Sprint, T-Mobile Mergers Arrive as Prepaid Hits Its Stride
"Prepaid was steadily adding subscribers over the past few quarters, and a much higher rate than postpaid, until this past 2Q12 quarter," Costa told eWEEK in August. "I noted the prepaid segment added 1.4 million less subscribers compared to 1Q12. The total 322,000 net additions in 2Q12 saw Verizon's prepaid segment lead all others, as the pure-prepaid operators like Leap and MetroPCS both reported huge losses." Costa—who covers eight U.S. operators, the four tier-ones plus MetroPCS, U.S. Cellular, Leap and Cincinnati Bell—added that one reason could have been people waiting for the iPhone to launch on some of the prepaid networks at the end of June. Research firm NPD Group offered another explanation. With their lower prices and larger selections, Boost, Metro, Virgin and other prepaid carriers are causing declines in the prepaid sales of the tier-one carriers, the firm said in a Nov. 15 report. "The overall penetration of prepaid smartphones rose from 39 percent in Q2 to 42 percent in Q3," the report continued. "Prepaid smartphone sales at prepaid carriers were up 23 percent over the prior quarter, while at tier-one carriers prepaid smartphone sales fell 12 percent. Consumers who were replacing their mobile phones were more likely to have switched from a tier-one carrier (80 percent) than were first-time smartphone buyers (60 percent)."Does Mobile Share Play a Part? This summer, Verizon Wireless and AT&T each began offering plans that share an allotment of data between multiple devices. A family or a small business can choose an amount of data that their collective devices—smartphones, feature phones, tablets and mobile hotspots—all draw from. Initially, some customers pushed back, as a Verizon spokesperson told eWEEK it had expected. However, in many cases, connecting all of a family's devices on a shared plan is less expensive than purchasing separate plans for each one. The idea, though, is that given how simple it is to connect more devices, people will connect more than they might have otherwise and ultimately pay more. Verizon Chief Financial Officer Fran Shammo, speaking at the Goldman Sachs Communacopia Conference Sept. 20, explained that there are two goals to its share plans. The first is to get people to share and consume more data so they buy it in bundles, and the second is to make it easier for people to attach more devices. "When you think about the future of the car, the home, medical devices and anything else that you want to attach to a wireless network, it's very easy now to attach those devices," Shammo said, according to a transcript from Thompson Reuters, "but can I get incremental dollars for each device that's attached—that is really what drives the future revenue growth." On prepaid plans, users can connect multiple devices through personal hotspots. Virgin Mobile, for example, offers an Overdrive Pro, which can connect up to five devices simultaneously and users only pay for it when they use it, Sprint's Hallock pointed out. Customers concerned about their mobile bills rising, particularly at a time of belt-tightening, may have made the more drastic move of not just switching to their carriers' prepaid option, but of moving to a carrier's value-focused branding and possibly even lower prices. While attracting customers in the prepaid market may now require more nuance than it did a few months ago, Sprint's and T-Mobile's new alliances no doubt better equip them for the challenge. "No doubt about it," said Strategy Analytics' Welsh de Grimaldo. "With MetroPCS able to become more of a nationwide player, T-Mobile sees that it can bring that value proposition to more of the U.S." Particularly with NewCo's focus on growing its Long Term Evolution (LTE) network, she added, they'll be able to attract "even the very savvy end users" as its network will be "completely on par" with the postpaid brands. Sprint's deal with Softbank, however, may enable it to stay a step ahead of the new T-Mobile, as the reinvigorated carriers chase after the same customers. Flush with cash from its Softbank deal, Sprint has already purchased spectrum and customers from U.S. Cellular, and after gaining a majority share of partner Clearwire, it bought out the rest of the company for $2.2 billion. "Instead of Sprint remaining at the back of the pack, falling prey to Verizon and AT&T and the T-Mobile-MetroPCS value play," Costa wrote in an Oct. 25 research note following Sprint's fiscal 2012 third-quarter report, "the result will be a reinvigorated Sprint becoming a strong third player, now with staying power in the market." As final evidence of prepaid's allure, even Apple is expected to want a greater role in it. In Dec. 16 research note, Canaccord Genuity analysts wrote that, after speaking with suppliers, they believe Apple is building a "more mid-tiered priced competitive iPhone for prepaid oriented international markets this summer." Follow Michelle Maisto on Twitter.
Stephen Baker, vice president of industry analysis at NPD, added, "AT&T and Verizon have introduced less expensive prepaid offerings and Verizon has expanded its prepaid smartphone lineup, but the questions remain whether it's too little, too late."