Sprint Nextel is buying Virgin Mobile USA, a subsidiary of the UK-based entertainment and communications giant that has over 5 million prepaid wireless subscribers in the United States.
The deal, which was announced just one day before Sprint is due to release its second-quarter earnings report, has an estimated value of $US483 million. As part of the agreement, Sprint will incorporate Virgin Mobile into its Boost Mobile prepaid wireless segment.
Sprint has capitalized on the current economic recession by aggressively marketing and selling its prepaid wireless plans, which are often cheaper to purchase than traditional postpaid plans. The carrier added 674,000 prepaid subscribers in the first quarter of 2009 alone, partially offsetting the 1.25 million postpaid subscribers the company lost over the same period.
But while Sprint has had success in attracting prepaid customers, it is unlikely the carrier can rely on them as part of its turnaround plan because prepaid plans generate less money per subscriber than postpaid plans. In the last quarter, for instance, Sprint generated $US56 in average revenue per user (ARPU) for its postpaid plans and $US31 in ARPU for its prepaid plans.
By incorporating Virgin Mobile's estimated 5.4 million subscribers, Sprint will have roughly 9.65 million prepaid wireless subscribers. The company's postpaid business, which has shed more than 4 million customers over the past year, currently has 35.4 million subscribers.