Two years and half billion later, Helio sells for a song. But why?

Money-losing companies with interesting technology and a small, if rabid, customer base still frequently tend to sell for healthy chunks of change -- especially in the wireless space. We know Helio was burning cash like crazy, but that doesn't entirely explain why SK Telecom was so absurdly desperate to dump their $500m investment. At a $39m acquisition price, SK didn't just lose its shirt -- it lost that, the shoes, and then the pants. You know, the pants with a half-billion dollars in them.

Now, if you look at nothing other than the price per subscriber of some other, larger mobile acquisitions, Helio's numbers seem even crazier. Alltel's subscriber base is going to Verizon for about $2,100 per customer, and back when Nextel sold to Sprint, each sub went then for about $2,350. Helio's $39m sale to Virgin nets them $230 per subscriber. That's now what you're worth to Virgin, Helio subscriber -- $230 on an $80 ARPU. Clearly there's a lot more value in acquiring more than ten million subs than under 200k, but is that value ten fold?

And then to add insult to injury, the piddly $39m Helio did get from Virgin was an all-stock deal, which basically means SK won't be recouping material costs any time soon. Granted, that does amount to 17% of Virgin Mobile USA's market cap, and SK gets two seats on VM's board, but damned if Helio isn't like the reverse-Brewster's Millions of cellphone companies. Basically our pet theory right now is that either SK is playing the Korean tax system for the maximum possible write-off, or they literally didn't have another soul to turn to in this whole wide world. We know Helio wasn't in good shape, but a $39m all-stock deal means they basically stood on the corner and gave the company away to whomever was passing by at the time.

We wanted some more expert opinions, so we hit up a couple of old Engadget pals. Om Malik had this to say: Their losses are huge and there is no hope in sight. Why Virgin bought so few subscribers, I don't get. My best guess is that SK Telecom wants to do something with Virgin. Helio was one giant misexecution -- it is a micropennies on the dollar sale.

Michael Gartenberg offered this: I suspect there were not a whole lot of options... who else would have bought this thing? It's clear the MVNO model doesn't work for the most part. Virgin was probably the only buyer who had interest and it was probably the best chance for Helio's investors to get some of that money back.

Bottom line, it looks like Virgin and its shareholders should be pretty stoked today, because by all accounts they got a pretty killer deal.

[cc @ Jun 27th 2008 3:11PM]

Pretty simple. MVNO model doesn't work.

[Bill @ Jun 27th 2008 4:19PM]

Prepaid MVNOs like Tracfone can work very well.

[Dilated.Ray @ Jun 27th 2008 3:01PM]

RIP HELIO :(

[grull27 @ Jun 27th 2008 3:07PM]

WOOT! Helio is finally over with!!!

[Jim @ Jun 27th 2008 3:10PM]

Awesome reference to Brewster's Millions. I friggin' love that movie.

As a HELIO customer this past year, it was an OK ride. I'll be paying my ETF and getting the iPhone 3G next month and paying more to AT&T for less in service (no MMS, no unlimited text). But, I have no doubt that I'll like my iPhone 3G way better than my Ocean.

[Rafer @ Jun 27th 2008 3:10PM]

THis company could have survived... If everyone was a sk8ter kid and likes phones because they had a cool logo/name.

[hiko36 @ Jun 28th 2008 12:01AM]

Surfer... their names were all surfing terms...

[Fernando @ Jun 27th 2008 3:11PM]

Trolltech had Qt, not only a small mobile linux company

[Andrew Stone @ Jun 27th 2008 3:15PM]

Its really strange that a company that had such a rabid base and such compelling tech (Ocean) couldn't pull in something a little better. Pre-iPhone, i rocked Helio, and was happy. Weird they couldn't turn that customer satisfaction in to a few bones that'd allow them to sell at a more reasonable price. Any chance we'll learn more about the incompetence that lead to this?

Unrelated: Are the comments on the Regan / Alzheimers post turned off? Because that's pretty shady. As somebody who staunchly supported Engadget during the last photo fiasco (i believe a kitten in a CRT monitor based cage that was powered off -- the photo was harmless and a riot) i just wanted to chime in my disapproval.

Good day.

[Jeff @ Jun 27th 2008 4:07PM]

Helio had it right, i thought, with pretty decent devices, plans, and good prices...

general executive mis-management did it, i'm thinking, and leaning too heavily on mediocre/bad marketing...

don't really know though. wonder if we'll even really get to see what went wrong.

