Virgin Mobile purchased Helio today for $39 million in equity. Helio is a small MVNO that made its name by selling powerful and high-end telephones aimed at technophiles and, thanks to an investment by South Korea’s SK Telecom, Korean-Americans. As part of the deal, Virgin Mobile is also receiving $50 million to pay down Helio’s debt (half from SK Telecom, and half from its parent company Virgin Group), as well as an additional revolving credit facility of $60 million. Just last September, SK Telecom tried to save Helio by pouring an extra $270 million into it, to no avail.

The Helio brand will be subsumed by Virgin Mobile. All of the Helio stores will close except, it’s reported, the flagship store in New York, and there is a full restructuring of the company going on right now. Thus, after much struggling, Helio enters the deadpool.

Helio had 170,000 subscribers while Virgin Mobile currently has about 5 million. The deal will also give Virgin access to a number of technologies owned by Helio including customer management and cellphone deck applications.

Helio also has received investments from Earthlink, but when Earthlink pulled out last year and charismatic CEO Sky Dayton stepped down it was clear something was afoot.

Peter Ha at CrunchGear wrote a full analysis of the merger:

So what exactly does the merger mean for customers of Helio who have grown to love the hardware and features that Helio is best known for? Well, Virgin Mobile will be keeping all of those goodies in place. If you’ve seen any VM devices, you know they stink. VM is relatively boring and absorbing the technology Helio is best known for will certainly boost the MVNO’s status and appeal to a broader audience. That means future VM devices will include apps such as Google Maps with GPS, YouTube and MySpace… all of which Helio brought to the table before other carriers.

What about the Ocean 2? If you haven’t already figured it out by now, the Ocean 2 has been delayed over the last few months because of merger talks. It’s unclear when the device will actually launch, but it hasn’t been scrapped.

While I hate to see Helio dissolve, this is great for both brands. VM knows how to make money while Helio knows how to create technology that works and is appealing.

With Helio gone Boost Mobile in the only targeted MVNO running in the US right now.

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Mobile virtual network operators (MVNOs) have been having one hell of a time over the past year. The biggest burnout among them was Amp’d Mobile, which lost $360M before realizing its customers couldn’t pay their bills.

While Helio rode high for quite some time, that company has also lost Earthlink as an investor, seen CEO Sky Dayton depart, and accumulated a deficit of $560M.

Now Sonopia, an MVNO that enabled communities and organizations to set up their own branded mobile services (so-called “mini-MVNOs”), has also shut down after failing to gain traction.

According to a former business development consultant, Sonopia’s “approach was too ‘involving’ and too ambitious, offering targeted services and campaigns for segmented groups…which often lacked skills in running even a marketing program, let alone a mobile service.” Apparently the inflexibility of Verizon, its parent carrier, and the over-zealous optimism of founder Juha Christensen also led the company to ruin.

Sonopia is now in the TechCrunch DeadPool.

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The service from Buzzd, available to all Helio customers, delivers event and venue information and up-to-the-minute reviews and ratings from friends and other members of the Buzzd community. The service currently provides data from all “major” US cities with continuously updated event feeds which includes pricing, location, and event details. Events and venues are aggregated through partnerships with Flavorpill, TimeOut New York, and CitySearch.

The Buzzd service also allows users to find, connect with and message friends with SMS and messaging features.

Buzzd was founded in 2007 by two mobile media vets, Nihal Mehta, who started the first U.S. mobile marketing agency ipsh! acquired by Omnicom Group in 2005 and Deepen Shah, the founder of eZtext, a company acquired by ipsh! in 2003. The company is operating on an undisclosed private angel round it took on formation.

