Virgin to Build World Wide Wireless Web

Serial entrepreneur Richard Branson failed to circle the globe in his Virgin-branded balloon, but now he's attempting a different kind of circumnavigation. Rather than construct a custom vehicle, as he did with his Virgin Global Challenger, he's going virtual: Branson plans to run a worldwide mobile-phone network without actually building one.

Virtual operators are common among fixed-line telcos, which often provide a service over phone lines they don't own. The same strategy has also been used in Internet service provision. In the UK, for example, supermarkets and other retailers have become virtual ISPs, offering branded Internet access that is operated by anonymous network providers.

Virgin was the first company in the world to apply that strategy to mobile phones with the UK launch in November 1999 of London-based Virgin Mobile. Half a dozen firms around Europe are following its lead, including several phone companies, a cable provider and a supermarket chain. Industry-watchers expect there will be more virtual mobile-phone companies in Europe and the US.

Virgin Mobile is clearly a different breed of wireless player - imagine getting cellular service from Disney or McDonald's. While it's mostly a voice service, Virgin Mobile customers in the UK can also use their phones to call for TV listings, cinema schedules and traffic reports, as well as shop for discounted electronics and CDs.

"It's the first time that a strong brand with content and services is coming into the wireless market," says Jane Zweig, senior VP of wireless consultancy Hershel Shosteck Associates.

That brand has proven powerful. Virgin Mobile already has 400,000 customers and is the fastest-growing wireless operator in the UK. The company is a joint venture between Branson and One2One, the mobile-phone business owned by Deutsche Telekom. Virgin uses the One2One network, but handles its own sales, billing and customer service.

In September, Virgin Mobile announced plans to raise $US168 million to fund wider distribution in the UK. It is converting music store chain Our Price into Virgin Mobile outlets (which will also continue to sell music). But it also plans to outmanoeuvre the competition by flogging its service at other retailers, including leading supermarkets.

"We say we are a service business rather than a telephone company," says Virgin Mobile spokesman Steven Day. In the past, he adds, the mobile-phone business has been about having the biggest and best networks to carry voice traffic. But he believes the prospect of bringing the Internet to mobile phones will change the emphasis and open the door to new types of companies.

"It's about content aggregation and services," he says. "We have one of the most successful brands in the world and our own content and products to sell."

So far, Virgin is establishing a credible presence in the UK and hopes to ride that wave to other markets. It has signed deals with Cable & Wireless Optus in Australia, where its service should be launched within weeks, and Singapore Telecom in Singapore, Hong Kong and South Korea. It is also on the verge of signing a deal with a nationwide mobile-phone carrier in the US, where it plans to launch its service sometime next year.

VoiceStream is the most likely candidate, since its network uses GSM (Global System for Mobile communications) - the same as in Europe.

Virgin Mobile's US office in San Francisco has 20 employees. Their service will be sold in Virgin Megastores as well as at other entertainment retail locations. President John Tantum - who formerly worked in London for management consulting firm McKinsey & Co - expects the office to hold 150 people by the end of next year.

US teenagers and twenty-somethings certainly know Virgin as a record label and store, and they are the young, music-savvy market Virgin Mobile is after. It's a smart move.

While chatty teenagers in Europe and Japan drive the explosion of wireless service, their American peers are less likely to have a mobile phone. People under the age of 20 account for only 5 million of the roughly 100 million mobile phone users in the United States, according to analyst Tom Lee at Chase H&Q.

That figure, however, is expected to reach 25 million by 2005. If that happens and the 25 million people have a $US35 monthly bill, that's an $US8 billion market largely up for grabs. Virgin Mobile's US offering will include some form of text messaging along with other services such as movie listings. But Virgin obviously hopes its music connections will be the big play. John Tantum imagines buying music online and downloading it to phones with built-in MP3 players. Such a phone is already on sale in the UK, although for the moment music must still be uploaded from a PC.

Asked if he's signed up the requisite celebrity spokesperson for the new service, Tantum says: "We have Richard Branson!"

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