Confused by Virgin Mobile USA's S-1

On May 1, Virgin Mobile USA filed an S-1 form, stating its intention to go public. Perusing the prospectus, I found a lot of things in there to confuse and worry me.

I just finished perusing Virgin Mobile USA's S-1 filing, submitted on May 1. And I feel very confused.

On the plus side, the prepaid cell phone service provider's performance looks pretty good: Last year, Virgin lost $37 million on more than $1.1 billion in sales. That's pretty close to break-even. With 4.88 million customers, the company controls 15% share of the prepaid mobile phone market. But: The company's customer turnover is rising, its average revenues per customers are falling. And Virgin Mobile USA has no cash whatsoever, and half a billion in debt.

A few other things in the filing gave me pause. Apparently, public investors will only be able to buy shares in a holding company -- not the Virgin Mobile USA business itself. The prospectus outlines a very confusing new organizational structure, similar to a real-estate investment trust (basically, the company investors buy shares in owns no business assets). As a results of this organizational structure change, there can be conflicts of interest between public shareholders and holders of the actual operational assets (current owners, Sprint-Nextel and the Virgin Group), according to the filing's risks section.

Worse, as part of the reorganization, the company will amend and restate its agreement with current co-owner and network provider, Sprint-Nextel, running through 2027. The prospectus doesn't say what exactly the amendment will entail. Considering that Sprint is taking a major cut of profits, an amendment can have a lot of impact on Virgin Mobile USA's financial performance. And one of the risk sections explains that, in July 2008, Sprint's affiliates have a right to stop offering Virgin's service in their regions if, for example, Sprint Nextel changes hands (and we've all heard talk of Sprint being for sale). Would you be worried about these? Are you considering investing into the IPO?

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