“We recognized that a shift was occuring in consumer mindset from some of the extravagances of the previous few years to a focus on value.” 1 Virgin Mobile USA 2008 Annual Report 2008 WAS A TRANSFORMATIONAL YEAR AT VIRGIN MOBILE USA. In late 2007 we began to see early signs of the global recession in our customer base. As gas prices began to rise and budgets tightened, our customers cut back on their mobile usage in order to optimize spending. We recognized that a shift was occuring in consumer mindset from some of the extravagances of the previous few years to a focus on value. At Virgin Mobile USA, we have always focused on providing value and fl exibility to our customers, allowing them to change plans according to their budgetary needs so they can get the most from their wireless service. We realized that now more than ever, we needed to emphasize our value proposition and focus our message on the value we off er to consumers. And so we began to implement a number of strategic and operational initiatives in 2008 that focused on value – on the value we bring to consumers, as well as putting the right operational initiatives in place to build shareholder value. Virgin Mobile USA 2008 Annual Report 2 1. CHANGE THE DIRECTION OF OUR HEADLINE NUMBERS 2. DRAMATICALLY IMPROVE OUR COST STRUCTURE 3. OFFER OUR CUSTOMERS A FULL SUITE OF SERVICES, INCLUDING A POSTPAID PRODUCT 4. IMPROVE OUR BALANCE SHEET AND LIQUIDITY As many of our customers had reduced their usage 2008. These initiatives showed an immediate impact due to the emerging economic challenges, we began in the third quarter, helping to improve our gross add 2008 with negative trend lines in many metrics, trend lines from a decline of 10% year over year in including revenues, customer acquisition and Adjusted Q1, to positive 8% growth in Q3 and fl at gross adds in Earnings Before Interest, Taxes, Depreciation and Q4 within a diffi cult retail environment. We also saw our Amortization (EBITDA). We set out to revamp our value monthly hybrid plan adoption grow throughout the proposition and renew our focus on value in order to year to 48% of gross adds in Q4 2008 from 27% of reverse these trend lines and resume our growth gross adds in Q1 2008, due to our emphasis on the trajectory. Confi dent that we already had the basics in value of these plans at retail. place, we worked to make our value proposition more transparent to our customers through new and updated The growth of our hybrid plans is important, because plans. In the second quarter, we did just this, rolling out they represent approximately double the Average newly packaged plans for consumers, which were a Revenue Per User (ARPU) than that of our Pay As You hit. We also improved our retail distribution channels Go customers. In the third quarter, for the fi rst time in by entering into new agreements with American Wireless many quarters, we saw an infl ection in our ARPU and Sears and by expanding our relationship with trend, and saw sequential growth in this metric. This Walmart. Collectively, these arrangements expanded trend continued into the fourth quarter. our retail footprint by approximately 2,000 doors in 3 Virgin Mobile USA 2008 Annual Report “...we have always focused on providing value and fl exibility to our customers, allowing them to change plans according to their budgetary needs so they can get the most from their wireless service.” Gross Adds ARPU 10% 8% 10% 4% 5% 5% 0% 0% 0% -5% -5% -2% -10% -7% -10% -8% -10% -11% -15% -15% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 With our improved plans, expanded handset lineup, and expanded distribution implemented in the fi rst half of the year, we began to see improving trend lines across all of our headline metrics in the second half of the year, and these had an immediate impact on our fi nancial results. Net Service Revenue Adjusted EBITDA 15% 10% 105% 10% 106% 100% 84% 5% 1% 50% 7% 0% 0% -50% -5% -31% -6% -6% -10% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Our second goal in 2008 was to dramatically improve our cost structure. The MVNO model, with its highly variable cost base, has some advantages during challenging times over those companies with a cumbersome base of fi xed costs. As economic troubles persisted, however, we wanted to make sure we would enter 2009 with the leanest possible cost base. Virgin Mobile USA 2008 Annual Report 4 AND EXECUTED AGAINST EACH AND EVERY ONE OF THEM THROUGHOUT THE YEAR. WE IMPLEMENTED OPERATIONAL IMPROVEMENT AND GAINED COST SAVINGS IN THREE KEY AREAS: WE OUTSOURCED OUR I.T. INFRASTRUCTURE TO IBM. Our