Unless I am wrong (and I haven't checked yet), I believe Virgin Mobile's IPO 2 days ago is the first IPO for an MVNO (Mobile VIRTUAL Network Operator).
Although priced originally at more than a billion dollars, the enterprise value was set at £811m, with a free float of approximatively 25% ( If the over-allotment arrangements are exercised in full, the free float would increase to 27.5%). Shares started trading at 200p. (down to 192p right now...).
Update on 1/9/04: Virgin Mobile is back at the 200p hurdle... What does this mean? Ready for growth performance ?
It is rather amazing that a company created only 5 years ago, that does not own an infrastructure (built on someone else's), has developped such a clout, piggybacking on the parent company's brand. A number of other firms are trying to replicate this model, but I believe Sir Richard has a few tricks up his sleeves that others have not yet replicated: a formidable brand for innovation, a extensive network of points of sale, and a business model based on negative working capital requirement (95% pre-pay). He also enjoyed a first to market strategic advantage in a deregulated market, built by a great team.
Compare their first 500K subscribers in just one year at a time when mobile phones was a luxury good (and more than 4m subs now) to the ambitions of Debitel for instance, just aiming at 100K subs by the end of 2005 (that is only 100K in 18 months...). It seems to me that ambition and execution are key as well...
Hence, lots of value created, just by executing a marketing strategy correctly. I'll update this post shortly with more thoughts on the key success factors for an MVNO, and VirginMobile in particular.
From their press release:
"About Virgin Mobile
Virgin Mobile is a major provider of mobile communications services within the UK, having acquired approximately 4.1m customers as at 31 May 2004. The company launched its operations as a mobile virtual network operator in November 1999. Since its inception, Virgin Mobile has achieved a number of significant milestones. Within a year of its launch it had over 500,000 customers, and by June 2001 over one million customers, making it the fastest growing major UK mobile communications provider to have achieved that milestone to date.
In the twelve months ended 31 March 2004, Virgin Mobile was the fastest-growing mobile communications provider in the UK, with approximately 1.3m net customer additions, representing approximately 26% share of net customer additions in the UK during this period (source: operators’ reported figures). As at 31 March 2004, 95% of its customer base consisted of pre-pay customers.
For the year ended 31 March 2004 Virgin Mobile generated turnover of £453.3m and EBITDA of £78.7m and an operating profit of £63.2m, all on a pro forma basis.
The company’s business model as an MVNO requires relatively low capital investment and generates high cash conversion. Virgin Mobile’s capital investment requirements are modest compared to those of the mobile network operators (MNOs) and generally the company pays for these services on a usage basis, thus freeing it from the significant capital investment required to build and maintain a network and deploy services.
The company had an 80 per cent return on capital employed for the year ended 31 December 2003 and accordingly the company believes it is positioned to achieve one of the highest returns on capital employed within the UK mobile communications services industry.
Virgin Mobile is majority owned by Sir Richard Branson's Virgin Group of companies and uses T-Mobile's network.
In the UK, Virgin Mobile phones are available direct on 0845 6000 600 or on the High Street at approximately 5,000 outlets including Virgin Mobile Specialist Stores, Virgin Megastores, Sainsbury, Tesco, Safeway, Asda, John Lewis, Littlewoods, Argos, The Link, Dixons, Carphone Warehouse, Curry's, Comet, Phones 4U, TOMO, Woolworths, Toys R Us and Rymans.
Virgin Mobile employs approximately 1,400 staff at three sites, Trowbridge, London and Daventry, and has an outsourced customer service centre operated by approximately 200 staff in Middlesbrough. It has been voted one of the top 50 places to work in Britain for two years running in an annual Financial Times survey.
Virgin Mobile’s customers are considered the most satisfied in the pre-pay sector according to the 2004 UK Customer Satisfaction survey by market researchers J.D. Power and Associates."