Prepaid models about to alter wireless carrier dynamics

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?

SHARE:

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, AT&T, Wi-Fi

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

19 comments
Log in or register to join the discussion
  • RE: Prepaid models about to alter wireless carrier dynamics

    and where does an Apple with no pre-paid phone compare to Blackberry which is charging into the prepaid market, or Android devices, which do the same.

    I'll answer that, it hurts Apple.
    rdupuy11
    • RE: Prepaid models about to alter wireless carrier dynamics

      @rdupuy11
      Yeah I think I heard similar comments about the iPod and "subscription" services. Those were going to tear Apple and the iPod down. And yet here we are several years later and not so much:P

      Pagan jim
      James Quinn
  • I would also like to see pre paid data.

    I am one of the customers who likes prepaid phone plans. You buy just what you need, if your usage spikes, you can adjust, when your usage goes down, so does your expenditures.

    I would like to see something like this for data plans. My data usage blows the lid off monthly caps but it is not a high frequency usage. In other words I don't blow the data cap off every day, just at certain times.
    mr1972
  • RE: Prepaid models about to alter wireless carrier dynamics

    Many people do not necessarily like prepaid plans better, but are tired of the cellular carriers charging huge fees for services. In my home we have two smart phones with a shared 750 minute plan, unlimited text and one of the phones has a data plan with a fee of about $140 per month. We pay more per month for this service than we do for our cable TV, internet service and voip phone service for our house combined. When we examine our use stats we seldom use more than 60 minutes of voice per month, very little data traffic and only send or receive around 150 texts per month. If you add up all of the texts, phone calls, emails and web sessions per month and divide $140 by that number it works out to be about $0.64 per use. I don't like prepaid plans, I just know math. Stop over-charging for your services and maybe you will keep a few customers?
    james.graham@...
  • RE: Prepaid models about to alter wireless carrier dynamics

    I still like Sprint's unlimited plan best, but then, I use most of the features constantly. On the other hand, I doubt very much they'd be losing nearly the customer base they are losing if they offered the "newest and best" phones like Verizon and ATT. I've had my eye on a phone for over a year and Sprint is still two years behind the time with most of their offerings. They get the lesser of anything that's new and release it months, if not years, after the other carriers do. Can't hope to keep your customer base that way!
    Tigrisan
    • RE: Prepaid models about to alter wireless carrier dynamics

      @Tigrisan Well, at least you have the EVO 4G coming in a few weeks. AT&T still thinks that everyone wants an iPhone. Guess what AT&T? THEY DON'T!!! Get some decent smartphones please!
      LYU370
      • RE: Prepaid models about to alter wireless carrier dynamics

        @ajezierski True, but I sure hope it's better quality than the last two HTC's my daughter had. They were terrible, didn't last more than a few months before she started having terrible trouble with them. Right now, I have a Moto Q9c and it might be powered by Windows Mobile, but I've had it for two years and not a problem to be had. Why can't they come up with a reliable phone that doesn't need windows and runs multi apps at the same time like the one I have now does? Seems like you get one or the other.
        Tigrisan
  • cycles?

    Cell companies used to charge by the minute. Granted it was between $1 and $2 per minute, but they charged by the minute nonetheless. People got on board once plans started to include set amounts per month, though there were a multitude of reasons for that.

    Personally, I think that while all of the cell providers are tripping over themselves to make all-you-can-eat plans, given this information, they'd likely be better off making some more basic plans. 300 anytime minutes, 1,000 night/weekend minutes, 300 texts, and 100MB of data for $25/month. For many, that's enough to cover most of the day-to-day needs. Many of the stepping stones seem to have gone as well. Make the $30/month plan 450/2,000/1,000/200MB and enable people to move around as their needs grow or shrink.

    Additionally, what I'd like to see is some better 'overage protection'. When I hit 900 minutes on my 1,000 minute per month plan, offer to sell me an additional 100 minutes for $15, or 200 minutes for $20. Enough to hurt, but a better deal than the $0.35 overage I'm paying now, and it shows good faith. Allow me to set a preset amount that I'm willing to go over for the month. My monthly bill is usually about $110 a month. Let me state that once I rack up a $150 bill to let me decide what I'm going to do with it, but don't surprise me with a $316 bill.

    Finally, as a bit of an aside, I think that there needs to be a complete revamp as to how handsets are offered. Here's my handset plan:
    -Offer a basic Nokia candy bar handset to anyone who doesn't want to sign a contract or have their credit checked. Charge 'em $29 or $49 or whatever they cost to prepaid customers.
    Customers who want $SHINY_HANDSET can get a 'handset mortgage', and put as much or as little into it as they want, and pay it for as little or as much time as they want to sign a contract for. Want the new $SHINY_HANDSET that costs $500 list, but don't have the money now? Fine. Sign a contract that says that you want a one-year handset mortgage, and your bill will include $50 a month for that year. Wanna pay it over two years? Plan Price $30/month. Want to put $200 down now? Plan Price $25/month/year. Upgrades can happen at any time, as long as you pay off your current handset mortgage and start a new one. If you want to cancel your service, just pay off the balance of your handset mortgage. The bill drops once the mortgage has been paid off (or can be genuinely advertised as cheaper if the user doesn't require a handset mortgage), the ETF is much more transparent, customers have an incentive to pay for handsets up front in order to get the cheapest price, less risk is generated for the provider, providers potentially make more money since handset mortgages include interest, SIM locking would be pointless, and customers can genuinely choose what works best for them based on what money they have available. EVERYONE wins.

