Few customer segments have drawn as much consternation from the wireless industry as prepaid subscribers. Non-contract customers have traditionally rewarded operators with lower revenue and higher churn rates when compared with postpaid subscribers and thus have been offered only token rate plans.
But, with the postpaid market creeping closer to saturation, carriers have begun sprucing up and modifying their prepaid offerings in an attempt to lure those once-overlooked subscribers.
“It’s definitely an important market for us and for all carriers if you want to see growth over the next three to five years,” said Alan Ferber, vice president of marketing for U.S. Cellular Corp.
Industry analysts agree, noting that prepaid customers will make up an increasingly important part of industry growth as the recently surpassed 60-percent market penetration rate includes less than 10 percent prepaid customers.
“Subscriber growth has been strong among the wireless companies,” noted independent telecommunications analyst Jeff Kagan. “There is still growth left in the market on traditional services, but we will see future growth come from other areas like prepaid.”
Kagan’s comments followed recent first-quarter financial results showing that while the wireless industry is still posting robust customer growth, the mix of that growth is set to change.
Sprint Corp. reported last week that its wireless wholesale operation, which is dominated by its Virgin Mobile USA L.L.C. mobile virtual network operator prepaid partnership, added 621,000 subscribers during the first quarter, compared with 518,000 net customer additions through the carrier’s direct channels. Virgin Mobile USA customers now account for more than 3 million of the 25 million subscribers on Sprint’s network.
Other operators have reported similar positive growth from their prepaid offerings.
Nextel Communications Inc., which has traditionally steered clear of prepaid subscribers, noted its Boost Mobile USA L.L.C. subsidiary added 360,000 subscribers during the fourth quarter, compared with 595,000 subscriber additions from its direct Nextel channels. The carrier said it served more than 1.2 million Boost customers on its network at the end of last year, which was just under 10 percent of its total network subscribers.
T-Mobile USA Inc., which recently launched a new marketing initiative for its T-Mobile To Go prepaid service, reported that the percentage of prepaid subscribers on its network increased from 10.8 percent during the third quarter of last year to 11.4 percent by the end of the year-the first quarterly increase in several years. Analysts expect that number to rise once the carrier reports first-quarter results.
Verizon Wireless updated its prepaid offering earlier this year with its Inpulse offering, which provides prepaid subscribers with 10 cents per minute flat-rate calling and unlimited calling between other Verizon Wireless customers. The carrier noted the service would appeal to a broad range of customer segments.
“This is not about providing a service to people that are credit-challenged,” said Verizon Wireless spokeswoman Brenda Raney. “It’s about offering a service to customers that may not yet have a credit record or for those who just want the freedom offered by a prepaid service.”
Verizon Wireless also has signed a pair of MVNO partners that will focus on prepaid offerings. The carrier announced a deal earlier this year with Amp’d Mobile Inc. targeting the youth market with both prepaid and postpaid services as well as a more recent deal with MobilePro Corp. targeting just the prepaid market.
Other carriers are taking a more cautious approach to the prepaid market. U.S. Cellular’s Ferber said the carrier was focusing more of its efforts on so-called hybrid plans that reduce the financial risk to the carriers, but still provides access to credit-challenged customers or those looking for service without a contract. Ferber noted that such plans provide the potential for higher customer revenues while reducing churn when compared with more traditional prepaid services.
“All customers have the ability to be good wireless customers,” Ferber said. “I think a lot of those customers choosing prepaid today are doing so more as a lifestyle choice than a credit choice.”
Cingular Wireless L.L.C. has also moved aggressively with its GoPhone hybrid prepaid offering that it inherited when it acquired AT&T Wireless Services Inc. last fall. Cingular has folded the service into its prepaid portfolio and included a number of upgrades similar to its postpaid offering, including free calls to other Cingular customers and its Rollover feature.
Cingular’s management also hinted during its quarterly conference call last week that the carrier was working on revisions to its traditional prepaid plans.
Of course the growth in prepaid is not expected to evolve without some victims. Analysts note that companies that have relied solely on prepaid customers, like Tracfone Wireless Inc., likely will see slower growth as their larger competitors aggressively target the market, or will have to refine their own marketing niche in order to remain viable.
“It will definitely require those companies to look at their plans,” said William Ho, senior analyst at Current Analysis.
U.S. Cellular’s Ferber had little sympathy, noting operators that relied solely on prepaid had a finite future.
“Those operators that focus on prepaid are doomed to fail,” Ferber said. “It’s just not a sustainable model.”
