Virgin Mobile USA Inc. is buying Helio LLC, a struggling cell phone carrier that was founded to bring the advanced features of South Korean phones to the U.S. market.


Virgin Mobile USA Inc. is buying Helio LLC, a struggling cell phone carrier that was founded to bring the advanced features of South Korean phones to the U.S. market.

Virgin Mobile said Friday it would pay $39 million in stock for Helio, which has 170,000 subscribers, down from nearly 200,000 at the beginning of the year.

At the same time, British billionaire Richard Branson’s Virgin Group and SK Telecom, the South Korean carrier that is the majority owner of Helio, each will invest $25 million in Virgin Mobile. That will give SK Telecom a 17 percent stake in Virgin Mobile.

Virgin Mobile indicated it will keep operating Helio’s advanced data services and its contract-based service plans. Virgin Mobile’s own plans are prepaid and lack contracts.

The long-rumored deal is a poor payoff for Helio’s founders. The company was launched in May 2006 as a joint venture of Internet service provider EarthLink Inc. and SK Telecom.

Since Helio was not a publicly traded company, data on its financials have been scant, but it has contributed to losses at EarthLink. Just last year, SK Telecom invested an additional $270 million in Helio, cutting EarthLink’s ownership share to about 22 percent. Friday’s release said the company had an unsold inventory of 85,000 handsets, worth about $17 million.

The one bright spot for Helio was its customers spend $80 per month on average for service, far higher than the industry average around $50. That’s because Helio includes broadband data access for Web surfing, and downloads of music and games.

But Helio was unable to latch on to the burgeoning demand for data-capable “smart” phones. Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry have dominated that market in the last year.

Virgin Mobile had 5.1 million customers at the end of March, making it one of the largest U.S. “mobile virtual network operators,” or MVNOs. Rather than owning their own network, MVNOs buy wholesale airtime from other carriers. It’s a business model that has proved exceedingly difficult to profit from. Amp’d Mobile, ESPN Mobile and Disney Mobile have all shut down.

Virgin Mobile has been a relative success, but has problems of its own. It said in May it expects to lose between 130,000 and 160,000 net subscribers in the second quarter.

Virgin Mobile shares were up 6 cents, or 2 percent, at $3.05 in Friday morning trading.

Both Virgin Mobile and Helio use Overland Park, Kan.-based Sprint Nextel Corp.’s network, which makes the integration of the two businesses possible. Virgin Mobile said Friday it had renegotiated the terms of the Sprint contract to reduce its costs through volume discounts.