UPDATE: Virgin Mobile Narrows 4Q Loss; Adds Customers

Virgin Mobile USA Inc. (VM) narrowed its fourth-quarter loss and returned to customer growth in a sign that more people are considering pre-paid wireless plans.

Reversing two quarters of customer defections, Virgin Mobile added 216,000 net new users to end the period with a base of 5.4 million. The company's turnaround underscores the increasing reluctance of consumers to commit to a multi-year service plan given the uncertainty over the economy.

"As the economy continues to affect the consumer psyche, there is an appeal to the value and flexibility of not having to lock yourself in a contract," Chief Executive Dan Schulman said in an interview on Tuesday.

The Warren, N.J., provider of pre-paid wireless service posted a fourth-quarter net loss of $4.4 million, or 12 cents a share, narrower than its year-ago loss of $14.7 million, or 30 cents a share.

Excluding one-time items including a charge related to its acquisition of Helio, the company lost 5 cents a share.

Revenue, meanwhile, rose to $347.1 million from $329.7 million, although service revenue rose 10% to $326.7 million.

Analysts, on average, expected a loss of 10 cents a share on revenue of $345 million, according to Thomson Reuters.

Helping Virgin Mobile is the increasing popularity of "hybrid" plans, which offer a set number of minutes at a standard price without a contract. When the plans launched a year ago, they attracted a third of all new customers who signed up. Now, more than half of Virgin Mobile's customers choose a hybrid plan.

"We plan to double-down on hybrids," Schulman said, adding he expects double-digit growth in the number of new customers who choose that option.

The plans have also helped Virgin Mobile reverse a trend of declining monthly revenue per user. The average revenue per user in the fourth quarter was $21.14, up from $20.36 a year ago.

The rate of customer cancellations - typically higher for a pre-paid service - fell to 4.8% from 5.1% a year ago.

The higher revenue and cost per users also increased slightly as a result of the acquisition of Helio, which offers a higher end contract service. The company acquired the troubled wireless retailer in October. Schulman said the deal helped shore up the company's balance sheet thanks to investments by parent companies SK Telekom Co. (SKM) and Virgin Group Ltd.

Virgin Mobile faces stiff competition from Leap Wireless International Inc. (LEAP), MetroPCS Inc. (PCS), and Sprint Nextel Corp.'s (S) Boost, all of which offer flat-rate calling plans without a contract.

Schulman said Virgin Mobile targets a slightly different segment of customers, but said the lines have been blurring. In the situations where they've clashed, Virgin Mobile has competed fiercely, he said.

For the first quarter, Virgin Mobile expects adjusted earnings before interest, taxes, depreciation and amortization of $30 million to $35 million and free cash flow of negative $10 million to nil.

For the year, the company expects adjusted Ebitda of $110 million to $125 million, and free cash flow of $35 million to $45 million.

Schulman said there was too much going on in the market to provide a more comprehensive forecast.

"We only give guidance that we feel we have control over and good confidence over," he said. "In all other things, we maintain flexibility."

Virgin Mobile has dealt with concerns over its balance sheet in the past, which Schulman said has been largely resolved. It ended the quarter with $12 million in cash and cash equivalents.

Still, he remained upbeat. He said the pre-paid market is still one the few places of growth left in the wireless industry.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; [e-mail]