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									044_FD_Sept 04     17/8/04        4:40 pm        Page 42




           BRIEFING business                                              model



           VIRGIN MOBILE IPO                                                                      The Branson factor
                                                                                                  The listing particulars claim that
                                                                                                                                           IT system
                                                                                                                                           In September 2003, the

           AND BRANSON ‘RISK’                                                                     Virgin is the fifth most admired
                                                                                                  brand in the UK. Virgin Mobile has
                                                                                                                                           management information system
                                                                                                                                           used for extracting individual
                                                                                                  a 30-year licensing arrangement          customer usage information
                                                                                                  that entitles the group to use the       “reached capacity”, says the listing
           The Virgin Mobile listing                    and (d) a £50m payment by a               Virgin brand, subject to various         particulars in the chapter headed
           particulars shed light on                    Virgin Group company to T-Mobile          conditions. VMTL pays 0.25% of           Risk Factors. Since then, the
           the operation of a ‘virtual’                 following the listing of Virgin Mobile.   annual revenue for the licence to        company has had to make various
           network operator and its                        As a virtual network operator,         use the Virgin brand.                    assumptions in calculating its total
           relationship with the parent                 Virgin Mobile is reliant on T-Mobile         If for any reason the group lost      and active customer data.
           Virgin Group, which owns                     providing it with customer and            the right to use the Virgin brand, it       An enhanced MIS is being
           75% of the phone operator                    usage data. Until January, Virgin         would also lose the right to use         developed but is not expected to
           following its flotation on the                had only limited rights of audit in       T-Mobile’s network and would             become operational until January
           London Stock Exchange.                       respect of the information                trigger a default under a credit         2005. While this does not affect
           Virgin launched its mobile phone             provided by T-Mobile. The new             facility – amounting to £330m at the     the calculation of Virgin’s turnover,
           service in November 1999 and                 agreement between them allows             time of listing plus a further £20m      the perception that its operational
           has since acquired 4.0 million               for greater audit rights, though          not drawn down – which could             data is unreliable could result in
           subscribers out of a total market            Virgin Mobile has not exercised           result in a cessation of business.       investors changing their estimation
           of 53.9 million. The published               these rights. “As a result, there can        At the same time, the group is        of the value of the business, the
           subscriber and market share data             be no assurance that the data we          also under an obligation to use          document says.
           of the network operators is:                 receive are accurate.”                    the Virgin brand, restricting the
           T-Mobile           13.8m           25.5%*                                              group’s ability to operate other         E-money
           Orange             13.7m           25.5%     Financials                                than under the Virgin brand.             There is a possibility that Virgin
           O2                 13.2m           24.6%     Virgin has no network infrastructure         The listing particulars state that    Mobile may be regarded as an
           Vodafone           12.8m           23.7%     of its own as it operates a telecoms      the company believes its market          issuer of ‘e-money’ and, as a
           3                   0.4m            0.7%     supply agreement with T-Mobile.           position has been enhanced               result, become subject to
           * Includes Virgin Mobile, 4.0 million, 7%.   Hence, its capital expenditure is         through the affiliation with the          regulation by the Financial Services
                                                        low and its return on capital             Virgin brand and with Sir Richard        Authority. While it is currently a
           Virgin Mobile = Virgin Mobile                employed was 80% in 2003.                 Branson, who will be the                 grey area, it may be that the use of
           Holdings (UK) plc, which floated                 For the year to 31 March 2004,         company’s president from the date        prepay phones to buy goods and
           on the LSE, 26 July 2004.                    Virgin Mobile reported turnover           of listing. (This position is honorary   services constitutes the use of
           VMTL = Virgin Mobile Telecoms                of £487.6m, EDITDA of £91.3m              and not a director position; Virgin      e-money. If it becomes subject to
           Ltd – the operating subsidiary.              and operating profits of £75.8m            Mobile will receive 10 days’ service     FSA regulation as an “electronic
                                                        (15.5% of turnover).                      from Branson per year to assist          money institution”, the company
           Relationship with T-Mobile                      As of the date of publication          with business strategy issues,           will have to meet certain capital
           Virgin Mobile is a mobile virtual            of the listing particulars, the           mentoring and promotional                adequacy requirements and
           network operator (MVNO), which               subsidiary operating company,             activities. Virgin Mobile will pay       impose regulatory requirements on
           uses the facilities of T-Mobile, a           VMTL, had negative distributable          £100,000 a year plus VAT plus            the company’s management.
           mobile network operator (MNO).               reserves of about £80m and was            expenses to either the Virgin group
           It also competes directly with               applying to the courts to eliminate       or a charity of Branson’s choice.)       Andrew Sawers
           T-Mobile, just as it does with               this shortfall by reducing the share         But the document also
                                                                                                                                           A wide range of Briefings can be found at
           BT Mobile, another MVNO.                     premium account. Without such a           recognises that if any other part of     www.financialdirector.co.uk/briefing
              There were various legal                  reconstruction, the subsidiary            the Virgin group, or even Branson
           disputes between Virgin companies            will not be able to pass dividends        himself, were to suffer from
           and T-Mobile companies                       up to the parent, which will then         negative publicity, that could
           concerning a shareholders’                   not be able to pay anything to            have a material adverse effect on
           agreement and a telecoms supply              shareholders. But assuming the            the business, operations and
           agreement, which were resolved in            court gives its approval, the group       brand of Virgin Mobile.
           January 2004 with (a) T-Mobile               intends to adopt a distribution              The group has contractual              Useful links
           paying £16m to VMTL; (b) Virgin              policy that reflects the cash flow          arrangements for the promotion of
                                                                                                                                            ● The listing particulars are
           Group acquiring T-Mobile’s                   generation of the business, split         Virgin Mobile in Virgin Retail’s
                                                                                                                                            available to UK readers only
           shareholding in Virgin Mobile; (c) a         67:33 between the final and the            shops. These outlets make up              at www.virginmobile.com
           new telecoms supply agreement;               interim dividend.                         17% of new connections.

           44 FINANCIAL DIRECTOR SEPTEMBER 2004

								
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