    Prepaid is *A* solution for these issues, but isn't the ONLY solution. Cheaper basic plans, more gradual stepping stones, simple preventative measures on surprise bills, and better handset purchasing options are all ways that cell providers can save the current model and do better by their subscribers. Oh, and additional gradation on data plans, 'cuz this $4/MB or unlimited crap needs to go.

    Joey
    voyager529
  • Or another issue: The economy, maybe?

    Lets see: Good credit gets you any phone you want, bad credit gets you a pre-paid phone.<br><br>With the rise in defaulted mortgages out there, how easy is it for someone to get a cell phone contract? plus, with a pre-paid, if you can't afford the minutes, then you don't "get canceled", resulting in the inability to get another phone, or turned back on. You buy your minutes and you're set again<br><br>Once the economy turns that corner, will "pre-Paid" suffer a loss?
    John Zern
    • RE: Prepaid models about to alter wireless carrier dynamics

      @John Zern
      Everyone that use prepaid do not have bad credit. I have cell using prepaid for over three years and I also have excellent credit. However, I do very little calling and very few call me on my cellular phone. I did not find it wise to fork over $40-50 per month just for the privilege of carrying around a phone. Oh, and I have not missed my high priced bills.
      eargasm
      • RE: Prepaid models about to alter wireless carrier dynamics

        Same here--I have my mobile when and if I need it. It costs a minimum of $100/year to keep my prepaid cellular phone. When I had a monthly plan with the same carrier, that covered 2 months, regardless of the accumulation of rollover minutes. Now my rollover is measured in dollars, not minutes. Based on my usage there will still be a balance when I renew in a year. Yeah, ~$8.50/month versus about ~$45/month (after taxes and fees) is arithmetic that's so easy a <i>Homo erectus</i> can do it.
        djchandler
  • Prices are too high already

    Land line phone, internet, cable and a cell phone with data plan can easily add up to $200-$300 range for the family of two. It seems a bit crazy to pay that much money every month.
    paul2011
  • RE: Prepaid models about to alter wireless carrier dynamics

    paid or prepaid! they can all take a long walk off a very short pier as far as i'm concerned.
    charlieg1
  • I use prepaid with my Nexus One

    Why? Because I pay only $25 every 3 months. (But no data plan, I use WiFi). Sprint plan looks like a reasonable alternative if I pay for entire year in advance and still can get 1MB per $1. 1MB costing a dollar is too much in my opinion
    man_28
  • Postpaid = Sherriff of Nottingham Paradigm

    Guess what you want. Don't use it? tough. (mostly). Overuse it? Lie down while we extract your spleen trough your anus. Want to know where you stand? You've got to be kidding. Want out? We'll still want our pound of flesh.

    No wonder prepaid is gaining ground.
    redking44
  • I'd be all over ...

    I'd be all over Android or N900 if I could get AT&T's new $25/month data plan with the $100/year pre-paid voice I get no with TracFone (which I've never come close to running out of).

    I could be happy with a data only plan too.
    wkulecz
  • RE: Prepaid models about to alter wireless carrier dynamics

    There is no need for anything but pre-paid unless you are using it for business. I used to have the verizon two phone packaged, one for my wife and one for myself, and it cost $70 per month. I was the only one using the phone as my wife only turns it on when she needs to reach me when she is out shopping. Now instead of $20 a month for my wifes' phone I pay $30 for three months of service. Next time I am going to give her $100 dollars and she will have one year of service with no overages. I have my pre-paid phone set up on auto-recharge so that when I reach a predetermined level it automatically adds the amount of minutes I want. This saves me at least $600 per year. So there is no reason for all but the high-level user to ever buy a post paid phone again. I am waitng for the blackberries to come to a pre-paid area near me so that I can have my PDA and a small amount of data without having to pay verizons blackmail price.
    Jsimons4109
  • Prepaid models are a great innovation in cellular service

    For those who prefer prepaid, PlatinumTel Wireless just announced the new ?Real Paygo? plan, which is an a la carte plan that has the cheapest rates in pay-as-you-go, allowing users to pay only for the services they use and avoid commitment. Talk is just 5 cents a minute, text is 2 cents a text and 10 cents per megabyte of web service. This is half that of other carriers? rates! If an unlimited plan is preferred, PlatinumTel?s is just $50 for talk and text and an extra $10 for unlimited web.
    Leahkh
  • RE: Prepaid models about to alter wireless carrier dynamics

    Great!!! thanks for sharing this information to us!
    <a href="http://www.yuregininsesi.com">seslisohbet</a> <a href="http://www.yuregininsesi.com">seslichat</a>
    yarinsiz