May 14, 2008 10:12 AM PDT

Confirmed: Virgin Mobile USA and Helio in talks

Posted by Marguerite Reardon

Virgin Mobile USA and Helio have confirmed that they are in early stages of talks to merge the companies.

On Tuesday Virgin Mobile issued a statement that the two companies were in talks, and a Helio spokesman confirmed the news. The company has been rumored to be in talks over a merger since last week.

"These discussions are in early stages and there are no assurances that any transaction will result," Rick Heineman, a spokesman for Helio said in an email. "We will not have additional comments unless an agreement is reached."

Virgin Mobile USA and Helio, which is a joint venture owned by Korean carrier SK Telecom and EarthLink, are both MVNOs or mobile virtual network operators. They lease network capacity from Sprint Nextel and resell the service to customers.

Virgin Mobile, which offers a prepaid service targeted at teen-agers and people with poor credit, has a reputation for being hip. It also happens to be one of the most successful MVNOs on the market with some 5 million subscribers.

Helio, which also appeals to young hipsters, goes after a different segment of the population with high-end phones and a comprehensive post paid service package that includes voice as well as data services like Internet surfing, music downloads and video. Helio has a much smaller subscriber base of only 200,000 customers.

As the U.S. market surpasses 84 percent penetration, growth in the market is expected to slow over the next few years. And experts expect smaller carriers to consolidate. Already the wireless reseller market has struggled with operators such as Disney Mobile, Mobile ESPN, and Amp'd calling it quits.

A merger between Virgin Mobile USA and Helio makes sense since they compliment each other. And it could keep the companies afloat as they compete more aggressively with larger players AT&T and Verizon Wireless as well as regional players like Metro PCS and Leap Wireless.