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Sprint Nextel ([url=http://www.zacks.com/stock/quote/s]S[/url]) has officially wrapped up its acquisition of prepaid wireless reseller Virgin Mobile USA ([url=http://www.zacks.com/stock/quote/vm]VM[/url]). This follows the approval of the transaction by the shareholders of Virgin Mobile USA, which is a joint-venture between UK’s Virgin Group and Sprint.
Virgin Mobile USA offers prepaid mobile services to roughly 5.2 million subscribers in the US. Prior to the acquisition, Sprint held a 13.1% stake in the entity. The Virgin brand, which is primarily targeted at youth culture, is very popular in the US among customers who cannot afford expensive long-term service contracts. Popularity of low-cost prepaid brands has grown as customers are increasingly switching to cheaper alternatives pressured by the recession.
Sprint announced its acquisition of Virgin Mobile USA for $483 million in July 2009. The deal was approved by the Federal Trade Commission, the US antitrust regulator, in August 2009. Per the agreement, the shareholders of Virgin Mobile USA will receive 1.3668 shares of Sprint for each share of Virgin Mobile USA. Sprint also committed to retire all outstanding debt (roughly $228 million) of the entity.
Sprint remains significantly challenged by the dismal economic environment which has contributed to the precipitous decline in subscriber base and revenues. On the other hand, the company’s larger peers Verizon ([url=http://www.zacks.com/stock/quote/vz]VZ[/url]) and AT&T ([url=http://www.zacks.com/stock/quote/t]T[/url]) continue to expand their respective customer bases at a brisk rate.
Sprint is losing customers to its bigger rivals due to intense pricing pressure and technical problems associated with integrating its CDMA and iDEN wireless networks. The company’s core postpaid business is gradualy shrinking, as reflected by net loss of approximately 3 million customers in the first nine months of 2009.
In contrast, Sprint continues to register healthy growth in its prepaid subscriber base. The company’s $50 monthly unlimited prepaid plan continues to gain significant traction, facilitating prepaid subscriber retention and ARPU (average revenue per user) growth. To mitigate churn, Sprint has expanded this service plan across all of its existing wireless network platforms. The company’s Boost Mobile prepaid subsidiary currently offers prepaid services to 5.7 million customers in the US .
Moving forward, the prepaid wireless market will continue to serve as a significant growth catalyst for Sprint, helping it to offset the losses in the postpaid business. Acquisition of Virgin Mobile has further 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.
The addition of the popular Virgin brand, enables Sprint to better compete with other established players in the prepaid segment such as MetroPCS ([url=http://www.zacks.com/stock/quote/pcs]PCS[/url]), Leap Wireless ([url=http://www.zacks.com/stock/quote/leap]LEAP[/url]) and Deutsche Telekom’s ([url=http://www.zacks.com/stock/quote/dt]DT[/url]) US subsidiary T-Mobile USA.
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