Verizon Wireless outed two new prepaid devices yesterday amid signs of increasing interest in the no-contract space from top-tier providers typically focused on more lucrative postpaid customers.
The debut of the devices came shortly after AT&T doubled the amount of data offered in its prepaid data plans, making them more competitive with rates from other providers.
Verizon's new no-contract Android smartphone, the Samsung Illusion, retails for about $170 and is being offered with a new $80 prepaid plan that includes all-you-can eat voice minutes, text messages and 1 GB of data.
Its other new prepaid device, the LTE-capable Jetpack 4510L mobile hotspot, costs about $130 and comes with a $15 weekly plan for 250 MB, a $60 monthly plan for 3 GB and a $90 plan for 10 GB.
Both the smartphone and the mobile hotspot will be sold at Verizon's website and retail stores before hitting shelves at Best Buy, RadioShack and Walmart in the coming weeks. The Samsung Illusion also will be sold at Target.
Mark Beccue, an analyst with ABI Research, doesn't think AT&T and Verizon are looking to seriously chip away at the prepaid market since no-contract customers are significantly less profitable than postpaid subscribers.
"They're looking for incremental adds, versus for the other guys it's their bread and butter," Beccue says. The Big Two would have to slash the cost of their prepaid plans to compete with offers from smaller providers, a move that would risk cannibalizing their more profitable postpaid base.
"They're not necessarily looking to take away business,” Beccue says. “If a higher percentage of people are going to consider moving to no-contract, they want to keep them."
Verizon's new rate plan for the Samsung Illusion is slightly more expensive than a comparable prepaid plan from AT&T that costs $75 for unlimited talk, text and 1 GB of data. It is also more expensive than no-contract offers from more traditional prepaid players like T-Mobile USA, which offers a $50 plan with unlimited talk, text and 100 MB of high-speed data before users are moved down to slower speeds.
Analyst Iain Gillot says AT&T and Verizon are interested in prepaid “simply because we are running out of growth in traditional contract adds.”
Gillot explains that AT&T and Verizon benefitted for years from weakness at Sprint and T-Mobile USA. But now that Sprint has stabilized its subscriber base and made itself a more formidable competitor with the addition of the iPhone, new contract customers are harder to come by, he says.
"There are still opportunities to sell smartphones to the traditional prepaid segments. So that is where they are targeting,” he says.
Companies like MetroPCS and Leap Wireless International may not take a huge hit from AT&T and Verizon’s latest push into the no-contract market, but increased competition could further squeeze already pressured businesses.
MetroPCS saw its profits slide 63 percent during the first three months of this year and the number of new customers signing up for its service plummeted 82 percent. The company blamed the bleak results on later-than-expected tax refunds, competition in the prepaid market from larger operators and "end-users' desire for high-speed data."
Leap fared better, pulling in 258,000 net new customers and seeing a slight worsening of its losses.