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Running a mobile service on another company’s network is difficult to pull off financially because the operation is always at a cost disadvantage to the big mobile carriers that own the networks that the MVNO’s (mobile virtual network operators) are leasing—in this case Sprint’s. The company claims 200,000 subscribers, paying an average of $85 a month, and is among the leaders in getting subscribers to use data services. (Helio users, on average, send 550 text messages a month; 95 percent access the Web on their phones versus a 13 percent industry average; and 60 percent use their phones to access MySpace alone). But it is still not making money. That is with revenues of about $20 million a month, according to the company (a $240 million run-rate). In the mobile world, you need a much higher number of subscribers to hit critical mass, even if you don’t have to spend billions of dollars on building out networks.

The short history of MVNOs is already littered with failed companies. The most inglorious of these was Amp’d, which went bankrupt after going through $360 million in capital, some of which went to buying ads on MTV and distributing promotional condoms. Hopefully, Helio won’t suffer the same fate.

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At the same time, Earthlink’s joint venture partner in Helio, SK Telecom, has invested an additional $270 million and will likely take a majority share holding. According to an Infoworld report, Helio is expected to lose between $340 million and $360 million this year.

In a statement, Earthlink said that Helio ended August with 130,000 subscribers, and expects to end the year with between 200,000 and 250,000 subscribers and revenue of $140 – $170 million.

EarthLink said that it will amend the Helio partnership agreement “to reflect the additional investment by SK Telecom and their future governance of Helio.” SK Telecom said Helio may be able to raise funds from the market without drawing further investment from either partner.

Helio is one of the few large MVNO’s still standing after the spectacular failure of Amp’d Mobile in July and the failure of small MVNO’s from ESPN among others.

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Meanwhile competitor Helio, which entered the market at about the same time as Amp’d, keeps on surging. Last week they announced that they reached 100,000 customers and have ARPU (average revenue per user) of $100 – way above the average for mobile startups.

A lot of Helio’s success can be attributed to their new Ocean, a killer dual-slider phone. I actually considered using the Ocean over the iPhone because it has a keyboard and great instant messaging support, but it doesn’t sync with Macs.

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There are suspicious similarities between the companies. Amp’d launched in the U.S. in December 2005. Helio entered the market just a few months later, in May 2006. Amp’d raised $360 million in capital, Helio raised $440 million from parent companies Earthlink and SK Telecom.

Amp’d claims 200,000 subscribers, and says it grew so fast that its back-end infrastructure couldn’t keep up with demand, requiring the bankruptcy filing. But Amp’d is a MVNO and uses Verizon’s cellular networks, suggesting that there may be a bigger, or at least an additional, problem. Industry insiders point to poor financial management and credit terms that were so easy that a good portion of Amp’d customers aren’t paying their bills.

I spoke to a company spokesperson for Helio today to see how they are doing. They are riding high on the launch of their new Ocean device (also pictured above), a high end dual slide phone that flips up for a number pad and sideways for a full QWERTY keyboard. They claim to have nearly 100,000 customers and are on pace to generate $130 million in revenue over the next twelve months.

Helio’s service is pretty cool (I have a couple of demo phones that I’ve tested). Integration with IM networks and MySpace is seemless. The devices are actually designed by Helio and built to their specifications, whereas Amp’d devices were off-the-shelf varieties that customers could get from any carrier.

Helio was also the first cell phone company in the U.S. to offer phones with GPS capabilities, allowing users to see where they are, get directions to places they want to go, and also see the physical location of all of their friends who use Helio. That last feature has proven to be viral, the company says. As soon as one person gets the phone, a few friends are likely to join soon thereafter.

A lot of Helio’s revenue comes from download purchases, such as music videos. Users can also gift downloads to friends, or beg them to give them one as a gift. It all results in more downloads, and more revenue for Helio.

Helio may end up with the same fate as Amp’d, but there is at least some evidence that the company may have a rosier future.

At least until the iPhone launches and puts the hurt on everyone else in the industry, that is.

For more on MVNO’s, see our coverage of Sonopia (build your own MVNO) and Google’s rumored MVNO in the UK.

See the Helio fact sheet for more.

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