Analyst Angle: Seven unlimited prepaid trends

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
It is no secret that the wireless sector has transformed and the segment seeing the most explosive growth is now prepaid. The jumping-off point for this change was the introduction and heavy promotion of cut-rate prepaid unlimited plans during the economic downturn. Given the competitive movement, seven prepaid unlimited plan trends have begun to emerge.
1. Touting a national footprint
A national footprint has become an important differentiator for service providers such as Boost and Virgin Mobile as they leverage the Sprint national network. Similarly, CDMA MVNOs such as Tracfone’s Straight Talk and Page Plus benefit from wholesale relationships with Verizon Wireless. On the GSM side, Net10 promotes its national unlimited offering thanks to its wholesale relationship with AT&T. However, the underlying network is not relevant for customers – as it is hidden – and what matters is only that customers get national coverage. National coverage was a competitive necessity for Leap, as customers’ perceived needs for national coverage were churning. Through a successful negotiation with larger competitors, the carrier now offers the desired nationwide coverage, thereby leaving its regional partner MetroPCS alone to complete the task of meeting a truly national unlimited deal.
2. Unlimited talk, text & Web
Unlimited talk, text, and Web plans are now in the spotlight. Even though MetroPCS and Leap Wireless began promoting this option several years ago with high-end options, it has become a built-in competitive necessity with the launch of Boost’s Monthly Unlimited plan. The idea of bundling all these services together into one plan has created much-needed plan simplicity that consumers seek. Coupled with an aggressive price point, the uptake at Boost, Straight Talk, and other carriers has fostered prepaid’s recent success.
3. Smartphones & smartphone plans
T-Mobile was the pioneer in introducing smartphone devices and plan options with its FlexPay prepaid service launched in 2008. Shortly after, in early 2009, MetroPCS began offering a smartphone plan with a Blackberry device. T-Mobile then fired back by making a Blackberry more easily available through its pre-packaged FlexPay “Complete” product, and Boost joined the Blackberry party with its own CDMA Blackberry and plan. Leap is also getting ready to offer its own Blackberry device and plan later this year. Looking at more advanced smartphone introductions in 2010, Leap is planning to launch an Android handset, while MetroPCS hopes to launch an LTE-based smartphone. On the plan front, the $50 and $60 price points appear to be the target range for prepaid smartphone plans with unlimited calling messaging, Web, and personal e-mail features built-in.
4. All-inclusive pricing & portfolio compression
Boost Mobile launched its $50 Monthly Unlimited plan in February 2009. Its “Unwronged” ad campaign touting the all-inclusive plan and no hidden fees resonated well with consumers. Under this pressure, MetroPCS adopted the all-inclusive of taxes and additional fees approach and compressed its portfolio price points in January of this year. Leap Wireless’ plan portfolio should naturally follow the trend, but there are concerns that absorbing the fees may hamper profitability. However, Leap’s PayGo ‘grab and go’ products at big box retailers do have the all-inclusive deal, suggesting that Leap picks its battles. As competition increases, portfolios may be further simplified and compressed.
5. First free month subsidy shifts to handsets
There was a time when some prepaid companies offered a free month of service to entice new customers to join their network, but this tactic has largely vanished. As Boost Mobile went up against MetroPCS and Leap in 2007 with its regional unlimited CDMA-based offering branded Untd by Boost, it also included the first month of service free. However, with its $50 Monthly Unlimited launch in February 2009, there was no free month. Rather, the monthly subsidy went towards handsets and off-setting the all-inclusive fees. When MetroPCS overhauled its portfolio earlier this year, it also removed the free first month of service. The ability to offer lower-priced handsets, even with the help of mail-in rebates, is an especially important factor in acquiring price-sensitive prepaid customers. Given the direction of MetroPCS and Boost, it is likely that Leap will follow the same approach this year.
6. International options
Given that many prepaid carriers’ customer bases are comprised of ethnic segments (e.g., Hispanic), offering international calling and/or messaging options has become a necessity. MetroPCS made a splash in 2009 when it launched an unlimited international calling add-on to select countries for $5 per month. From MetroPCS’ standpoint, it was a hit because it helped attract customers, but it seems that this was a costly venture for the company. To recover some of the losses created by this move, MetroPCS required subscribers to sign on to a $45 price plan, helping drive up total customer spend. Since the launch of its new plan portfolio, MetroPCS has made its $60 plan the only offering to bundle the unlimited international calling feature. Although competitors such as Boost, Virgin Mobile, and Straight Talk have yet to fully match MetroPCS, tiered and unlimited international calling is an additional cost add-on at Leap. Yet, unlimited calling is but one element of the service arrangement. Unlimited international texting as a feature is a fixture in many competitors’ offerings. AT&T’s $60 Unlimited Talk & Text package includes international texting, as do Leap’s highest-priced options. Boost also offers unlimited international texting for $10 per month with its International Connect feature for Monthly Unlimited subscribers.
7. Retention focus
One of biggest challenges for prepaid carriers is the high level of churn relative to postpaid carriers (e.g., 5-7% versus 1.5-2.5%). There are no ties for customers to stay with their current service provider since there are no contracts. Significant players are now trying to reach out to their long-term customers through loyalty plans. These loyalty programs are very similar to the incentive and early upgrade programs run by postpaid carriers that reward customers’ tenure by offering phone discounts and bill credits.
As the year goes on, the competitive prepaid market may foster more innovation and new trends will emerge.