Prepaid models about to alter wireless carrier dynamics

Summary:Sprint's move to launch a new prepaid wireless brand dubbed Common Cents Mobile was just one more nail in the post-paid wireless coffin. What happens when the post-paid-fueled revenue growth is sucked out of wireless carriers?

Sprint's move to launch a new prepaid wireless brand dubbed Common Cents Mobile was just one more nail in the post-paid wireless coffin. What happens when the post-paid-fueled revenue growth is sucked out of wireless carriers?

With all the wireless industry earnings reports in, the market looks downright shaky when it comes to revenue growth. Simply put, the growth is gone. T-Mobile is losing subscribers as is Sprint, which is doubling down on prepaid calls. Verizon Wireless and AT&T are still showing growth, but the post-paid variety is slowing down.

Craig Moffett, an analyst at Bernstein, handicapped the wireless picture in a research note:

Revenue growth in the wireless industry is now down to 3.4%. It is now, more than ever, a bifurcated market, and despite the sex-appeal of smartphones and iPads, the market is now overwhelmingly dependent on pre-paid to drive incremental growth. Just shy of 90% of new subscriber additions were pre-paid in Q1. And lest one think that's just the gymnastics of comparing pre-paid to a freakishly diminished post-paid haul, consider that pre-paid accounted for 59% of gross additions in the quarter. Think about that. Nearly 60% of customer decisions in Q1 were pre-paid. Many of them were through channels like Wal-Mart, where low prices are a way of life.

Simply put, folks would rather pay in advance for calls---or fuel up their phones---on a prepaid basis than the contract monthly bill (post-paid) approach.

Given that backdrop, you can't really blame Sprint for trying to ride Wal-Mart to get more subscribers. I understand this thinking completely. I'm a data guy so will keep that smartphone handy and chase a few new devices from time to time. However, if I really do the math I'd be better off with a wireless card and a prepaid phone, which would be used basically never. Why not spend 7 cents a minute---Sprint's new low---instead of a voice plan that costs me much more every month?

As Moffett notes "post-paid is where the action is not." Sure Apple's iPad, HTC's Incredible and Motorola's Droid garner the headlines, but the high end of the market is really just about big carriers trying to poach customers from each other. The upside for data folks that still enjoy their smartphones: "Post-paid now looks poised for its own price war," says Moffett.

Indeed, here's the scorecard from the first quarter:

  • AT&T (earnings) added 512,000 retail post-paid subscribers;
  • Verizon Wireless (earnings) had 423,000 post-paid subscribers;
  • Sprint (earnings) lost 578,000 post-paid customers;
  • And T-Mobile lost 118,000 post-paid subscribers.

Meanwhile, revenue growth in post-paid wireless was 2.5 percent for the trailing 12 months, according to Moffett. What will Verizon do if it can't deliver post-paid subscriber additions? And AT&T? If AT&T loses the iPhone---something that's quite likely---it will lose subscribers too.

The big question is what'll happen from here. A few options:

  • Wireless retails store swill be consolidated. Verizon doesn't need 2,330 stores. Ditto for AT&T.
  • Shelf space wars will pick up as Wal-Mart becomes every wireless carrier's best friend.
  • A pricing war for post-paid subscriptions will follow.

Moffett said that the wireless battles are really a case of different carriers waiting around to see who blinks. When someone blinks all hell breaks loose. With any luck, we'll get a post-paid price war with pay by the minute options for voice. Best of data and voice plans would make some sense.

Topics: Telcos, Mobility, Networking


Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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