Virgin Mobile UK has announced a GBP107 million loss for 2000, but expects to break even next year.
UK mobile operator Virgin Mobile, jointly owned by the Virgin group and Deutsche Telekom, has announced a loss of GBP107 million for the year 2000. The company, which saw turnover of GBP76 million for the year, added that it had reached breakeven on an earnings before interest, tax, deprecation and amortization (ebitda) basis in August. It expects to move into operating profit by spring 2002.
The results are encouraging, particularly given the competitive market for mobile phones in the UK. Virgin, which launched in late 1999, now has 1.2 million subscribers. It has recently signed deals with two of the UK’s largest mobile phone retailers to distribute Virgin phones for the first time, which should help maintain this growth.
Virgin Mobile is the highest-profile mobile virtual network operator (MVNO). Rather than having its own network, it rents capacity (in the UK, from Deutsche Telekom’s One2One network). This has cut the cost of building its offering from billions down to millions, reducing financial unpredictability compared with ‘real’ networks, while still leveraging the Virgin brand in a high-growth area.
The news could bode well for Virgin’s mobile operations outside the UK, in joint ventures with Singapore’s SingTel in Asia and Australia, and with Sprint PCS in the US. Combining the Virgin brand with aggressively priced phone packages targeted at young people seems to have been a successful strategy.
It remains to be seen whether the Virgin brand has the same leverage outside the UK. Overseas consumers may not have such strongly positive associations with the brand as Brits, diminishing the point of the venture. However, Virgin is an international brand. Time will tell whether it is international enough.
It’s also good news for other MVNO ventures, such as the alliance between Orange and NTL announced last week. Judging by Virgin Mobile’s results, if the brand is strong enough and the advantages are compelling enough, MVNOs can succeed even by entering a highly competitive market late in the day.
