“Virtual” wireless carrier Helio, which resells access to Sprint Nextel’s network, is still burning cash at an alarming rate. EarthLink, which co-owns the wireless company along with Korea’s SK Telecom, said today that Helio lost $84 million last quarter on $33 million of revenue. New EarthLink CEO Rolla Huff is retooling his company to generate cash, and free-spending Helio is doing anything but that.
In EarthLink’s Q2 earnings call today, Huff said the Atlanta-based ISP would continue funding Helio, but on a tighter leash. EarthLink’s board has authorised up to $100 million in additional Helio funding, and will kick in $30 million (plus a similar amount from SK Telecom) for the next few months. (At Q2’s burn rate, this should last the company a quarter.) But further funding “will be based on [Helio] meeting agreed-upon operating milestones,” he said.
Helio recently passed the 100,000 subscriber mark and has impressive operating metrics: its customers spend around $90 – $100 per month, about twice what larger rivals AT&T and Basking Ridge, N.J.-based Verizon Wireless get. But Helio’s cost to acquire new customers is front-loaded, meaning they must take a marketing and phone-subsidization hit for each subscriber they sign up. The faster they grow, therefore, the more cash they spend.
Huff says he is excited about Helio’s prospects. Its new Ocean phone, which it designed from the ground up and began selling in May, is unique, proprietary and well-received. The carrier targets young, free-spending consumers who frequent MySpace, et al. As the wireless industry focuses more on selling content and entertainment services, as opposed to plain-vanilla voice service, Early-adopting Helio-types will be among the most sought-after customers.
But Huff also scolded Helio’s management for spending money too fast…
Because of its well-funded parents, founder Sky Dayton and others never felt pressure to keep the lid on spending. EarthLink, Huff made clear, is not a VC firm. Huff also noted that Helio is not strategically important to EarthLink and has a “less than crystal clear path” to shareholder return.
So what will happen if Helio doesn’t grow fast enough? Huff declined to elaborate. EarthLink could try to sell the company or find outside investors, but some potential partners, including Columbia Capital, Intel, Viacom and Qualcomm, were recently burned by Amp’d Mobile–a similar virtual carrier (with unique problems) that went bankrupt last month.
An acquisition by an established carrier also seems unlikely. AT&T uses a different type of network, and Helio’s phones wouldn’t make the jump. Verizon Wireless has focused on its own content projects and business customers, and Sprint Nextel already has a youth-focused brand in Boost Mobile. An IPO is probably out of the question. So what will become of Helio?