Virgin Mobile may cut 300 jobs, as yet another MVNO reels

updated
Virgin Mobile, the first company to prove you could offer wireless service to people for a profit using other carriers’ infrastructure, may soon announce up to 300 layoffs.

Virgin Mobile USA’s management is mulling the plan, given the deterioration of its business outlook. If implemented, the cuts would impact jobs in the company’s Northern California operations the most, VentureBeat has learned. A few marketing and sales jobs may be cut at the company’s New Jersey headquarters. The company last month gave employees a heads-up about the possible cuts, spokeswoman Jayne Wallace confirmed in an interview, though she did not say how many cuts were being considered.

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She said the Virgin Mobile USA has a total headcount of 450. That makes a cut of 300 from the group’s US operations alone extremely high, and we’re scratching our head where they would come from, if they don’t include the wider group.

Virgin Mobile USA hasn’t done very well since its initial public offering in Oct., having lost 85 percent of its worth in a steady fall (see chart). Virgin offered a “pay-as-you-go” model, which provides customers more flexibility, but U.S. carriers have responded with similar plans and Virgin has seen serious defections. It is losing money, and last month it provided a grim outlook, citing both competition and the downturn in the economy for its woes.

That comes even though Virgin Mobile until now has often been pointed to as an example of a successful MVNO (mobile virtual network operator), or operator that pays to use the backbone of other carriers.

Virgin was the first successful MVNO, when it launched in the UK a decade ago. It has more than 4 million customers there. It came to the U.S. six years ago, and was soon considered one of the few MVNOs to have solid operations here.

The trick for MVNOs is that they have to make a profit by charging customers more than they pay out to the carriers for use of the lines. The U.S. doesn’t have too many success cases, in part because U.S. carriers are relatively entrenched.

Many MVNOs have struggled. There’s Helio which, after denying it was making layoffs (in response to a story we wrote about them), soon made the cuts anyway. Amp’d Mobile crashed into bankruptcy last year, and other mobile networks from ESPN/Disney to Voce have also failed.

Virgin has given its four top executives pay raises of up to 30 percent percent, even as the stock has declined (and in part, because the stock has declined; their options are now worth nothing). The chief information technology officer position has been unfilled for months, after two CTOs quit within a year. [The company tells me Jim Gamm is now the CTO.]

The layoffs, if they happen, could impact the company’s Walnut Creek, Calif. offices the most, according to our source. The plan would call for the layoffs to happen over nine months. Under one scenario, the company would outsource much of its operations to IBM. Our source said the deal with IBM has actually been signed, but spokeswoman Wallace wouldn’t comment on that, and wouldn’t confirm or deny whether IBM has a role or not.

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She said the company is exploring a number of ways to make its service better, and also wants to keep its shareholders happy, which means reducing costs when necessary. She said no layoffs have yet happened. “No final decision has been made about whether or not to do this,” she said.

Indeed, we’re hearing the company is considering a number of options, and may yet avoid the cuts. Private equity firms have been sniffing around, but Virgin’s options are somewhat limited because of its structure: Virgin Mobile USA is a joint venture between Virgin Group Ltd. and Sprint Nextel. Sprint, struggling itself, also owns the youth-oriented Boost Mobile MVNO.