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Telecom Company Sprint Nextel Acquiring Virgin Mobile USA

Telecommunications company Sprint Nextel Corporation will purchase prepaid cell phone provider Virgin Mobile USA in a $483 million stock purchase. A joint statement from both companies says that at closing of the transaction, Overland Park, Kansas-headquartered Sprint will retire Virgin Mobile's outstanding debt, expected to be approximately $205 million. Dan Schulman, Virgin Mobile's current CEO, will lead the Sprint prepaid cell phone business and report directly to Dan Hesse, Sprint's president and CEO; Matt Carter, who runs Sprint's existing Boost Mobile prepaid service, will report to Schulman. "The acquisition of Virgin Mobile USA positions Sprint for even greater success in the prepaid wireless segment," says Hesse. "Prepaid is growing at an unprecedented rate, with consumers keenly focused on value. Virgin Mobile is an iconic brand in the marketplace that will complement our Boost Mobile brand." Industry analysts say the move is part of Sprint's struggle to hedge against defections among its more lucrative contract subscribers, and some question the company's strategy. "This deal, and the strategy shift in general, does nothing to address the key issue that Sprint faces, namely the continuing meltdown of its much higher value post-paid business," says Craig Moffett of Sanford Bernstein, quoted by The Wall Street Journal. "Closing the deal and integrating Virgin may consume management's time and distract them from what should be their primary focus." Other analysts believe the move is a sound one. "If you believe in prepaid getting stronger, and that is the commonly accepted wisdom, it behooves you to take out a competitor," says Roger Entner, head of telecommunications research at Nielsen Co., also quoted in the Journal.

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