1. TEAM 4
Prepared By:
Virgin Mobile USA
Telecom Services
PGPM 2012
Prepared By:
Team 4
Pooja Gupta (P122033)
Rohit Singh (P122038)
Saurabh Singh (P122041)
Varun Anand (P122049
GREAT LAKES INSTITUTE OF MANAGEMENT, GURGAON

2. Introduction
Virgin Mobile is a successful company based in the U.K. Virgin Group Ltd. is a
British multinational branded venture capital conglomerate company founded by business
tycoon Richard Branson. The company is well known for its brand extension and was the first company
to introduce the Mobile Virtual Network Operator (MVNO) in the U.K., where they leased network space
form another firm instead of running a network in-house and as a result avoiding infrastructure and
large fixed cost.
The company was well known for its hip and trendy position in the U.K., and catered to the youth
market. Although they have had a couple failures in the past including launching the MVNO in
Singapore, the company decided to venture into the U.S. market because they believed that the market
was underserved particularly in the 15 to 29 age group. The mobile penetration in the age group of 15-
29 years is only 15% and the revenue from this target group was expected to rise from $27billion in 2002
to 65 billion in 2005.
It ccommenced it’s operations in USA in June, 2002 led by founding CEO Dan Schulman. Virgin entered
USA as a 50-50 joint venture between Virgin Group and Sprint Corporation. Virgin Mobile USA’s service
would be hosted on Sprint’s PCS network. At that time, Sprint was in process of updating its network
and increasing its capacity. The idea was to provide telecom services at a low cost which would be
possible as huge fixed costs or the physical infrastructure wasn’t required due to joint venture with
Sprint. So the company decided to focus on understanding and meeting customer needs.
Virgin Group’s Mission Statement
“Virgin believes in making a difference. We stand for value for money, quality, innovation, fun and a
sense of competitive challenge. We strive to achieve this by empowering our employees to continually
deliver an unbeatable customer experience.”
The company believes in delivering quality and value for money services to its customers. They wish to
achieve this by empowering employees and deliver unbeatable customer experience.
Objective
The aim of the firm is to create value and profitability in cell phone service industry by targeting age
group of 15-29 years as the company foresees high opportunity for growth with this market segment.
The company aims to get 1 million subscribers by year 1 and 3 million by year 4 by focusing on the youth
market from the ground up and to serve these customers in a way they have never been served before.
Understanding Target Group Behavior
The calling pattern of this target group is different from that of a typical business person. They are
generally open to new things such as text messaging, downloading information using cell phones, and

3. use ringtones, faceplates, graphics, etc. This target group considers cell phones as a fashion accessory
and they feel it’s a style statement for them.
Service: Virgin Extras
Youth segment is the most reactive segment and was always considered to be one of those segments
which require continuous provision of all benefits to the consumers to sustain and even grow in the
market.
The company adapted some of the strategies to provide better value proposition by:
• Focus on provision of augmented services delivering content, features, and
entertainment to its consumers like “Virgin Extras” on premium but comparatively less
rates and other extras in their plans to appeal to the teen and young adult market, such
as text messaging (a feature popular in Europe by 2002, but slow to catch on in the
U.S.), online real-time billing, ring tones, wake-up calls, and more.
• Channel Strategy - contract with retailers like Target, Best Buy, and Sam Goody to sell
Virgin phones and plans off the shelf. No expensive sales staff would be employed,
contract with Kyocera to produce less-expensive phones with trendy names like “Party
Animal", "Super Model"
• Pay As You Go and Monthly Plans - The first pay as you go plans offer buckets of
minutes, which each provide a different calling rate or offers a pay as you go rate of 20
cents per minute and monthly plans which mimic traditional contract plans, but are on a
prepaid basis.
• No Contracts, No Credit Checks
• Dedicated Customer Service - Virgin Mobile's customer care can be reached via email or
through a toll free number.
• Multiple Payment Options - To pay your Virgin Mobile prepaid bill per purchase
minutes, you can register a credit card, debit card, or PayPal account for automatic bill
payment. You can also buy refill cards at thousands of retailers nationwide.
• Downloadable content - There are a large selection of ringtones, games, screensavers
and wallpapers available for download starting at 1 dollar each and going up from there.
• International Calling: Virgin Mobile does offer international calling. International charges
include standard airtime and the international rate per minute. Rates start at 15 cents
per minute and vary depending upon the destination country.
• Roaming Charges: The Virgin Mobile pay as you go phone service has no roaming
charges. Your phone will not work outside your coverage area.

