Since its IPO last year, the shares of Virgin Mobile USA Inc. (NYSE: VM) have imploded -- going from $15.69 to a low of $1.90. The stock has lifted somewhat lately though, and is now trading at $3.43.

Actually, the company has confirmed that it is talking with Helio -- majority owned by SK Telecom (NYSE: SKM) -- about a possible merger.

Both companies are known as mobile virtual network operators (MVNOs), which means that they provide cell services by using another carrier's infrastructure. Unfortunately, the MVNO model has been extremely difficult to pull off (in fact, there have been several high-profile blow-ups in the space, such as Amp'd).

So will a combination help things?

To get some perspective on things, I had a chance to interview Frank Dickson, who is the Chief Research Officer at MultiMedia Intelligence. According to him:

"For MVNOs such as Virgin Mobile and Helio, where is the competitive advantage? What can be offered that the 'big boys' cannot? In the current environment of price competition, with Sprint firing the latest $99 dollar all-you-can-eat salvo, MVNOs are hard pressed to maintain an advantage. Their positions are tenuous at best.

"A merger of Virgin Mobile and Helio makes some sense as it gives them more scale. Scale is good. However, the customer bases and marketing strategies are different, creating little synergy there. In the end, one has to view this as two weaker competitors trying to combine to create a critical mass. When one has competitors like Verizon Wireless (NYSE: VZ), AT&T (NYSE: T), Sprint (NYSE: S) and T-Mobile, the merger will just not create enough scale."

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.