MetroPCS, Boost heat up prepaid space

The wireless industry’s increasing desire to attract customers looking for service without the hassles of a contract is taking its toll on those operators focused on such goals.
MetroPCS Communications Inc. this morning released limited fourth quarter 2009 results that showed net customer additions dropped nearly 39% year-over-year from more than 519,000 during the fourth quarter of 2008 to just over 317,000 net customer additions during the final three months of 2009. The results were a sharp rise compared with the 66,000 customers the carrier added during the third quarter of 2009. MetroPCS’ management blamed the fourth quarter shortfall on an increase in customer churn from 5.1% to 5.3% year-over-year.
For the year, MetroPCS’ customer growth dropped 9% from 1.4 million net customer additions in 2008 to just under 1.3 million in 2009 as gains in new markets were outweighed by slower growth in its so-called “core” markets. MetroPCS is expected to release full fourth quarter and 2009 results late this quarter.
Investors appeared spooked by the news as MetroPCS’ stock dropped more than 5% in early Tuesday trading to $6.68 per share. The news also sent ripples towards rival Leap Wireless International Inc., which offers a similar prepaid service through its Cricket division. Leap was downgraded to “neutral” by Piper Jaffray and the carrier’s stock was down more than 6% early Tuesday at $14.89 per share.
New plans
In an attempt to dissuade those customers looking to churn, MetroPCS altered its rate plans today with new offerings that the carrier said would provide customers with better control over their wireless bills. The new plans begin at $40 per month and include unlimited domestic calling, messaging and data services as well as all regulatory fees and taxes. Stepping up $5 in price brings unlimited international text messaging, directory assistance and other features; $50 per month adds MetroPCS’ navigation service Loopt GPS service and e-mail access; while $60 per month throws in unlimited international calling.
For its smartphone users, MetroPCS now offers a $50 per month plan that includes all of its features except for a $10 extra charge for international calling, and a $60 per month plan for customers using Research In Motion Ltd.’s BlackBerry device.
Boosting pressure
The rate plan changes follow news last week during the Consumer Electronics Show when Boost Mobile announced it was expanding its no-contract, unlimited calling plans to parent company Sprint Nextel Corp.’s CDMA network in an attempt to broaden its device selection and coverage area. Boost had previously relied on the carrier’s iDEN network for its service, a network and technology it will continue to support.
(As an aside, Boost originally launched its per-minute prepaid service using Nextel Communications Corp.’s iDEN network. After being acquired by Nextel, and then Nextel being acquired by Sprint Corp., Boost used Sprint Nextel’s CDMA network to trial its unlimited calling plans before officially launching the service on the iDEN network in early 2009. Boost then shuttered its CDMA business before resurrecting the offering last week.)
Analysts noted that by expanding service to CDMA Boost Mobile will be able to access a broader range of devices for its customers as well as remove itself from offering devices only from Motorola Inc., which developed the iDEN technology standard and currently is the only company offering devices supporting the network.
MetroPCS’ inclusion of taxes and regulatory fees mimics what Boost Mobile has been offering for its unlimited service plan since launch, and according to analysts was one of the compelling features of the Boost plan as it provided customers with a true price of their wireless bill each month.
Boost also said it plans to offer the BlackBerry Curve to its customers when the CDMA service is added this week at a price point of $60 per month. Analysts expect this offering to provide the greatest pricing and competitive pressure on the industry.
“Rather than to engage in a pricing war to drop to a lower price point, Boost Mobile changes the tables to court higher-value customers who understand the $60 BlackBerry plan value relative to other market offers,” said William Ho, research director of wireless services at Current Analysis. “With more BlackBerry customers, Boost stands to increase its ARPU further still. Moreover, as customers get addicted to BlackBerry service on top of monthly unlimited talk, messaging and Web, Boost benefits in terms of reducing churn.”
Ho added that with carriers typically charging $30 per month for access to RIM’s BlackBerry services, Boost Mobile’s new offering values its regular unlimited calling, messaging and Web services at $30 per month.
“Can Boost make good margin on these high-value users if their usage profile matches the $50/month user?,” Ho said.
Boost Mobile is also set to offer its BlackBerry Curve for $250, which would be $100 less than MetroPCS’ price for the same device. Leap currently does not offer a BlackBerry device or a smartphone to its customers instead relying on traditional handsets, quick-messaging devices and wireless modems.
While the latest move by MetroPCS and Boost Mobile indicate the prepaid space is still trying to find its equilibrium, Ho expects the market to find stability around the $50 per month price for unlimited service in 2010.
“… It’s hard to imagine national unlimited pricing going less than $45 as all players realize that aside from adding new subscribers, having a profitable service is what keeps a company moving along,” Ho said. “Even MetroPCS and Leap Wireless kept their price points in 2009, but offered additional features. The tug and allure of postpaid devices has already influenced prepaid carrier choice. Though there weren’t many smartphones available per se in the prepaid market in 2009 (except for BlackBerrys with T-Mobile Complete and MetroPCS’ Smartphone plan), 2010 should see more smartphones in prepaid competitors’ lineups as well as related data plans.”