Regional, prepaid carriers such as Leap are in a position to benefit, as costly 4G handsets intersect with falling 3G smartphone prices, according to Citadel Securities.
carriers with a focus on the prepaid market may not be able to compete as
aggressively for customers as the nation's four largest players-Verizon,
AT&T, Sprint and T-Mobile-but changes in the market are nonetheless working
in their favor, according to a May 25 research report from financial services
firm Citadel Securities.
which operates third-generation EvDO (Evolution Data Optimized) technology,
might find itself in a "sweet spot" as 4G LTE (Long-Term Evolution) handset
prices rise above the consumer-expected $200 mark and 3G smartphone prices
fall, explained the report. (Case in point: after the introduction of the
iPhone 4, AT&T marked down the iPhone 3GS to $49-reportedly hurting sales
of newer Android smartphones such as the Motorola Atrix 4G.)
smaller carrier, MetroPCS, has already deployed 4G LTE technology across its
entire footprint, putting it in a less-desirable position than Leap.
the traditional line between the regional prepaid operators and national
carriers as becoming increasingly blurred," wrote analyst Shing Yin, the
lead author on the report. "We believe an industry sea change is already
under way, one that will heavily favor the prepaid business model-and Leap
Wireless in particular-going forward."
to benefit the prepaid operators, said the analysts, is a
"trifurcation" of the market into low-end, mid-tier and high-end
subscriber segments. While the big four will continue to target the high-end,
Leap and MetroPCS may be poised to benefit from the lower end of the postpaid
market as it shakes out.
"scrappiness," too, is expected to benefit them.
subscriber mix moving toward the prepaid (i.e., -no contract') tier has been
shifting of late," stated the report. "More recently, the prepaid
operators have made bold attempts to extend their reach by negotiating national
roaming plans and have begun offering premium hardware devices (smartphones),
making their service offerings more akin to-and therefore more competitive
with-their larger rivals."
"scrappiness," however, comes as the larger carriers are beginning to
focus more on the prepaid market as contract-based subscriber growth slows.
Leaps of the market truly compete with the AT&Ts of the world was a point
of contention during a May 12 Senate Subcommittee on Antitrust, Competition
Policy and Consumer Rights hearing regarding AT&T's proposed $39 billion
purchase of T-Mobile. One witness, Gigi Sohn, president and co-founder of
Public Knowledge, a public interest group focused on citizens' rights in an
increasingly digital culture, rhetorically asked whether anyone had ever seen AT&T advertise against MetroPCS or
Cricket-her point being that the smaller carriers aren't its real
competition. By contrast, the 2009 ad battle between AT&T and Verizon drove
AT&T to ask a judge to prevent Verizon from airing its Island of Misfit
Toys ads. (The judge declined.)
that a behemoth like AT&T competes against [Cellular South], U.S. Cellular
or Cricket is like saying that Walmart competes against the mom-and-pop
stores," Sohn added.
Over the next
five years, Citadel Securities expects prepaid subscriber growth to increase by
an average of 11 percent a year, while postpaid growth flattens.
2015," the report added, "we expect that total U.S. industry
connections will be ~365MM, with almost 40 percent of those connections
categorized as prepaid."
in the regional carriers' favor, said the report, is the current economic
climate, in which financially pinched consumers may turn to prepaid plans.
believe the regional prepaid providers offer consumers a certain value
proposition that the national carriers have thus far been unable to
match," the firm added. " As the entire wireless industry moves
toward the rapid adoption of smartphones, we believe the prepaid specialists
are poised to gain an ever greater portion of the economic pie from their
current subscriber bases (who have likely stood by with envy for years watching
their postpaid counterparts enjoy the best devices)."
Michelle Maisto has been covering the enterprise mobility space for a decade, beginning with Knowledge Management, Field Force Automation and eCRM, and most recently as the editor-in-chief of Mobile Enterprise magazine. She earned an MFA in nonfiction writing from Columbia University, and in her spare time obsesses about food. Her first book, The Gastronomy of Marriage, if forthcoming from Random House in September 2009.