Seeking Teenagers Who Want a Virtual Virgin - Virgin Mobile - Company Operations

Richard Branson's new mobile-phone company is a big hit in the U.K. Now it wants to hit on young Americans.

ENTREPRENEUR RICHARD BRANSON failed to cricle the globe in his Virgin-branded balloon, but now he's attempting a different kind of circumnavigation. Rather than construct a custom vehicle, as he did with his Virgin Global Challenger, he's going virtual Global Challenger, he's going virtual: Branson plans to run a worldwide mobile-phone network without actually building one.

Virtual operators are common among fixed-line telcos, which often provide service over phone lines they don't own. The same strategy has also been used in Internet services. In the United Kingdom, for example, banks and supermarkets have become virtual ISPs, offering branded Internet access that is operated by anonymous network providers.

Virgin was the first company in the world to apply that strategy to mobile phones with the launch in November 1999 of London-based Virgin Mobile. About half a dozen firms around Europe have followed its lead, including several phone companies, a cable provider and a supermarket chain. Industry watchers expect there will be more virtual mobile-phone companies in Europe and the United States, as shop for discounted electronics and CDs. "It's the first time that a strong brand with content and services is coming into the wireless market," says Jane Zweig, senior VP of wireless consultancy Hershel Shosteck.

That brand has proven powerful. Virgin Mobile already has 400,000 customers and is the fastest-growing wireless company in the U.K. The company is a joint venture between Branson and One 2 One, an established mobile-phone operator owned by Deutsche Telekom. Virgin uses the One 2 One network but handles its own sales, billing and customer service.

In September, Virgin Mobile announced plans to raise $168 million to fund wider distribution in the U.K. It is converting a music store chain called Our Price into Virgin Mobile outlets and will flog its service at other retailers, including leading supermarkets.

"We say we are a service business rather than a telephone company," says Virgin Mobile spokesman Steven Day. In the past, he adds, the mobile-phone business has been about having the biggest and best networks to carry voice traffic. But he believes the prospect of bringing the Internet to mobile phones will change the emphasis and open the door to new types of companies. "It's about content aggregation and services," he says. "We have one of the most successful brands in the world and our own content and products to sell."

So far, Virgin is establishing a credible presence in the U.K. and hopes to ride that strategy to other markets. It has partnered with Cable & Wireless Optus in Australia and Singapore Telecom in Singapore, Hong Kong and South Korea. It is also on the verge of signing a deal with a nationwide mobile-phone carrier in the U.S., where it plans to launch its service sometime next year. Of the U.S. carriers, VoiceStream is the most technically compatible, since its network uses GSM -- global system for mobile communications -- which is used in Europe. Virgin declined to comment further on its U.S. plans.

Virgin Mobile's U.S. office in San Francisco has seven employees. President John Tantum, who formerly worked in London for management-consulting firm McKinsey & Co., expects the office to hold 150 people by the end of next year.

"We have Richard Branson!" Tantum says when asked if he's signed up the requisite celebrity spokesperson for the new service, which will be sold in Virgin Megastores as well as at other entertainment retail locations.

U.S. teenagers and twentysomethings certainly know Virgin as a music label, and that's the market Virgin Mobile is after. It's a smart move. While chatty teenagers in Europe and Japan drive the explosion of wireless service, their American contemporaries are less likely to have a mobile phone. People under age 20 account for only 5 percent of the roughly 100 million mobile-phone users in the United States, according to analyst Tom Lee at Chase H&Q. That figure, however, is expected to reach 25 million by 2005. If that happens and the 25 million people have a $35 monthly bill, that's an $8.75 billion market largely up for grabs.

Industry watchers are waiting to see if Virgin Mobile shifts the balance of power in the U.S mobile market. The telephone carriers have traditionally been in charge of the customer relationship, but now that phones can serve up information and entertainment, companies with strong consumer ties can get some leverage. Tantum believes that Virgin and other content companies have a chance to make a run at established players such as AT&T and Verizon.

Analysts cite Virgin's experience in marketing to consumers as a key point in its favor; and, if its marketing budget is anything like the $30 million the U.K. company had for its first year, Virgin Mobile will have the cash to do some significant advertising in the United States.

Virgin Mobile's U.S. offering will include some form of text messaging along with other services such as movie listings. But Virgin obviously hopes its music connections will be the big play. "You can imagine buying music online" and downloading it to phones with built-in MP3 players, says Tantum. Virgin is already selling those kind of phones in the U.K. Listening to tunes on a mobile phone may sound far-fetched, but that type of e-commerce is where many companies hope to find revenues when the Internet meets the mobile phone.

The question remains: Will Americans use their phones to buy stuff? The prospect of wireless commerce in one form or another has been heralded for a while but somehow never seems to arrive. Certainly, it would be easy to live without some of the zany services cooked up by Virgin Mobile. One, for example, is a coin-less Virgin Cola dispensing machine that already exists in the Unite Kingdom. Thirsty mobile-phone users can call the machine's number to get their drinks and the charge is sent to their phone bill.

Virgin Mobile will have to come up with something more compelling if it wants to circle the world and prove that it's more than just hot air.

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