Will Virgin Mobile get virtual in the U.S.?

In February, Sir Richard Branson, chairman and founder of Virgin Group, said he would make Virgin the world's first global mobile virtual network operator (MVNO). Though Virgin has been linked with several wireless carriers — most notably, Sprint PCS — a lack of confirmation leaves the future of the MVNO model in the U.S. up in the air.

Sprint PCS and AT&T Wireless have increased their focus on teenagers, and both are rumored to be in discussions with Virgin, which plans to target that demographic. While Sprint PCS is believed to be further along in its discussions, a spokeswoman for the carrier dismissed the reports as rumor and speculation.

Still, some think it is only a matter of time because Branson already has taken the MVNO concept to the U.K., where he struck a deal with Deutsche Telekom-owned One2One in 1999. He also has driven the model into Australia and Asia. Virgin could have an advantage because of its range of distribution channels, cash flow and the work it has done in the teenage space via Virgin Megastores.

Carriers remain skeptical. VoiceStream Wireless executives would not comment on any specific conversations with Virgin during the company's first-quarter earnings conference call. However, VoiceStream Chairman and CEO John Stanton voiced his dismay at the fact that some have ignored the real differences between the U.S. and European markets, suggesting that the same strategies — reselling or otherwise — may not always work in both places.

“To compete as a common carrier in the U.S. is difficult,” he said. “Resellers [would find] it difficult because prices are declining and we and our competitors already are all meeting specialty interests. Nextel met the need for dispatch capabilities… and eliminated a class of resellers.”

Virgin's delay in the U.S. could have more to do with it adjusting to how this market operates than carrier confusion.

“Virgin appears to be playing Sprint PCS, AT&T Wireless and Nextel against each other trying to find the best deal,” said Bob House, vice president at Adventis. “They may not be able to get the same kind of financial deal as they got in Europe from One2One.

“European operators are looking at the MVNO model as a way to afford their 3G licenses, and the U.S. network is not under as much financial pressure and can be a bit more picky about what MVNOs they work with,” House said.

However, House believes Virgin eventually will come to the U.S. “I see no reason why MVNOs wouldn't work as well in the U.S. as in Europe,” he said.

While analysts are uncertain about the specifics of Virgin's eventual entrance, they do believe it will happen if it makes financial sense to U.S. carriers. “From a Virgin Mobile perspective, they have shown that they have the ability to leverage their brand and that they have a focused marketing effort,” said Eugene Signorini, an analyst for The Yankee Group. “But I'm not sure this will translate easily here because Virgin is not a household name to the average American.”

For the MVNO model to translate, there would have to be a commitment of a large amount of wholesale minutes up front, Signorini said.

“An established resale or mobile virtual network operator strategy is something generally viewed as a low-margin business, unless the company can strike a big deal with one carrier,” he said.

Signorini believes Virgin's U.S. entrance likely will be through a national carrier that operates on one technology standard such as Sprint PCS or VoiceStream.

“If [a deal with Virgin] promises large-scale minutes, it may be attractive — or if it would allow a carrier to target a segment that it hasn't been able to successfully penetrate on its own,” he said.