As many expected, the sour economy has meant big gains for prepaid carriers. Leap Wireless International and MetroPCS Communications enjoyed impressive first-quarter results, and analysts are grumbling about Boost Mobile’s success leading to a cannibalization of Sprint’s postpaid subscribers. But will it last?
Roger Enter, senior vice president of the communications sector for Nielsen, says he thinks the prepaid market will continue to grow regardless of the macroeconomic situation. “You will see growth in prepaid driven by the disruptive unlimited plans and things like the SafeLink program,” he says.
SafeLink is a program that is sponsored by the government and provides a free cell phone and 40 to 80 minutes of airtime to low-income individuals and families.
“Tracfone pioneered and pushed through that program with the federal government. Basically, it’s the wireless version of a lifeline phone offer…and it’s a real cash cow. So that will drive prepaid numbers,” he says.
Entner cites the credit crisis as one obvious reason for the explosion of new prepaid subscribers. “We’re running out people that can pass credit checks,” he notes.
But what happens when the economy rights itself? Are all those prepaid subscribers going to rush back into pricey two-year contracts?
Enter says that it’s really up to the big carriers and how they wish to shape the game. When asked whether Boost is cannibalizing Sprint’s postpaid subscribers, he says there’s a certain amount of complicity on the part of the carrier. “To a certain extent, Sprint wants it to be cannibalizing, and why not? Customers get better voice per minute, more text at a lower price, more data,” Entner says. “But then they can’t have the Palm Pre.”
And when and if the economy improves, Entner says there will always be a postpaid market available, recognizing a distinction in quality of service between prepaid and postpaid carriers.
“The big carriers can really lure back these economic refugees, by providing superior handsets, superior voice service and superior data service. It’s really a choice between riding in an economy car and a luxury vehicle.”