Virgin sees weak U.S. economy, telco deals

By Sinead Carew and Ritsuko Ando

NEW YORK (Reuters) - Virgin Mobile USA Inc (VM.N) does not expect any improvements in economic conditions for lower and middle-income Americans through the first half of 2009, Chief Executive Dan Schulman said on Tuesday.

Citing a quarterly survey of a sample of the wireless service provider's subscriber base, Schulman said 50 percent more respondents say they have problems making ends meet compared with a year ago.

"I don't see an improvement in the first half of next year either," Schulman told the Reuters Global Technology, Media and Telecoms Summit, referring to economic conditions for the low and middle-income customers who make up its customer base.

He said the lack of improvement in the second half of this year is factored into Virgin Mobile USA's 2008 forecast.

Virgin Mobile USA, which targets cost-conscious customers who pay for calls in advance, has seen a sharp slowdown in usage of its service among customers, and an increase in customers giving up their mobile phones in recent quarters.

The company, which is partly owned by Richard Branson's Virgin Group VA.UL and Sprint Nextel Corp (S.N), rents space on Sprint's network to help keep capital spending at a minimum.

As a result, Schulman said Virgin's current cost structure could have some flexibility to allow it to reduce call prices if the economy became much worse, but he did not discuss specific plans.

TALKS WITH SK TELECOM

Schulman predicted more consolidation in the U.S. communications services market, saying there could be cost benefits to merging even for companies that operate networks using different technologies. For example, a bigger company could save money on buying handsets, he said.

The executive confirmed that his company was in preliminary talks with Korea's SK Telecom (017670.KS) on a number of different potential opportunities, but declined further comment.

SK Telecom controls Helio, another U.S. mobile service. A merger between Virgin and Helio could make sense as both target young customers and rent space on Sprint's network, though analysts have also pointed out differences.

While Virgin focuses on prepaid services, Helio targets tech-savvy consumers who can afford monthly bills and are looking for sophisticated devices and data services such as mobile web surfing.

Helio, which has been losing money, is 69 percent-owned by SK, with EarthLink Inc (ELNK.O) holding 28 percent. It has about 200,000 customers.

Schulman said that along with deals among mobile virtual network operators (MVNOs) such as Virgin, he also expects other wireline, wireless and cable services to consolidate.

"I do believe you're going to see continued consolidation in this industry," Schulman said. "That should not be surprising to anybody. Over the long term networks are commodities ... What you need is more and more scale and more and more cost efficiencies."