Why Helio Didn't Connect

[David Farber <dave () farber net>]

________________________________________
From: Robert J. Berger [rberger () ibd com]
Sent: Thursday, July 03, 2008 1:40 AM
To: Dewayne Hendricks; David Farber
Subject: Why Helio Didn't Connect

The "money" quote:

"If you look at wireless as a whole, it's represented a net
destruction of capital for venture capitalists," grumbles William
Frezza, a general partner at the Boston venture capital firm Adams
Capital Management.

I suspect this is applicable to most wireless investments, even those
beyond non-monopoly Cellular like Helios. I've now seen it personally
at several in the Muni-WiFi realm and I think were going to eventually
see it with wImAx. Infrastructure plays do not generate ROIs that Wall
Street expects except for monopolies. - Rob
----------

Why Helio Didn't Connect

The flashy cell-phone company is in a very tough business.
By Michael Fitzgerald Thursday, July 03, 2008
http://www.technologyreview.com/Biztech/21036/?nlid=1187&a=f
Helio, which aimed to use souped-up mobile devices and spiffy services
to build a virtual mobile phone company, instead has been sold off for
a fraction of its backers' investment. Helio thus becomes the latest
reminder that the wireless industry remains a perilous place for
startups.

"If you look at wireless as a whole, it's represented a net
destruction of capital for venture capitalists," grumbles William
Frezza, a general partner at the Boston venture capital firm Adams
Capital Management.

Despite receiving some $710 million in capital, Helio was able to
attract only about 170,000 customers, racking up significant losses in
the process.

The trouble was not a lack of innovation. Helio's May 2006 launch saw
it put two twists on the market for virtual mobile phone companies: it
offered high-end cell phones with unique services, like integration
with MySpace and YouTube, and the ability to make micropayments via
the phone. And where other virtual mobile providers (also called
mobile virtual network operators, or MVNOs) went after underserved
niches, Helio rented space on Sprint's cellular network and then used
it to go after a mainstream cellular market: young people. Helio had
big backers in Earthlink, a successful Internet service provider, and
South Korea's SK Telecom, and it was headed by Sky Dayton, Earthlink's
wunderkind founder.

Helio entered a market filled with froth: less than a year earlier,
Sean "Diddy" Combs gave a keynote to the 2005 Cellular Telephony
Industry Association trade show and said, "I am an MVNO."

One virtual phone company that has had success is Virgin Mobile USA,
which bought Helio for perhaps $49 million--$39 million in stock and
the assumption of as much as $10 million in debt. Helio itself is not
dead: Virgin Mobile will continue to market its service. But observers
say that the deal strikes a death blow to the idea that U.S. consumers
will buy high-end mobile phones from someone other than a cellular
carrier.

"The chapter closes on this market, and it's turning the page," says
Chetan Sharma, president of Chetan Sharma Consulting, based in
Issaquah, WA. Sharma says that Helio would have needed a million
customers to get to a break-even point.

<snip>

––––––––––––––––––––––––––––––
Robert J. Berger - Internet Bandwidth Development, LLC.
15550 Wildcat Ridge, Saratoga, CA 95070
Voice: 408-838-8896 eFax: +1-408-490-2868
http://www.ibd.com




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