[Chasqui @ Jun 27th 2008 3:17PM]

Received mail from Helio. No getting out of paying the early termination fee. Below is their e-mail.



HELIO + Virgin Mobile USA= J

Two great companies team up to bring you more.

HELIO and Virgin Mobile USA are teaming up to combine our strengths and deliver a better mobile experience. On June 27th Virgin Mobile USA announced that it had signed an agreement to acquire HELIO.

HELIO would gain access to Virgin Mobile USA’s extensive distribution network and broad customer base, while Virgin Mobile USA would gain access to HELIO’s exclusive, high-end devices and premium services. Both companies look forward to coming together to bring exciting prepaid and postpaid opportunities to their customers.

Q: What does this mean for current HELIO members? Can I still use my HELIO device, while keeping my HELIO service plan and number?

A: Current service plans will continue without interruption. HELIO members are at the center of this transaction and we’ll continue to bring them the innovative mobile services they’ve come to expect.

Q: Can new members still sign up for HELIO service?

A: Absolutely. HELIO will continue to offer exclusive, high-end devices and our innovative All-In plans.

Q: Will the HELIO brand be retained, or will everything migrate to Virgin Mobile USA?

A: Over time, we expect that all aspects of the customer experience will be integrated under the Virgin Mobile USA brand. Integration of the direct sales channel will begin immediately, and we expect that existing HELIO products and services will soon be offered through the Virgin Mobile USA website at www.virginmobileusa.com.

Q: So what’s next?

A: We’re excited by the possibilities our new, combined team offers. We have some big ideas, but as you can imagine, a little bit of housekeeping is in order before we share them. Stay tuned!

Q: Does this affect my current contract with HELIO in any way? When Virgin Mobile USA does acquire HELIO, can I end my current contract without paying an early termination fee (ETF)?

A: HELIO contracts remain in effect and unchanged by this transaction. HELIO members who wish to end their contract early will still be subject to an early termination fee (ETF).

-- Your friends at Helio

[Guenievre @ Jun 27th 2008 4:46PM]

Yes, well, if they change anything abut the plan, there's still hope. See Chapter 12 of the "Terms and Conditions".

::keeping fingers crossed b/c I want an iPhone::

[Alex @ Jun 27th 2008 3:18PM]

Where is that article about the monthly bill delinquencies being absurdly high for MVNO subscribers?

[Frun @ Jun 27th 2008 3:19PM]

Don't call us a phone company, Don't call it a phone.
nuff said

[From My Cube @ Jun 27th 2008 3:24PM]

dont call it a company...or a successfull one at that

[eseiber @ Jun 27th 2008 3:20PM]

The unfortunate part of all this is that we are still stuck in our contracts.

[Dale @ Jun 27th 2008 4:05PM]

Maybe that'll learn ya to pick a real network next time.

I kid, I would be every bit as pissed as you are.

[letstakeawalk @ Jun 27th 2008 5:01PM]

Actually, people who signed contracts are still stuck in them. I bought my Drift outright, and then entered into a no-contract relationship with Helio. I love the phone, love the service, no complaints what-so-ever. I think this will be an interesting transition... I guess I will miss Helio sending me "anniversary" and birthday greetings.

[Alex @ Jun 27th 2008 3:23PM]

Where is that article about the monthly past due delinquencies being absurdly high for MVNO subs?

[Jared @ Jun 27th 2008 3:37PM]

When Verizon bought Alltell they bought more than just customers, they bought the network and all its customers. I would assume that network is quite valuable and would explain much of the disperity.

[beanspants @ Jun 27th 2008 6:41PM]

Verizon didn't spend $2000 for Alltel's subscribers. they spent it for alltel's network devices and bandwidth.

[peternj @ Jun 27th 2008 4:10PM]

Helio was billing me as a customer for at least a year after I left. So maybe it is cheap because Virgin could not trust the membership figures? Also worst service ever.

[me @ Jun 27th 2008 4:13PM]

Hi Ryan,

Calling Trolltech a mobile linux company is like calling HP a printer maker (ala theinquirer.net). Certainly they have strong affiliation with Linux, but you should find out a bit more about Qt.

