Tech Rumor of the Day: Sprint Buys Virgin Mobile in Prepaid Power Play

NEW YORK (TheStreet) -- Sprint (S Quote) is doubling down on subprime as wireless runs out of growing room.

The No. 3 mobile telco, which already owned 13.1% of Virgin Mobile (VM Quote), agreed to buy the remaining stake for a deal with a total value of $483 million.

Virgin Mobile, which raised $415 million in its 2007 IPO, is similar to Sprint's Boost unit and targets the youth market with pre-paid or pay-as-you-go plans and monthly subscriptions.

With about four out of every five people in the U.S. owning cellphones, observers view the prepaid market as an untapped source of sales growth, and alternately as a trove of unreliable customers. Prepaid phone plans attract people who don't want contracts or have subprime credit quality or in many cases people under age 18.

While it is a growing market amid a slowing wireless industry, the number of deadbeats and defectors has always been a problem for telcos. Virgin Mobile's monthly churn rates are around 5%, compared with the low 1% range of so-called postpaid customers.

Sprint, which lost 1 million subscribers last year, and continues to lose thousands every month, has embraced prepaid with mixed results.

The largest prepaid shop is TracFone, a unit of Mexico City-based America Movil (AMX Quote). TracFone has about 12 million customers nationwide and sells phones through retailers like Wal-Mart (WMT Quote) and 7-Eleven.

Should speculation heat up around more acquisitions in the pre-paid market, you can pretty much exclude TracFone from the list of candidates.