Analyst Angle: Mobile broadband goes the prepaid way

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.
The prepaid segment has suddenly found itself in the spotlight thanks to two prime factors. First and perhaps the most obvious is the continued downtrend of the economy that is forcing users to consider services and plans outside the popular (and more expensive) mainstream options, while the second is the subtle, but determined, advances made by tier-one carriers looking to tap this hitherto uncatered segment (for advanced data services) as their postpaid sectors begin to show signs of saturation (AT&T and Verizon Wireless both experienced lower postpaid growth in Q1 2010).
While data services like music and video have slowly been creeping into the prepaid arena for a while now, it is the advent of contract-free mobile broadband service, an initiative spearheaded by Leap Wireless, which has set the industry ablaze. All tier-one carriers now offer a dedicated prepaid/contract-free broadband service to their users in a bid to expand their portfolio to new horizons and also to take advantage of the growth of emerging connected devices such as netbooks, e-readers and tablets. Those users primarily rely on Wi-Fi connectivity, but may feel more comfortable subscribing to a pay-as-you-go broadband option to avoid being stuck in lengthy contract scenarios.
The ongoing buzz around the potential of prepaid market growth is making carriers narrow the gap between their postpaid and prepaid services and in some cases offer the latter a better deal to hook them in amidst growing competition.
Nowhere else is this more true than the mobile broadband space.
This article highlights five main areas where prepaid and postpaid broadband services have seen their differences dilute over the past year while highlighting some key trends in this upcoming space.
Data thresholds: When mobile broadband services transcended the enterprise boundaries and popped up in the consumer segment, most of them featured the standard 5 gigabyte data access limit (historically they were unlimited until a lawsuit changed it) – a threshold that had become synonymous with mobile broadband plans across all carriers.
This however did not transcend into the national prepaid segment in the beginning. Encouraged by regional carrier Leap’s success with its $40 no contract unlimited broadband initiative (where speeds were throttled after a user crossed the 5 GB limit), Virgin Mobile became the first national carrier to launch a contract free broadband portfolio dubbed Broadband2Go in 2009. However, at launch time Virgin Mobile’s high-end data plan priced at $60 only offered 1 GB of data access per month.
As competition increased in the form of tier-one carriers AT&T and Verizon Wireless launching their own prepaid or contract-free iterations, Virgin Mobile felt the pressure to differentiate and matched postpaid offerings at the same price point (with prepaid benefits of no overages, contracts or activation fees) – making it a no brainer for consumers willing to sacrifice device variety to pick its service. This was soon followed by T-Mobile USA, which extended its Even More Plus contract-free brand to the mobile broadband space with a 5 GB plan option and Leap Wireless taking it up a notch and launching three unlimited broadband plans in select markets with the high-end plan offering users best speeds up to a 10 GB data threshold point. The latter in particular is offering no-contract regional users a better overall deal (or a semblance of it) than postpaid carriers by changing the table on data thresholds and marketing its portfolio as truly unlimited with the caveat that when a certain limit is crossed, speeds will throttle down (possibly).
Service pricing: Since prepaid data services are aimed at the credit challenged and casual users, they are typically priced lower than their postpaid counterparts. While this rule applies to mid-tier broadband service plans in the prepaid segment, it does not to the higher-end plans where a 5 GB plan costs $60 from Virgin Mobile (equivalent to postpaid pricing) on top of high device pricing and $50 from Leap Wireless (the More plan is marketed as unlimited but speed is throttled after users cross the 5 GB mark). The latter is quite exorbitant when one considers the fact that Leap’s 3G markets where the service is applicable are severely limited. On the flip side, the fact that carriers are able to sustain these prices is proof that prepaid broadband services appeal to credible users looking for a viable contract free option that they can pick when the need arises.
Device Variety: While high device costs are not new to prepaid users, device variety is. Although it is too early to state that the devices available to prepaid mobile broadband users today is comparable to postpaid users, carriers are quickly working to ensure that that will be the case. T-Mobile USA already offers its entire mobile broadband device portfolio to its Even More Plus webConnect uses and Leap Wireless recently indicated that it is working on expanding its device lineup to include new product categories like a MiFi device, which is currently only available to postpaid users at Sprint Nextel and Verizon Wireless. Verizon Wireless and AT&T also support netbooks with built-in mobile broadband technology and the latter also offers exclusive and competitively priced prepaid broadband plans to Apple’s iPad device. New smartphones that can enable tethering (for instance the upcoming Android device on Leap Wireless’ network) also offer an opportunity for prepaid carriers to launch a new breed of plans a la Verizon Wireless’ Mobile Connect portfolio
Service options: The prepaid mobile segment in the U.S. has no dearth of variety in service plan options. In fact it is safe to say that they are treated to a wider array of plans than postpaid users. Besides the typical low income demographic, prepaid today targets casual users via tiered thresholds and price points ensuring that it addresses everyone’s needs while enticing them to move up to higher priced plans that offer greater data access.
Verizon Wireless and AT&T offer three plan options that cover the casual, ambivalent and moderate user groups whereas Virgin Mobile and Leap Wireless offer plans that cater to the aforementioned groups as well as heavy users at 5 GB and 10 GB respectively. Leap has been able to offer a wireline broadband replacement alternative via its “unlimited” plans that while not ideal in terms of throughput, do appeal to certain demographics. Although, T-Mobile USA only offers two plan options, they effectively cover the light and heavy user groups and match the carrier’s postpaid broadband portfolio.
Wi-Fi: Once shunned over fears of cannibalizing their data plans, Wi-Fi today has become the savior of sorts for tier-one carriers looking to offload data centric users from their networks. All tier-one carriers with the exception of Sprint Nextel today offer free, unlimited access to their Wi-Fi networks to mobile broadband users. However with the exception of T-Mobile USA none of them has extended this benefit to prepaid broadband users, most likely since they are associated with lower levels of usage and more importantly carriers don’t want to miss the opportunity of up selling users to the next higher plan in their portfolio. However this might change once the service picks up momentum. While T-Mobile USA has already started the ball rolling, it’s only a matter of time before Verizon Wireless and AT&T jump in to distinguish themselves from aggressive players like Leap Wireless and Virgin Mobile.
While it seems like the prepaid mobile broadband space has witnessed immense activity in the past few months things are just beginning to heat up. Sprint Nextel recently indicated
its Broadband2Go service could take advantage of
“4G” technology at some point soon (Sprint Nextel didn’t specifically say WiMAX), though it didn’t specify when. This will act as a precursor of sorts for other carriers with prepaid mobile broadband offshoots, making 4G prepaid mobile broadband service a regular feature in a couple of years. This will really sit well with users looking for an occasional solution to power their wireless devices. In the immediate future however the prepaid mobile broadband segment will continue to experience traction as more carriers bring forth their own iterations and others strengthen their existing offerings.
Deepa Karthikeyan serves as a senior analyst for the Wireless Services, U.S. module at Current Analysis. In this capacity Karthikeyan is focused on wireless data in the U.S. markets. Coverage areas include messaging, access, content, multimedia, pricing and plan features. Karthikeyan’s duties also extend to wireless data trends including mobile social networking mobile advertising and location based services.
Prior to joining Current Analysis, Karthikeyan was an analyst with Kyocera Wireless where she was supported product development and engineering in consumer test trials. Karthikeyan’s experience also included project management and marketing in healthcare and other consumer industries.
Karthikeyan holds a Bachelor degree in Business Management from Xavier’s Institute of Management in India and a Masters in Mass Communication from San Diego State University.