Exclusive: Interview with Virgin Mobile USA CEO

(originally published in FierceWireless on June 19-20, 2006)

It's been almost four years since Virgin Mobile USA launched the first high-profile MVNO in the U.S. targeted at the youth market, and it launched to a chorus of skeptics. Today, Virgin Mobile is seen as a model of MVNO success, supporting 4 million customers and reaching EBITDA positive. I had the unique opportunity to speak with Dan Schulman, CEO of Virgin Mobile, recently about the state of the MVNO market, the company's new pricing plans and features, future plans for high-speed data and of course, Sugar Mama, that new program that give users free airtime in exchange for watching advertising. Here's some interesting excerpts from our conversation that I'll run in a two-part series today and tomorrow.

On the state of today's MVNO market: "It's a very difficult business. The incumbent carriers are just getting more and more competitive because they are focusing on niches they previously overlooked because they had larger segments to go after. As the penetration goes up in other segments, they cast their eyes toward lesser penetrated segments. Pricing follows a downward curve and will continue to ... The waters always seem crystal clear but when you dive in, it is quite cold and a lot of sharks are swimming underneath. We've made it look easier than it is because we have worked quite hard to get to where we are right now ... You really do need to stay one step ahead of the big carriers. The rock in our slingshot is our focus, and theoretically we should be able to use the fact that we are more nimble in a jujitsu sort of move against carriers. But don't underestimate them. They can block you from distribution or lower prices. I'm thankful we're at 4 million customers. The scale is good. We'll soon have Top Up cards in 100,000 retail locations ... I truly believe a giant shakeout is ahead. I think you may have only two or three MVNOs that are of any significance out the market."

On what Virgin Mobile's secret to success is: "Focusing on the right market and the right value proposition. For us, that was the youth market that had about a 25 percent penetration when we launched. We basically came in and tried to redefine the value proposition with pay-as-you-go ... Focusing on the right market is not as easy as it seems. It means not getting seduced by technology trends or by pundits who may say this is the next hot thing. It's really focusing on what customers really want, not what you or I think is cool ... A lot of MVNOs out there are putting out neat user interfaces and applications, but is that really what the customer wants? ... I think a lot of MVNOs build around aspiration but not reality ... We also turned the value proposition on its ear and turned the product into a consumer electronics product that enabled a grab-and-go purchase. We took the cell phone from being locked behind a case to being on a peg and have it be appealing to our target market ... Making sure you have a great network partner who is in the long-term with you really matters. We received very aggressive network rates as cost improvements came down ... We are the only MVNO company to have spent tens of millions upfront to create our own back office infrastructure, and we control every touch point of the customer. It costs more upfront but enables us to control and be much more nimble in meeting the needs of this market. We did not want to be beholden to other people. As I look in hindsight, that is one of the keys to our success. MVNEs enable companies to enter the MVNO market at lesser cost, but over the long-run, it's much more difficult for an MVNO really trying to super serve their customer base not to control the touch points that enable them to do that."

On some of Virgin Mobile's financial metrics: "We experienced the strongest financial performance in our history as we turned over into this year. We have 4 million customers, and we are EBITDA positive as a company. Our customer satisfaction rates measured in an extensive survey have never been below 92 percent, and we've gotten as high as 95 percent. The scale is a 4 or 5 ... We've consistently seen from the beginning is a good viral effect in that 70 percent of our customers have referred us by a friend or family member ... ARPUs because they are prepaid are lower than typical postpaid ARPUs, but our data ARPUs as a percent of our overall ARPU is at least two times the rest of the industry's."

Stay tuned tomorrow for more insight from Virgin Mobile USA CEO Dan Schulman…

Today I continue to share the discussion I had recently with Dan Schulman, CEO of Virgin Mobile USA, arguably the most high-profile successful MVNO in the U.S. market. Monday we featured his comments regarding the state of the MVNO market and Virgin Mobile's role in it. Today we share with you his insights about the company's new pricing plans and features, future plans for high-speed data and Sugar Mama, that new program that gives users free airtime in exchange for watching advertising.

On how Virgin Mobile is attacking the youth market: "We have 2,000 insiders that are alpha teams we've selected and talk to every month. We run advertising by them. We have to be strong and get good honest feedback, but it can be painful at times. For our newest pricing plans and features, we talked to 6,000 people that were either prospects or current customers. That's a ridiculously high number, but it's a part of how we hope to differentiate ourselves… We looked at different usage groups to come up with our new offers. We completely revamped our portfolio. One of the things we've done is offer something no one else has in prepaid: text bundles. We're giving text messaging for as little as a penny. More than 60 percent of our base uses text messaging on a regular basis… We do think that for the youth market, text messaging is the new talk out there… We put out five bucket plans, starting as low as $14.99. That's the lowest in the market for buckets of minutes… Unlike everyone else, we're not forcing customers to register a debit card with us, they can pay via Paypal, credit card, cash or via the Top Up cards we sell… There is still a chunk of customers who want to pay by the minute so we've offered a deal for $6.99 month that allows users to get a 10-cents-a-minute rate all the time. Everything in our value proposition is based on customer feedback.

On the company's new social-activism campaign known as RE Generation: "One of the things I wanted to since we are now a profitable company and have reached a certain scale is to figure out how to enable customers to become an activist base to advocate for social change… The youth market is generally concerned about social issues but they struggle with how to get involved… One of the things we decided to do was put our money where our mouth is and help customers get involved in pro-social organizations. We're now teaming with two organizations, Youth Noise, the 'MySpace' of socially active kids, and Stand Up For Kids, which is focused homeless teens and trying to help them get back on their feet… Anytime our customers download a ringtone, wallpaper or game, we give 5 percent of the profits to those charities, and we are also working with a couple of artists who are yet to be announced who have agreed to give 50 to 100 percent of the profits from their ringtones to charity as well, and we'll give 100 percent to charities as well…  Customers can also go into their bank account and short code a dollar to Stand Up For Kids or Youth Noise, and we will match up to $500,000… If you are a youth marketer, it's not just a nice thing to do, it's an essential. We're going to carry this on and expand it in the years to come because kids expect brands to do that kind of thing.

On Virgin Mobile's plans for EV-DO: "We try not to think of it in terms of EV-DO or Rev. A, but try to think about what the applications our customers want. Will the customer feel satisfied? And what will the pricing be? When you get all of those aligned, you have a good thing… What we're going to do is continually take advantage of the customer experience element of some of these new applications customer want now but can be enabled as a result of faster connectivity. Primarily, that is really around video at this point. Streaming video works just fine. You don't need EV-DO right now."

On newly launched Sugar Mama: "For our population that really does matter because they are on tight budgets.  They have spare time, love brands and love to be entertained… We spent a lot of time thinking about the right way to do this, and we got a huge amount of feedback about what was okay and what absolutely was not okay. A lot of people are talking about advertising on the phone, but not many kids have video capabilities for video advertising (Kids have the ability to watch online ads or answer questions via text messaging.) The majority of our customers are new to the industry so they don't go with the most advanced phone out there. We also felt everyone would have to opt-in… Kids have been marketed to since they were 1-year-olds. They are savvy about it. We wanted to have like-minded brands that appeal to them… Our market research tested off the charts for us in terms of how kids reacted to it."