I've seen it many times: a cool product that finds few customers. That seems to be the case with Helio's mobile phones. Basically, customers didn't want to pay premium prices for such things as access to MySpace and other new-fangled features.

It's a tough lesson (and expensive). SK Telecom and EarthLink (NASDAQ: ELNK) formed Helio as a joint venture in 2005 with start-up capital of $440 million. SK Telecom invested an additional $270 million in the venture last year.

Yet, in the end, Helio turned out to be a big dud. That is, the company sold out for a measly $39 million to Virgin Mobile USA (NYSE: VM). In fact, the space is full of dead companies, such as Disney Mobile and Amp'd Mobile.

I had a chance to interview Frank Dickson, the co-founder and chief research officer of MultiMedia Intelligence. According to him:

Honestly, the merger is a desperate move. Overall, the MVNO (Mobile Virtual Network Operator) model makes sense in a limited number of situations. For example, if a cable MSO wants to leverage its customer base and offer triple or quadruple play offering, there is a clear distinctive competency and the MVNO route makes sense.

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 (NYSE: S) firing the latest $99 dollar all-you-can-eat salvo, MVNOs are hard pressed to maintain an advantage. Their positions are tenuous at best.

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 (NYSE: VZ) Wireless, AT&T (NYSE: T), Sprint 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.