agreement with IBM will not only help us realize operational cost savings; it will also allow us to bring increasingly complex product off ers to the market more quickly than before, making us more competitive. We incurred one-time charges of approximately $9 million in connection with the IBM agreement in 2008, which we expect will yield $50 million in cost savings over the next fi ve years. WE REDUCED OUR HEADCOUNT. This was a diffi cult but necessary decision as we took a hard look at costs throughout our business. As we integrated Helio, we realized that there was overlap in about 10% of our positions, and so we made the decision to further reduce our workforce. This was not an easy decision, but we entered 2009 as a more effi cient company because of it. WE RENEGOTIATED OUR NETWORK CONTRACT WITH SPRINT. This is one of our most important accomplishments in 2008, as our cost of service is dominated by the network rates we receive from Sprint. We made a number of adjustments to our network contract in 2008, ultimately resulting in a 10% reduction in our per-minute rates for 2009 compared to 2008, which on a pure unit cost basis will result in $30 million of cost savings in 2009. As a result of these cost-reducing initiatives, we expect to enter 2009 with a reduction of approximately $50 million to our operating costs compared to 2008. We believe this will enable us to continue to grow our Adjusted EBITDA and free cash fl ow even in the current turbulent economic times. The accomplishment of our third goal was an important step for our business, both strategically and fi nancially. The acquisition of Helio was a transformational event which allowed us to expand our product portfolio to address trends in our customer base in a rapid and cost-eff ective manner. As economic challenges deepened in 2008, some of our MVNO competitors with high cost structures and little scale found it impossible to compete. We also recognized that a signifi cant number of our customers were leaving our services to graduate to postpaid. This acquisition was a great example of industry trends coinciding directly with our customers’ needs. We were able to acquire Helio’s 170,000 customers with an ARPU of $80 for just $42 million, while also gaining a great postpaid product to provide to our existing customers. Included in the acquisition was Helio’s highly sophisticated technology platform, which we estimate would have cost us approximately $25 million and taken at least 18 months to build ourselves. The Helio acquisition provides us the ability to capitalize on the growth in data services and off er highly sophisticated data applications to all our customers. “The acquisition of Helio was a transformational event, both strategically and fi nancially.” 5 Virgin Mobile USA 2008 Annual Report The fourth goal we accomplished in 2008 was to strengthen our balance sheet and improve our liquidity. The acquisition of Helio came with strategic and fi nancial benefi ts for Virgin Mobile USA. The transactions related to the Helio acquisition both improved our capital structure and increased our available liquidity to run our business. While no one anticipated the extremity of the decline in the equity and credit markets, we were very pleased to raise $50 million with our equity partners, SK Telecom and Virgin Group, at $8.50 per share. We used this equity to pay down our Term B loan, which eff ectively transferred value from debt to equity, and increased our cash fl ow by $7 million a year. In addition, through a commitment of $35 million by SK Telecom and an additional $25 million by the Virgin Group, we increased our revolving credit facility from $75 million to $135 million. This increase in capacity aff ords us additional fl exibility to take advantage of opportunities that may arise and to continue to make investments in the business. Our total debt to Adjusted EBITDA ratio is now approximately 2.3x, compared to 3.6x just one year ago. As a result of these improvements to our capital structure, we have improved our leverage ratio, positively impacted our cash fl ow and have more fl exibility to reinvest in the business as we enter 2009. Helio Ocean 2 by Virgin Mobile “As a result of these improvements to our capital structure, we have improved our leverage ratio, positively impacted our cash fl ow and have more fl exibility to reinvest in the business as we enter 2009.” 7 Virgin Mobile USA 2008 Annual Report AND STRENGTHEN THE PROFITABILITY OF OUR BUSINESS, WE EXPECT THAT THESE STRATEGIC AND OPERATIONAL IMPROVEMENTS WILL ALSO HELP TO IMPROVE SHAREHOLDER VALUE.