Virgin Mobile buys (once) high-flying Helio for $50M, as mobile consolidation begins

Virgin Mobile USA has agreed to acquire Helio mobile phone division from SK Telecom and Earthlink for an investment that totals $50 million.

The deal is part of a consolidation trend in mobile. Nokia this week agreed to buy Symbian, the mobile phone software maker, for $329 million. And Microsoft agreed yesterday to buy Portugal’s Mobicomp. Mobicomp is a mobile software company specializing in the storage and backup of data.

The deal ends a high-profile attempt by South Korea’s SK Telecom to break into the U.S. market with a uniquely designed series of cell phones. But SK Telecom will own about 17 percent of Virgin Mobile USA after the deal closes.

It also sheds light on the strategy being pursued by Virgin Mobile USA to get out of its own mess. The U.S. market has turned brutal, and Virgin’s stock has plunged. Back in April, we reported Virgin Mobile USA was considering mass layoffs, or possibly raising money from a private equity firm. This deal suggests the company may try to buy itself out of trouble.

Warren, N.J.-based Virgin Mobile USA will issue 13 million shares at $8.50 a share, or $39 million, in exchange for an 80 percent stock. It will also assume $10 million in debt and other considerations. Both Virgin Mobile USA and SK Telecom will inject $25 million each into the combined entity.

The two companies hope they can reach a bigger scale together. Virgin Mobile has 5.1 million subscribers in the U.S., but Business Week points out that they are not on long-term contracts. Earnings were down 75 percent to $4.8 million in the first quarter. The company expects to lose about 130,000 to 160,000 customers in the second quarter. Why? In a word, it’s the iPhone.

Helio brings the company some 170,000 customers who spend about $80 a month. The combined entity will be known as Virgin. Helio had interesting models when it hit the market, such as the Helio Ocean model that could flip out a phone-like number keypad in one direction and a text-messaging alphabet keyboard in another.

Talks about an acquisition were rumored for some time. SK Telecom actually denied in May that Virgin Mobile was in talks to buy Helio. The deal is expected to close in the third quarter.

This could be a replay of Sprint buying Nextel. And it raises a question as to whether the MVNO, or mobile virtual network operator, model which Helio pursued (and even Disney failed at) can succeed in the U.S. MVNOs lease their wireless spectrum from other carriers.

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