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Virgin Mobile USA Tries a Rags-to-Riches Play

Like in most developed countries, the mobile market in the US is close to maximum penetration.

Last week, Sprint-owned Virgin Mobile USA announced that it will completely alter its handset portfolio, selling only iPhones and dropping all Android and basic devices. It would become the first carrier in the US to do so. In a bid to generate buzz, Virgin Group founder Richard Branson made the announcement at an event in San Francisco, although he has no immediate association with the Virgin Mobile USA brand.

To emphasise the change in the portfolio and also to shadow promotions made at the Sprint mothership, Virgin Mobile also introduced an unlimited plan for $1 per month for the first 12 months. The new deal is available until 31 July 2017. After the first year, subscribers will pay $50 per month. The offer, dubbed the “Inner Circle”, will be available to new customers and they must buy an iPhone from Virgin Mobile or Apple. Customers who sign up after the closing date can receive six months of unlimited Virgin cellular service for $1. Eligible devices are the iPhone 7 and 7 Plus, iPhone 6, 6s and 6s Plus, and the iPhone SE.

The service plan includes unlimited voice, texts and LTE data, although users are deprioritised after consuming 23GB, a standard practice among carriers in the US that places data-hungry users at the end of the queue during heavy traffic.

In addition to telephony services, the carrier also created an exclusive Virgin Inner Circle loyalty programme that provides subscribers with complementary offers and discounts for Virgin-branded products. This includes a round-trip flight to the UK on Virgin Atlantic, a night at a Virgin hotel, 20 percent discounts on Virgin America flights and a $170 discount on Virgin Wines club.

This is an intriguing bundle, but it’s difficult to ignore the paradox: Virgin Mobile has been a struggling low-cost Sprint sub-brand selling inexpensive Android smartphones and basic handsets. It’s now attempting to evolve overnight from being a prepaid and pay-as-you-go player focussed on delivering value-for-money services, to becoming a wine-and-iPhone, international jet-setting service provider.

This strategic move does distinguish Virgin Mobile from Sprint’s other prepaid sub-brand, Boost Mobile, and other wireless service providers in the US, and the agreement it has with Apple creates a new channel for Virgin. In a market that’s becoming increasingly competitive, expanding distribution in a cost-effective manner is a shrewd move.

The offer of unlimited data is a trend in the US market, where such plans have become table stakes for carriers including prepaid providers. Virgin Mobile desperately needs to fight off momentum from other prepaid brands such as AT&T’s Cricket, T-Mobile’s Metro PCS and TracFone’s Straight Talk, along with newer and more-innovative market entrants such as Google’s Project Fi — its “Wi-Fi first” initiative.

These changes at Virgin Mobile have been expected for many months and come at a time when rumours about the future of Sprint are circulating. This includes a potential merger with or acquisition by T-Mobile and possible investments by fixed-line providers Charter and Comcast.

It’s not certain that this shift in strategy will elevate the Virgin Mobile brand, but this is a laudable effort to stand out in a commoditized market. It now has the sleekest handset portfolio in the US and even prepaid customers are very keen to become iPhone users. We can point to very successful promotions for the iPhone 5s by Cricket and Straight Talk. Virgin Mobile wants to welcome new users to its inner circle with fully-priced iPhones. It will be interesting to see if this cost of membership proves too steep.