4. • Nationwide Long Distance: Virgin Mobiles includes nationwide long distance calls in
their plans including long distance to all 50 states, Puerto Rico and the Virgin Islands.
Long distance calls are treated the same as regular calls.
• 411 Calls: Yes, directory assistance is available for $1.75 per call, plus airtime charges.
Pricing
Virgin mobile USA decided to be the lowest cost mobile service provider in the market which became
one of its USP.
Virgin had three pricing options.
1. Clone the existing industry pricing structure
Over 90 percent of cell phone subscribers in the U.S. had contractual agreements with their providers
whereby they agreed to a “bucket” of minutes to use per month. If the customer used more than their
allotted minutes, he or she would be charged extremely high rates for the overages. If they did not use
all of their minutes, they still paid the same monthly fee and did not get to recapture the unused
minutes the next month. Substantial taxes and service charges added to the fixed fee and overage
charges in monthly bills.
Pros:
If chosen, advantage of working within an established framework for pricing.
Cons:
No differentiation from other cell phone providers
Not able to reach target market of teenagers, since children under the age of 18 could not enter
into contractual agreements in the U.S
No value proposition created by following hidden charges
2. Price below the competition
Pros
If chosen, it would reach out and attract younger cell phone users and drive sales
Cons
Engaging its competition in a price war
Not sustainable solution in the longer term
3. A new, prepaid service plan

5. In order to cater to its specific segment and be profitable and distinct in delivering their value
proposition, a new prepaid plan would be the best the option to choose. A prepaid plan that would
eliminate contracts, hidden fees, and even monthly billing while still being profitable in which customers
would buy minutes in advance and then, once the minutes were used, “recharge” minutes onto their
phones with their debit cards would be the right pricing decision for Virgin Mobiles USA. Virgin mobiles
could afford lower margins of profit in a prepaid plan as it did not have high fixed costs associated with
network infrastructure due to MVNO strategy, no expensive sales and distribution plans in high-end
retails with expensive salesforce and only targeted effective advertising.
Pros
Differentiated positioning catering to target market with flexibility
Virgin hoped that by making its billing more transparent it would create value for its customers with no
hassles of hidden charges.
Cons
High monthly churn rate expected from a prepaid plan
lack of contracts might keep customers from being loyal to Virgin Mobile
Appendix 1
AC includes:
Advertising costs per customer: from $75 to $100 .Virgin Mobiles proposition = 60M/1M= $60
Sales commission paid per subscriber: $100 Virgin mobiles sales commission = $30
Current industry handset cost: $150 to $300 (assume $225). Virgin’s handset cost = $60 to $100 (assume
$80)
Handset subsidy provided to the subscriber: $100 to $200 (assume $150) Virgin’s handset subsidy = $30
Total: from $275 to $405. Total avg as assumed from Virgin's proposition= $200
Assuming Industry average customers acquisition cost: $370
Industry average monthly cell phone bill/monthly ARPU: $52

6. Industry average monthly hidden fees (plan price markup): 21% ($ 29 cellular bill becomes $35
due to hidden costs)
Industry average monthly cost: $30
Retention rate at 2% churn( with contract): 1- (0.02 * 12) = 0.76
Retention rate at 6% churn( without contract): 1- (0.06 * 12) = 0.28
Assuming Average minutes used by the 15-29 age group: 200 minutes (avg of 100-300mins)
Virgin prepaid price/minute: $0.22
Assuming Interest rate: 5%
Break-even Analysis - at what per minute price would Virgin break even and achieving profitability
with Customer friendly plans
Regular Plan
Monthly Margin = Average monthly bill(ARPU) – average monthly cost(CCPU) = $52 - $30 = $22
Plan price markup = monthly interest rate = 21%
$22/1.21 = $18.18
Breakeven: $370/$18.18 per month = 20.35 months
Prepaid plan
Assume monthly costs = 30%
Monthly Margin = Average monthly bill(ARPU) – average monthly cost(CCPU) = ARPU - 45% of
ARPU = ARPU(1-.45) = 0.55*ARPU = 0.55*($44) = $24
$24/1.30 = $18.5
Breakeven (total AC assumed): $200/$27.7 per month = 10.8 months
Virgin’s Service Offering
• Extra features: Music, Wallpapers, Videos, Live Video Request, Rescue ring, wake-up call facility
• New improved billing pattern and online real-time monthly bills

7. • Prepaid plan
• No contracts
• No hidden charges
• No peak off peak hours
• Very low handset subsidies
• No credit checks
• No Monthly bills
• Price: 25 cents per minute for the first 10 minutes; 10 cents/minute for the rest of the day
• No exact numbers, but churn rate lower than 6%
Conclusion
• Virgin correctly identified service gaps in telecom industry and what customers needed.
• Virgin identify inflexibility in calling plans and in other plans.
• Provided extra services than current mobile carriers.
• Provided a medium of entertainment on go.
• Offered customized services at a relatively low cost.