Sprint (NYSE: S) Nextel has agreed to buy Virgin Mobile USA (NYSE: VM) for $5.50 per share or $483 million, combining it with its own Boost Mobile to strengthen its prepaid mobile play.

The two brands would continue to function separately, aiming prepaid services at “different customer demographics”, but would unite “under one umbrella”. They will continue to license the Virgin brand from Virgin Group, under new terms until 2021, costing Sprint $12.7 million. Sprint would also wipe out Virgin Mobile’s debt, which it says was $248 million in March but should be a maximum $205 by September.

Tricia adds: As the economy has gone into a deep recession in the past year, prepaid has really taken off with several providers offering very affordable unlimited plans. It was only a matter of time until consolidation started to take place in the prepaid market. It was a natural fit to have Sprint buy Virgin since it was already using its network. Plus, it gives Sprint a more hip and younger brand to market. Iin the first quarter, Sprint’s better-than-expected performance was driven partly by 764,000 new customers flocking to its pre-paid service Boost Mobile (that runs on its Nextel network) and its popular $50 unlimited plan. Schulman has said previously that he only expects the prepaid trend to increase. In fact, Virgin’s own market research found that “well over the half of the population is willing to actively consider prepaid,” which represents an increase of more than 1,000 basis points over the past six months.

Virgin Mobile USA CEO Dan Schulman is nominated to lead the combined entity, reporting to Sprint Nextel CEO Dan Hesse. Boost CEO Matt Carter would stay in place, but reporting to Schulman. Synergies are expected.

Schulman: “Sprint is committed to growing its prepaid business and this transaction will provide us with the resources and opportunities to compete more aggressively, and strengthen our position in prepaid.”

Another aim is to cross-sell Sprint’s products across the Virgin customer base. But Sprint says it will need to pay Virgin Group about $50 million in return for Virgin Mobile USA making net losses. The pair hope the deal will close in Q409 or early 2010. Release.