Richard Branson: Winning Virgin Territory

If anyone can make a prepaid phone plan seem cool, it's Richard Branson. As part of his assault on the fastest-growing segment of the wireless business, the brash chief executive of Virgin Group Ltd. is employing the same full-frontal sales tactics he brought to music, air travel, and vacation resorts. He's targeting young phone users with features such as piped-in music news from MTV Networks or, for $2.95, an outgoing voice greeting from William Shatner. Afraid your date won't pan out? Virgin offers a bailout option with "rescue ring" -- an "emergency" call you can arrange to receive so you have a reason to bolt.

Branson himself showed up nearly naked in New York's Times Square a year and a half ago to kick off the 50-50 joint phone venture with Sprint PCS Group (PCS ). Since then, Virgin Mobile USA LLC has racked up more than 1 million users. The fast start shows Virgin's distinctive lifestyle pitch has connected with many younger consumers. As the new kid on the block, Virgin is far from the biggest player. AT&T Wireless and Cingular each has a fifth of the market for customers age 17 to 23, compared with Virgin's 5%, estimates consultant Adventis. But Virgin was the first to expressly target this group. And there should be plenty of growth ahead, since American youth lags much of the world in cell-phone use -- in the U.S., only 47% of consumers 12 to 24 have a cell phone, says researcher Mintel International Group Ltd., compared with 80% or more in many European and Asian countries. "They've proved a point: that it's possible to come in with a new brand," says Adam Guy, senior analyst at Yankee Group.

To pry away those younger callers, Virgin is playing on their wariness of complicated plans and hidden fees. It offers the simplest of prepaid deals -- 25 cents per minute for the first 10 minutes each day, then 10 cents after that -- with no contracts and no small print, under the romantic-sounding slogan "Live without a plan." In one Virgin spot running on late-night network TV and such cable outlets as Comedy Central, a young man -- naked except for a packaged Virgin cell phone -- testifies fervently: "You really freed me, Ellen, in my body, my mind, and my soul, and I want to do something for you in return. I want to give you this Virgin mobile phone." The idea, says Howard Handler, Virgin Mobile USA's chief marketing officer, is to make users feel they're part of a community of their peers. "We have to keep them engaged and happy, make them feel that they're living inside that velvet rope," he says.

Virgin Mobile USA is guarded with its data, but Yankee Group's Guy figures it gets a respectable $40 per month from each user and has kept customer acquisition costs low. Funded with $160 million from Branson, Virgin Mobile says it is self-sustaining now and should be in the black by early 2004. Until recently, Virgin had to contend only with sporadic efforts from first-tier carriers such as AT&T Wireless (AWE ) and T-Mobile (DT ). But that's changing. Nextel Communications Inc., after grabbing 250,000 users with a tie-in to skateboard and surfing events, is rolling out a youth brand, Boost Mobile. Like Virgin, says Tom Hebert, business team leader for wireless at retailer Best Buy Co. (BBY ), "Boost has reached an untapped market that had very few options."

Of course, there's nothing to stop other carriers from launching their own full-fledged youth brands. Thanks to Virgin's early success, several are said to be hearing pitches from brand powerhouses such as Walt Disney (DIS ) and Nike (TWX ). Those companies have far bigger budgets and could use wireless as a loss leader to flog other products. That would cut the floor out from under prepaid pricing. Just because Virgin has carved out a new niche doesn't mean it will be alone for long.

By Gerry Khermouch in New York, with Catherine Yang in Washington

— With assistance by Catherine Yang

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