s relationships. This includes a one Billion dollars in research and development budget from SK Telecom.
SK Telecom is the most advanced telecommunications company in the world, if someone doubts that just go to South Korea and compare. I would like to bet that they know exactly what they are doing, rather than some disgruntle Helio Employee, we should listen to the facts and let it guide our understanding of Helio.
1. Helio has met it’s customer add target of 200K after two years.
2. Helio is growing rapidly through organic growth.
3. Helio Ocean 2 which has been in the lab for nearly a year now is ready for release.
4. Helio Upgrade Program has launched.
5. Helio Indirect channel distribution now has nationwide presence.
6. Helio’s cost is below initial SK Telecom estimates.
7. It takes 12 months for Helio to break even on a customer after the marketing expenditures and equipment subsidy and they are now approaching that point with a large part of their customer base.
8. Most capital costs have now been amortized, allowing Helio the path to profitability.
It has been two years now that everyone has written out Helio and Helio is still here and thriving.
Asif Ahmed
Helio Wireless | Tysons Corner
http://www.heliobusiness.com