This week, Virgin Mobile USA completed its takeover of Helio in a merger of mobile virtual network operators (MVNOs) from very different corners of the mature U.S. mobile market. Virgin, the second-largest MVNO specializing in young, tech-savvy but still lower-spending prepaid customers, had felt some pain in recent quarters; Helio, arguably the largest high-end service providing the latest data connectivity to the upper end of the postpaid spectrum, had been struggling toward a break-even number that was still years in its future. Both were well-known brands. Was this a simple case of bigger is better?

Helio was clearly a relative "heavyweight" in terms of its support infrastructure. In an MVNO market where many competitors provided little besides a brand name and an idea, Helio leveraged the strength of its investors SKT and EarthLink to provide its own backbone, support systems, handset distribution, retail kiosks and much more. This seemed appropriate for a company that wanted to provide bandwidth-hungry, high-cost applications and services to its customers, but the number of subscribers needed was just too high. SKT, which has consistently maintained it wants to seek growth outside its home market, is essentially trading in equity control of 85,000 Helio subscribers for a 17% share in Virgin's customer base (4.9 million as of the half-year report); that would translate to 833,000 equity subscribers, nearly a 10 times increase. Virgin, in return, gets first crack at about the same number of subscribers in Helio at one go, which is more than it earned with a year's worth of effort since the end of June 2007.

Virgin also acquires a company with the tools and infrastructure to support the immediate rollout of postpaid service. It's interesting that Helio had already dispensed with its retail stores, which certainly dragged on costs and might have pulled in a tough new direction. Because Virgin emphasizes that nearly half its customers are older, it's pretty clear that it has needed to move up the chain, and this could be a very appropriate offering. Helio, like Virgin, was "hip" and put attention on bringing connections that early adopters and high-usage customers wanted. It remains to be seen whether the new company can maintain that kind of leading-edge influence in a cost-effective fashion (and remember, Helio never proved it could turn a profit).

Overall, the U.S. mobile market remains brutally competitive, with far more failures than successes on the landscape. Virtual operators seem to have carved out a niche in several areas, showing that success is possible, at least up to a certain size (where we assume the network-based Big Four would become interested in a purchase). These success areas include:

• The low-end, prepaid customer of simple voice and messaging, with no frills and an emphasis on price (such as Tracfone)
• The interesting niche player with a special value proposition, still too small to attract MNO attention (such as kajeet)
• A well-articulated sub-brand that uses MNO capabilities while putting a different face to the market (such as Sprint's Boost)

And then there's Virgin Mobile USA. The immediate future for this company should be quite interesting - and possibly instructive about the future of the virtual operator as a stand-alone model.