Pricing Virgn Mobile

Virgin Mobile USA

Pricing for the Very First Time

Virgin Mobile looks at U.S. Mobile Market, 2001:

• Crowded market, maturing

• Capital-intensive

• Highly competitive

• Poor customer satisfaction

• 14-to-24 year-olds = Under-served segment • Ideal entry point to U.S. cellphone market • Must differentiate from rest of the industry

TEAM II 2

How Did Incumbents Make Money?

• • • • • • •

TEAM II

Long-term contracts Confusing “Buckets” of talk time Controlling Credit Risk Early Termination Penalties Overage minute charges Texting, Data &Directory Assistance Charges Peak/Off-Peak Differential Pricing

3

Causes of High Dissatisfaction

• 24% Annual ‘churn’ acceptable • Confusing, misleading pricing; onerous contracts, early termination penalties • “Bucket” pricing promotes uncertainty & confusion • Dwindling “Off-Peak” periods • Poor call quality, dropped calls, spotty coverage • Choices limited by region • Carriers held number until late 2003 • Brusque, indifferent, hostile customer service

TEAM II 4

Targeting 14-to-24 year-olds: Plusses & Minuses

Plusses:

 Significantly under-served, ignored by Telcos  Opportunity for growth in mobile entertainment  Identifies with Virgin Mobile branding  Risks managed via MVNO strategy  Grow demographic into long-term customers. Minuses: × Potentially volatile, ‘fickle’ market segment × Industry near saturation; room for another? × Reliance on MVNO partner for infrastructure × No monopoly on innovation × Reliance on partners for content & marketing × Financial risk associated with demographic

TEAM II 5

What’s Virgin Mobile see that everyone else missed?

Why have incumbents overlooked this demographic?

• Don’t understand the demographic • Familiar with older, business-linked demographic • Generally risk-averse • Very conservative, protective of shareholders

• Mistrustful of: • Unquantified credit risk • Unpredictable usage patterns • Acquisition & retention costs

TEAM II 6...