Helio, Virgin talk merger

These are cellphone companies that package all kinds of features and re-sell the phone service part through Sprint Nextel. L.A.-based Helio was started by Sky Dayton and, like Virgin Mobile, has been under pressure in the face of slowing growth. You might recall that Disney dropped its Disney Mobile service last year, and L.A.-based Amp'd Mobile declared bankruptcy (these businesses burn lots of cash). Anyway, Helio and Virgin are in advanced merger talks, according to the WSJ, and could announce a deal in the coming weeks. Both companies have problems, but for different reasons.

Virgin, which markets prepaid plans popular with lower-income customers, is being squeezed by increasing competition from other low-end providers such as Leap Wireless International Inc. and MetroPCS Communications Inc., as well as the economic downturn, which has hit less affluent customers like Virgin's especially hard, said Michael Nelson, a telecom analyst at Stanford Financial Group. "Their customers are purchasing fewer minutes," he said.

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Helio, which sells high-end handsets and services that tend to be more expensive and data-intensive, appeals to younger, tech-savvy consumers. It has relatively high average revenue per user of more than $85 per month, but only a few hundred thousand subscribers. That has hurt its bottom line. A venture between SK Telecom Ltd Inc. and EarthLink Inc., Helio said in September that it expected a full-year net loss of $340 million to $360 million. EarthLink reduced its stake after Helio's weak performance weighed on its own results last year.

By the way, Dayton stepped down as the CEO earlier this year to become chairman. He had previously started Earthlink and Boingo, and tends to be more of a start-up guy than an operator.