Sprint, T-Mobile Mergers Arrive as Prepaid Hits Its Stride

By Michelle Maisto  |  Posted 2012-12-26 Print this article Print

While prepaid was once about low-end phones and scratch-off cards for adding minutes, today there's a tremendous assortment of devices on no-contract plans offering unlimited data, voice and texting. Virgin Mobile now offers the Apple iPhone 4S, and in October MetroPCS began selling the Samsung Galaxy S III across its markets.

"With consumers buying more expensive phones overall—in the past, no one would ever have expected a prepaid customer to spend $150 or more—[the old] rules have changed," said Sprint's Hallock.

Regarding Virgin Mobile's offer of an iPhone with unlimited data for as low as $30 a month but an up-front cost of $549 for the phone, Hallock adds, "these customers understand the total cost of ownership between the device and the service plan cost, and recognize the incredible savings over a two-year period."

Generous carrier subsidies, tied to two-year contracts, helped to turn $199 into a norm. But while paying $500 up-front for a device may still give some consumers sticker shock, tablets have helped ease a wider public into the prepaid mindset.

"When AT&T first introduced the iPad, it was offered as no-contract and unsubsidized," Susan Welsh de Grimaldo, director of mobile broadband opportunities for Strategy Analytics, told eWEEK. "Even on the new shared data plans, subscribers can put them on and take them off month-to-month. The tablet space is shaping up to be a nonsubsidized or lightly subsidized space."

Allure of a 'Value Brand' in a Troubled Economy

During Deutsche Telekom's Oct. 3 Webcast, Legere, who will serve as president and CEO of NewCo, said its goal is to be the "premier challenger in the U.S. wireless market, the best value for contract and no-contract service offerings."

MetroPCS Chief Financial Officer J. Braxton Carter added, "The sweet spot for growth in our industry really is in the prepaid part of the market, and taking MetroPCS and expanding on that brand into other geographical areas we think is a very positive move for the new company."

In a still-troubled economy, and with smartphones accounting for rising portions of a family's budget, the types and numbers of consumers being attracted to prepaid is changing—perhaps even more rashly than just a few months ago.

The Wall Street Journal recently reported narratives of families giving up weekend outings and restaurant dinners in order to pay for rising wireless phone bills.

"The tug-of-war is only going to get more intense," the WSJ said in the Sept. 28 report. "Wireless carriers are betting they can pull bills even higher by offering faster speeds on expensive new networks and new usage-based data plans. The effort will test the limits of consumer spending as the draw of new technology competes with cell phone owners' more rudimentary needs and desires."

Eric Costa, an analyst with Technology Business Research, told eWEEK that while the traditional prepaid user still exists, a large number of users are "switching to prepaid to save money yet still get a decent smartphone and data plan."

With these new users and their changed motivations, the prepaid market itself is shifting.


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