Branson gambles $1bn on US mobile market

Click to follow
The Independent Online

Sir Richard Branson has put his holding in Virgin Atlantic up as security to help raise the money needed to kick-start a $1bn (£725m) plan to take Virgin Mobile to the US.

The entrepreneur has reached an agreement to use the national network of Sprint, the US telecoms group, to launch a coast-to-coast wireless service in the underdeveloped American market.

In what is seen as Sir Richard's most ambitious venture since he established Virgin Atlantic in the mid-1980s, Virgin will exploit its youth-orientated brand to market mobile phones to the under-thirties.

A spokesman for Virgin said: "The US market is the most backward of all OECD countries. Just 35 per cent of the under-thirties have mobiles. The phones are currently marketed in the US as only a business accessory."

The joint venture will need some $250m to see it through the first two years and it is estimated that it envisages $1bn of investment overall. Most of the money will be raised from private equity groups or the debt markets.

In the much smaller UK market, the Virgin Mobile business, a joint venture with One2One, has invested a total of £215m since it started in 1999. With 1 million customers, it aims to reach break-even next spring. Virgin believes this would make it the fastest mobile venture ever to reach profitability.

In order to provide the seed money for the US mobile push and its other new businesses, Virgin has borrowed some £50m from its bankers at Lloyds TSB, and put its 51 per cent holding in Virgin Atlantic up as security.

The Virgin spokesman said the banking arrangement was routine. "This is business as usual," he said. "These arrangements come in and are paid off as needed. It's just working capital money."

Virgin expects to formally announce its US plans for Virgin Mobile in the next few weeks, once it has secured a retail partner. While the group has some 300 stores in the UK, which help to provide the distribution channel for its phones in this country, its retail presence in the US is very limited.

Virgin is believed to be talking to a number of American retailers, including Best Buy, an electrical chain. It may also look to Wal-Mart, America's biggest retailer, since it already distributes its phones through Asda, Wal-Mart's UK supermarket chain.

Sprint has one of the few national networks in the US. Virgin's agreement with the telecoms group is currently in the form of a memorandum of understanding. A full-blown deal will be signed once the distribution arrangements have been finalised.

Comments