It’s a prepaid future
February 13 2009 - 11:48 am ET | Dan Meyer | RCR Wireless News
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The one-time rock of the wireless industry appears set to crumble. And I think that crumbling can’t come soon enough.
That rock is postpaid, contract-encumbered rate plans. These were necessary evils when the industry was rife with hundreds of wireless operators, each trying to poach each other’s customers. But times have changed. We are now operating in a near-monolithic market where there are only a handful of carriers, each offering nearly identical coverage and rate plans. The reasons for customers to jump ship are few.
Thus the rise of no-contract, prepaid services. The reasoning is sound: Why should I pay for something that I might use when I can pay for something that I am using.
Smaller players like Tracfone, Virgin Mobile USA, Leap and MetroPCS have made the no-contract space ultra-competitive and to this point have been relatively free of fierce competition from nationwide operators. But with growth among the postpaid, contract crowd slowing, that is no longer the case.
Fourth-quarter results showed both AT&T Mobility and T-Mobile USA relied heavily on the non-contract crowd for growth during the quarter, and Verizon Wireless, which has traditionally posted modest prepaid acquisitions, reported its slowest quarterly growth in more than five years. That could change as Verizon Wireless recently revamped its prepaid lineup in an attempt to make it more competitive with other offerings.
Perhaps the loudest shot across the bow came from Sprint Nextel’s Boost subsidiary, which last month unveiled its unlimited everything offering at $50 per month with no contract or credit check. The service undercuts the $100 per-month contract offerings from nationwide carriers, including its parent company.
This is not a new topic; carriers have dabbled with prepaid offerings in an attempt to attract more customers in the past. But, this time, with wireless penetration at nearly 90% and an economy that makes long-term financial commitments less favorable, the move toward no-contract offerings has more impetus.
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Couldn't agree more. Prepaid is the future. The fact that prepaid has such a negative stigma in north america is baffling. Prepaid is the dominant choice in other countries (ex. UK). It's only a matter of time. Imagine that...keep your customers buy offering great service, quality, and value...and not by using a contract....wow...amazing new approach ;-).http://www.prepaid-wireless-guide.com/compare-prepaid-plans.html
In the 80's when there were only two carriers and plenty of re-sellers there were a lot of companies that would target users to churn. That is where the carriers made money. Back then $45 a month, afforded you the service only and did not include any minutes, so the there was not an unlimited customer base, since the average monthly phone bill was $250, so you did what you had to to do to create revenue. Back then they also called these devices car phones and the are now trying to outlaw their use in cars. For a technology that has been available to the public for just over 30 years there has been some major changes.
I agree with everyone here. The American market isn't as willing to spend big bucks on high-feature phones. I'd say half the market here thinks the iPhone actually costs $200(!?). My point: this market is heavily dependent on subsidies and are willing to deal with contracts to get them.
Verizon is not exerting a strong effort in prepaid to be "competitive with other offering". Verizon will not make the strategic mistake of attaching its brand to prepaid like T-Mobile USA. Verizon's Prepaid Plus merely emulates postpaid to retain customers who might churn because of a high monthly bill. Verizon is using prepaid with day-rate plans as a tool for reps to resolve payment problems. The 2009 year will be a test of carriers reporting net adds with accurate diligence for non-payment disconnects.
Dan - you've got a point, but, even when you pre-pay at a hotel they won't let you in the room without leaving a credit card for "incidentals". Such additional services such as on-demand video, applications, music, etc., are so much easier to deal with in a credit-checked post-pay world than with awkward pre-paid methods. Given the cost of bad debt and collections, especially now, it's hard to see post-paid going away.
This assessment is not that different from prognostications from ten years ago. Prepaid has its place for sure, but as the industry becomes more about smartphones and mobile Internet access, we need the operators to subsidize those new phones more than ever. They won't subsidize unless they can lock you in for a 12- or 24-month commitment, for obvious reasons. So IMHO postpaid will continue to dominate the U.S. market as it always has, and prepaid will largely remain the fallback for customers who don't quality for postpaid service.
Let's not forget local carriers as well: In texas Pocket Smart Wireless can't be beat for no contract basic service and the competition can't beat them, not even Cricket. In this economy, tha't what so many people need and let's face it: middle class America needs text and talk, not bells and whistles. Teen too: they need something reliable where they spend most of their time so all the promises of paying more for more features isn't going to mean much at the end of the day.