[Ryan Block @ Jun 27th 2008 6:57PM]

I suppose that's a fair assessment -- and after digging into their earnings reports, it's clear they did have some revenue. So maybe not the best example. Removed it from the post.

[sc00ter @ Jun 27th 2008 4:59PM]

maybe next time try not using a marketing message that says your product is not what it is. "Helio: it's not a phone" COME ON?!

[erica @ Jun 27th 2008 5:40PM]

The Jet Blue "Thank you for not flying" ads must have been created by the same foolio.

[Cactus @ Jun 27th 2008 5:57PM]

I'm not sure this was the bargain you're setting it out to be. There's a big difference between carrier and MVNO economics when you're using ARPU as a reference point.

Alltel doesn't have to split its ARPU with anyone. Obviously Alltel incurs quite a few expenses in its operation, but it doesn't owe anyone a giant cut out of whatever revenue it gets.

But if Helio's ARPU is $80, a likely huge chunk of that goes to Sprint, since Helio users are mostly heavy users, especially data. For argument's sake, say Sprint got $50 of that pie on average.

That would leave Helio with $30 per user to cover all costs, including new subscriber acquisition costs (marketing, device subsidies, store overhead, 3rd party seller commissions) and ongoing customer base maintenance costs (customer service, I.T., billing).

Even if Helio's actual revenue (post-Sprint) was $40 per user, that would still add up to less than $8 million a year. Put that in perspective -- some Outback Steakhouse outlets get more revenue than that. How can you operate a serious, device-exclusive, postpaid MVNO?

All this said... is $39m such a bargain? Seems like fair price to me.

[DonBmcd @ Jun 27th 2008 6:06PM]

I own a Helio Fin, for $100 a month as a business user it ws the BEST deal around, Google GPS maps, e-mail, find-me.. ect. For the amount of use it get's and the services it is cheap. 200,000 subscribers at $100 a month, is a LOT of money for a company that has no bricks and mortor. I'd suggest that Helio never truly inderstood the US market, and that great tecknology looses to 2nd rate tecknology and being the "got to have it" new pocket toy. They missed that opportunity, and lost the market as well.

[wirelessjunkie @ Jun 27th 2008 6:23PM]

It's simple really, there's a deal for SK to take over Virgin Mobile USA. Remember 17.2% is the second largest ahead of Sprint 14.1%. At one time there were rumors that SK wanted to buy Sprint but Sprint rebuffed them. SK is no fool nor are they small peanuts for you non-korean folks. SK is at par with Verizon, AT&T or any other carrier in the world if not bigger. A company that once tried to buy Sprint, you think can't gobble up little Virgin, even if Sir Richard Brandson owns part of it! Just wait and watch everything that unfolds my American friends.

[Inimical @ Jun 28th 2008 1:25AM]

Agreed. SKT knows what their doing. For example, Virgin is about to unleash an $80 unlimited plan for example. Combine that with the probability of the Ocean 2 releasing around the same time and all the dead weight they just cut. Should result in some pretty good profits by year's end.

[sgeine @ Jul 30th 2008 8:11AM]

sk telecom isn't as big or as 'smart' as you think. I'll give you a start but do some more research:
1. the market they "dominate" is in a country with about 20-mil people in the cell phone age (tiny ass market). and they only have less than half of that which makes them not much larger then Virgin Mobile in subs.
2. a big part of why they have almost half their market is because they have a monopoly on the 800mhz frequency. a monopoly they are losing in 2011 so you can bet they're aggressively trying to enter other markets
3. their corporate structure is archaic. they've recently tried to revamp it but haven't been doing very well. this was a big problem at helio as the two business cultures didn't mix at all.
4. SK's in trouble. their margins are dropping and their growth has been flat for years. In the first-quarter its operating profit margin fell to 19.5% from 24.4% a year earlier.
5. the most obvious reason sk isn't as 'smart' as you're saying is the fact that they've already failed in their first forey into the US market and they failed handily. 39mil was peanuts and 500mil isn't even close to what was spent. they devoted tons of SK employees to helio and even gave Helio several hundred employees outright. software was bought or written for helio. SK seemed to be the directors of technology (which was a friggin mess) so i'd put the investment well well over 500mil. there were also several rounds of funding, some included earthlink and some didn't. but this article is right. bottom line, SK paid Virgin Group to buy helio so SK could have a stake in virgin mobile.

