Virgin Mobile's Public Display

There's a new girl in town, and she came a little bit cheaper than some expected.

Virtual wireless operator Virgin Mobile USA (NYSE: VM  ) made its public debut yesterday by pricing its stock at $15 per share, on the low side of the expected $15 to $17 range. The company sold about 25.5 million shares and by the end of its first trading day, the stock had risen 5% to $15.75 a share.

Virgin Group and partner Sprint Nextel (NYSE: S  ) originally planned a $100 million offering of the company in May, but then upped the public share sale substantially to a potential $500 million draw in an amended filing in July. In the end, Virgin Group netted about $413 million, and its stake dropped to 35.7% of the company. Sprint Nextel's share of the entity declined to 17.2% after it sold shares as well.

The timing of the IPO could have been better -- several recent flameouts in the mobile virtual network operator world have given investors a bitter taste for the sector. Private operator Amp'd Mobile declared bankruptcy in June and more recently, Disney (NYSE: DIS  ) shuttered the doors on its Disney Mobile effort.

Sprint Nextel apparently didn't want to be left holding the bag the way Verizon (NYSE: VZ  ) , Motorola (NYSE: MOT  ) , and Best Buy (NYSE: BBY  ) did when Amp'd succumbed to debt and declared bankruptcy. The company sold much of its stake for $136 million, reducing its credit risk to Virgin Mobile's indebtedness. Due to a credit facility default in 2005, Virgin Mobile failed to pay Sprint according to its service agreement, and the two companies had to negotiate a new payment schedule that allowed Virgin Mobile more time to pay.

Virgin Mobile commands a strong brand that served 4.8 million customers as of June of this year. But the average revenue per user (ARPU) has dropped in recent years to $21.68 per month in the first six months of 2007. Churn has also been increasing steadily, coming in at 4.8% per month in the first half of 2007.

While a high churn level is not uncommon for a pay-as-you-go operator -- America Movil's (NYSE: AMX  ) Tracfone sports a 4.7% monthly churn level -- Virgin's churn is increasing while Tracfone's is dropping. Until some positive momentum is seen, investors are better off taking a wait-and-see approach with Virgin Mobile.

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