Tag Archive for "Pricing" tag

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Virgin Mobile’s recent earning report and the associated announcements point towards a renewed future for prepaid and MVNO wireless programs in the U.S.

While many key components contribute towards the recent surge in this wireless segment, the current economic conditions certainly play an important role on several fronts.

Consider the recent flat monthly prepaid or pay as you go rate products announced by Virgin, Boost and others. But many existing prepaid customers, who make up the majority of Virgin subscribers, spend less than half of the going flat rate plans recently announced for their wireless voice and data needs. Therefore, there is little chance in this economic climate that these subscribers would upgrade their plans and double their monthly spend. Perhaps the silver lining is that some of the lower end of the postpaid subscribers would be encouraged to sign for plans that offer ‘unlimited’ minutes for a flat monthly rate.

Another economic climate contributing factor could be lower churn specifically from ‘switchers,’ who may think twice about an incremental spend on a new handset. Witness Virgin’s quarterly (period ending December 31, 2008) churn drop to 4.8% from 5.1%. The annual churn rate for 2008 compared to 2007, however, rose to 5.2% from 4.9%.

While much is being made about Virgin’s recent quarterly financial performance, especially about the growth in service revenue, the company should also be given credit for dramatically reducing its CPGA (Cost Per Gross Addition). While quarterly and year-over-year gross addition were roughly the same, the company reduced its quarterly CPGA to $101.93 from $120.68 for the same quarter in 2007 or improving a key metric for prepaid MVNOs by more than $17 million.

And while monthly ARPU (Average Revenue Per User) in 2008 increased by $0.78 over the same quarter in 2007, there was a corresponding increase in CCPU (Cash Cost Per User) of $2.22. For the full year, while CCPU was down, so was ARPU.

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Three Months Ended Year Ended

December 31, December 31,

——————– ——————–

2008 2007 2008 2007

——— ——— ——— ———

(Unaudited) (Unaudited)

Gross additions 960,421 957,541 3,305,857 3,384,460

Churn 4.8% 5.1% 5.2% 4.9%

Net customer additions 216,005 209,669 119,237 511,796

End-of-period customers 5,380,310 5,085,886 5,380,310 5,085,886

ARPU $ 21.14 $ 20.36 $ 20.30 $ 21.24

CCPU $ 13.99 $ 11.77 $ 12.74 $ 13.05

CPGA $ 101.93 $ 120.68 $ 108.68 $ 111.66

Free cash flow $ 25,720 $ 11,206

Unlevered cash flow $ 57,776 $ 62,657