Sprint Corp's PCS Group and Richard Branson's Virgin Group Ltd formed a venture that will use Sprint's network to sell prepaid wireless-phone service under the Virgin Mobile brand, starting next year.
Sprint PCS will contribute US$50 million in services for a 50 percent stake in Virgin Mobile USA. Closely held Virgin Group will invest US$50 million in cash, the companies said. They will share control, with three members each on a six-person board.
The venture targets the 60 million people in the US. that are 15 to 30 years old. Prepaid mobile-phone service is attractive to younger customers who may have poor or non-existent credit, or who are too young to sign long-term agreements, rendering them ineligible for many service plans.
"Right now, people aged 15 to 30 make up about 20 percent of the population but are expected to make up about 39 or 40 percent of the incremental wireless customers over the next six years," said John Tantum, a senior executive at Virgin Mobile.
Sprint PCS could have created a brand for younger customers, but that would have taken more time and money, said John Garcia, senior vice president for sales. Sprint PCS didn't want to redefine its brand in a more youthful way because "we might have jeopardized our credibility in the other markets," he said.
AT&T Wireless Services Inc, the third-largest US wireless-phone company, sells prepaid service under the Free2Go Wireless name. Verizon Wireless Inc, the largest wireless-phone company, introduced the Freeup prepaid service in August.
Sprint PCS, which trades as a tracking stock of Sprint, was the fourth-largest US wireless carrier as of June 30, with 12.8 million customers. Shares of the Kansas City, Missouri-based company rose US$0.25 to US$28.90. They have declined 19 percent in the past year. Virgin's Tantum said the 20 Virgin Megastores selling music in large urban areas of the US will become flagship stores for Virgin Mobile.
The venture will need more locations for sales and service and for users to replenish their accounts, Tantum said. Virgin is talking to electronics and entertainment-oriented stores as well as mass merchandisers about carrying its phones. He characterized discussions as "very successful," but wouldn't provide details.
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