Sprint focuses on prepaid wireless with deal to buy Virgin Mobile

It's all about Boost.

Sprint's successful provider of low-cost wireless plans stands to grow thanks to Sprint's early Tuesday announcement to purchase Virgin Mobile USA for $5.50 a share in stock.

The deal values Virgin Mobile at $483 million.

The purchase is expected to be completed in the fourth quarter this year or in early 2010. There was no immediate word on how the acquisition will impact employment at Boost and Virgin.

Sprint already owns about 13 percent of the company.

Overland Park-based Sprint said in its news release that the acquisition "will strengthen Sprint’s position in the growing prepaid segment by bringing together under one umbrella the iconic Virgin Mobile brand with Sprint’s successful Boost Mobile business. These complementary prepaid brands, each with a distinctive offer, style and appeal to different customer demographics, will continue to serve existing and prospective customers following the completion of the transaction."

Sprint will keep the Virgin Mobile name and its chief executive, Dan Schulman, will run the pre-paid business. Boost President Matt Carter will report to Schulman. The companies hope to save costs through shared back office, distribution, marketing and network costs, said Sprint spokesman James Fisher.

Virgin Mobile currently buys and resells minutes off of Sprint's network.

"We can bring them together under one overall management team," Fisher told the Wall Street Journal this morning.

Sprint will also retire Virgin Mobile’s outstanding debt, which it expects to be no more than $205 million net of cash by the end of September.

Sprint has been losing subscribers amid service complaints following its 2005 acquisition of Nextel Communications Inc. Virgin Mobile gives it customers that buy mobile-phone service without a contract, strengthening the Boost Mobile business that has been adding users.

"If you believe in pre-paid getting stronger, and that is the commonly accepted wisdom, it behooves you to take out a competitor," Roger Entner, head of telecom research at Nielsen Co. told The Wall Street Journal.

Fierce Wireless noted that in April, Virgin Mobile cut the price of its unlimited calling plan from $80 to $50, putting it in more direct competition with Boost, which also promotes a $50 prepaid plan.

""We believe Virgin Mobile felt compelled to sell because its customer base was declining, the prepaid space is getting much more competititve and it faced a $100 million debt maturity at the end of next year that we do not believe it had enough free cash flow to pay off," analyst Walter Piecyk of Pali Research told Fierce Wireless.

Sprint is set to report second-quarter earnings before the markets open Wednesday.

Sprint was down 11 cents, or 2.46 percent, at $4.44 a share. Virgin Mobile shares rose 97 cents, or 23%, to $5.18.