20070404

Helio to hit 100k subs, and to be hit by Earthlink's 10K

According to Helio / Helio powered by SK Telecom, the Hollywood MVNO is "on the path to surpass 100,000 subscribers by early in the second quarter of 2007" (NB : 10 month after launch) and claims an "ARPU of over $100 per month", 25% of which from data services. The proof of concept for their device driven innovation strategy reads in some interesting figures :
- a WAP penetration of over 85%, an average 400 SMS per customer (merry Xmas - those were the stats for December 2006 so you won't get any data regarding the recent launch of Helio Music) - over 70% of Helio members use MySpace Mobile
- over 80% of Helio Drift members have downloaded GPS-enabled Google Maps™ for mobile and about 70% have downloaded Buddy Beacon


According to Earthlink's 10-K, Helio Inc as well as Helio LLC (the opco) are Delaware corporations. This isn't Tinsel Town and the balance sheets are not unleaded. Up to now, each partner has spent $214M in cash and non cash assets ($40M for Earthlink's 27,000 wireless subscribers transferred in 2005, along with equipments and other assets). Each partner will spend 6 more millions in August but beyond that, there is a big question mark.

One thing is sure : the company will keep losing money for a while. Big time, because this is cellular business and even for a M-VNO with a low CAPEX, S curves tend to develop fat bellies. FYI, 2006 revenues reached $46.58M with a full launch in July (68.7% service, 31.2% equipments and other) and accumulated deficit stood at $233.7M. Provided ARPU remains at the same high-usage-low-hanging-early-adopter level,
100,000 subs would mean $120M, and an average customer base of 150,000 over the year would barely match 2006 OPEX ($186.5M). Not only does EY have "substantial doubt about the Company’s ability to continue as a going concern", but even a massive success of HELIO would only make things worse in the short term (acquisition costs).

SK Telecom and Earthlink own each 47.8% of the operation. Earthlink can't afford losing money at this pace for long, and SK Telecom could seize the opportunity to take a clearer lead. Or to bring in one ov'em "potential outside investors" (up to now, "outside investors" represented "approximately $8.0 million of funding").

At this stage and especially after the recent US-Korean FTA, I don't see SKT pulling the plug that early. Even with such a fierce competition, it wants HELIO to "achieve or maintain adequate market share or revenue or compete effectively". One one hand, we should see more "Helio powered by SK Telecom" (MySpace's exclusivity is over and the Cyworld brand could blossom beyond the platform). On the other, SKT won't wait 25 years to welcome HELIO's 3 millionth customer.

The fun is just about to start.



1 comment:

Tommy said...

We agree with the analysis done by this article as it conforms to our views as well. The main ratio we will want to see is the customer acquisition costs versus the incremental positive cash flow per customer.

To calculate the optimization ratio in this business platform we will be able to figure out what will ensure Helio to be viable.

Most people are misguided and think that the more customers a carrier acquires more successful it is. That is very short-sighted and the exact view that put Ampd out on the curb.

We have to look at the cash flow view and in this the Helio model pays upfront for acquiring the customer which our estimates come to around $450, the incremental positive cash flow comes to $60 per month, per subscriber. This translates to break even point of 8 months. Not looking at opportunity costs we are looking at per subscriber positive cash flow of $960 over the two years.

This is why SK will keep funding Helio, because our calculations show that according to the figures Helio will reach profitability in mid 2009. Around that time we expect their customer acquisition costs to go down as well while overhead is spread through a larger base of subscribers. This will result in Helio increasing the speed of subscriber growth and will be positioned to create stiff competition for the large national carriers that are not nimble enough to be flexible with the technology changes.

Asif Ahmed
www.heliocorporate.com

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