Virgin plans touch-screen phone

CEO Schulman sees the tough economy boosting prepaid services, though pricing pressures may grow worse.

Virgin Mobile USA plans to introduce touch-screen handsets as part of a move into "smarter" phones, the carrier's CEO said Tuesday.

As a mobile operator focused on younger people in the low- and middle-income brackets, Virgin has stayed out of the smartphone market because most consumers still can't afford such devices, said CEO Dan Schulman. Though smartphones such as the iPhone and BlackBerry get a lot of attention, they still are only about 20 percent of the handsets sold, he said. However, Schulman believes that figure may rise to as much as half the market over the next three to five years.

In an on-stage interview at the Dow Jones Wireless Innovations conference, Schulman gave no details about the touch-screen phones or when Virgin may roll them out. But it's a safe bet that they will be targeted at a market that he thinks is a very good place to be as the economy weighs on consumers - that of low- and middle-income youth.

Virgin's core business is prepaid services, though it also offers monthly service plans. It's an MVNO (mobile virtual network operator) that resells access to Sprint Nextel's network. It's considered a survivor in the ailing MVNO business and last year acquired Helio, the struggling, entertainment-oriented MVNO once backed by SK Telecom and EarthLink.

The economic downturn has benefited Virgin Mobile because many consumers don't want to be tied down to a monthly service they have to pay for whether they use it or not, Schulman said. Last year, Virgin's subscriber base grew 6 percent to 5.4 million.

"Things like value and flexibility are moving to the forefront," he said. "I think the economy is helping people to appreciate our model." It's still a cutthroat business, however, and the trend's not over yet, he believes. There aren't many first-time cellular users left in the U.S. market, and Sprint Nextel and other carriers have already started changing the pricing picture with "unlimited" monthly voice and data plans.

"It wouldn't shock me to see more pricing pressure coming into the industry," Schulman said. Virgin's total revenue grew just 5 percent in 2008, though its services revenue rose 10 percent.

Virgin still sees voice and messaging as the sweet spot in its market, though it's a definition of messaging that has expanded from traditional text messaging to include social networking. About 20 percent of the company's revenue comes from services other than voice now, Schulman said.

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