[Oscar5453 @ Jun 27th 2008 6:38PM]

WOW!!! YES!!!

Does this mean my Nightmare is over!!???

Its been the worst ....year ever with me and Helio. Worst CS ever.

Loved the phone and service though.

C'mon Helio it took you guys a span of 6 months and 5 replacements to send me a phone that worked????

FIRE THE QA guy right away he difinitly was NOT doing his job.

SO AM I FREE!!!?????

Please tell me soooooooooooooooooooooooooooooooooooo

I also want the 3G Iphone will I have to pay a disconnect fee?

THEY BETTER NOT!! For all that BS they put me through....and if they try Im sending my case to the BBB. PERIOD!

[Cactus @ Jun 27th 2008 7:10PM]

Ya ain't free. Virgin is buying your contract and will fulfill its end of the deal, as you signed it. You'd only be free if they chose to raise rates or otherwise alter the service -- which they won't.

[Oscar5453 @ Jun 27th 2008 6:39PM]

WOW!!! YES!!!

Does this mean my Nightmare is over!!???

Its been the worst ....year ever with me and Helio. Worst CS ever.

Loved the phone and service though.

C'mon Helio it took you guys a span of 6 months and 5 replacements to
send me a phone that worked????

FIRE THE QA guy right away he difinitly was NOT doing his job.

SO AM I FREE!!!?????

Please tell me soooooooooooooooooooooooooooooooooooo

I also want the 3G Iphone will I have to pay a disconnect fee?

THEY BETTER NOT!! For all that BS they put me through....and if they
try Im sending my case to the BBB. PERIOD!

[Nick @ Jun 29th 2008 10:24AM]

They always looked like cool phones

[Jerry Kennedy @ Jul 7th 2008 10:55AM]

As a former subscriber of Helio as well as a former Telecom supervisor @ one of the only 3rd party retailers, let me throw in my 2 cents worth:

1) As an MVNO, Helio had an UNREAL business model: KISS--Keep It Simple Stupid. Rather than nickle & diming every one for EVERY LITTLE FEATURE, they set one price for minutes + everything else; the 'everything else' being sold @ FAR BELOW it's worth! Even now the only Major service provider that can even come CLOSE to touching them plan wise is Sprint's$99 "Simply Everything" plan which even there it's on a completely level playing field (same features, same add ons, HELL EVEN THE *EXACT* SAME DARN NETWORK. Where they ran afoul was a a) poor outsourced customer service (one reason they could offer plans so cheaply) & b) under-training of sales people on how to really market these plans to people. BELIEVE ME-I didn't even consider using helio for the first 5 months after hearing about them b/c of service plan sticker-shock.

2) Isn't it funny that as the big 3 providers start stagnating in terms of new customers, well without gobbling up some other services customers anyway, they start throwing out unlimited crap--of course like most giant entities (being small-brained) they never could get it right unitl Sprint threw it's hat in the ring. THEN we suddenly have a service that gives you unlimited minutes + unlimited data for $99 (HMMMMMM--sounds familiar!) MVNOs tend to become a breeding ground for ideas for the major networks (ie-Disney Mobile's advanced GPS features for kid phones, ESPN's sports centered phone, etc.)

3) While a sudden new craze of Unlimited plans has suddenly struck the big 3, they still don't address the people like me: I BARELY go through 250 minuts a month but I LOVE the data service. So to me paying $65/month for 500 minutes & unnlim data was PERFECT-- I had a buffer just in case (most services don't offer lower than 500 min anyway) and getting all my EVDO data for what amounted to $15/mo and no txt msg plan to get. So overall I'd pay roughly $35 less than sprint ($25 power vision plan + $10 Unlim Txt).

Last thing- isn't it funny how Virgin Mobile (which is run on the Sprint network: YESPEOPLE IT IS AN MVNO BELIEVE IT OR NOT!!!!; & Helio (also on the sprint network) are merging. It's really win-win on both sides of the table!

[S Smith @ Jul 7th 2008 6:43PM]

couldn't agree more with that last comment

[Kelley @ Jul 14th 2008 3:17PM]

I am just happy that i can still get a helio Phone i am the same way i dont use that many minutes infact mostly looking to get a phone to have something to do while i am at work the unlimited data and text messages is the best thing that i could find like that thank god they are keeping them around