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MetroPCS, Leap stung by aggressive tactics of competitors
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Oh what a difference a quarter makes. Just last week when I revisited our 2009 predictions, I said that we had "hit the nail on the head" when we predicted that low-cost operators such as MetroPCS and Leap would continue see strong growth in 2009 due to the popularity of their flat-rate pricing. Based on first quarter net adds, I thought this prediction was solid.
But yesterday that sunny outlook turned bleak with the release of both Leap and MetroPCS' second quarter earnings results. In the second quarter MetroPCS' net adds were just 206,000, down from the record 684,000 it had in the first quarter. Likewise, Leap netted 203,000 new customers in second quarter, down from 493,000 net adds in first quarter.
In addition, both suffered trouble at the bottom line. MetroPCS reported a 48 percent decline in net income, to $26.2 million, from the $50.5 million it posted in the year-ago quarter. Leap had a net loss of $61.2 million in second quarter, more than double the $24.6 million it lost in the second quarter of 2008.
The culprit behind this dramatic twist of fate appears to be aggressive tactics of competitors Boost Mobile and TracFone Wireless. Both of these players have pushed the price points down on unlimited rate plans and attracted significant attention from consumers. In the second quarter, Sprint reported it added 938,000 prepaid iDEN customers, most likely due to the popularity of Boost Mobile's unlimited play.
Boost initiated the battle in February when it launched a $50 per month unlimited voice, text and data plan over its nationwide iDEN network. It also has been aggressively adding more retail distribution points. Likewise, TracFone Wireless earlier this summer unveiled a prepaid, nationwide unlimited offering for $45 per month that includes unlimited text messaging and 30 MB of data. The service is available at participating Wal-Mart stores.
MetroPCS responded to TracFone's offer in late July by dropping the price of its monthly unlimited plan to $40 for limitless voice, texting and Web access. But that rate drop wasn't quick enough to make a dent in the carrier's second quarter results. And it's unclear what impact all this price cutting will have on the firm's third quarter results.
Whether management at Boost, Leap, MetroPCS, TracFone want to admit it, there is clearly a price war under way for the unlimited prepaid customer. And I suspect that the industry may have reached the limit on how many prepaid unlimited providers it can support. Clearly, the Tier 1 players are not losing droves of postpaid customers to their prepaid counterparts or we would have noticed that trend in their second quarter earnings. Have we saturated the market for prepaid unlimited plans? --Sue
Comments
Posted by The Owl | August 10, 2009 - 12:14pm
But the biggest news of all is the new Unlimited plan from Page Plus Cellular, announced Friday. $39.95 a month for unlimited voice, unlimited text messaging, and 20 MB of data. How low can you go?
Posted by Pocketbook | August 10, 2009 - 8:19pm
As low as you can baby - just as long as you don't sacrifice customer service and all the other variables that make a provider "the golden one." Take TracFone for instance, they started with Straight Talk in the spring for $30 for 1000 voice and 1000 text and 30MB data. They've since introduced their new and improved Straight Talk plan which includes unlimtied voice and text + data for only $45. They still pay really close attention to their customer service and make the plan easily accessible to just about everyone - whether at participating Wal-Marts or directly online. MetroPCS really needs to pay attention to their customer service if they are to compete with the big boys.
Posted by Businessman | August 11, 2009 - 9:27am
I agree that coverage is really important but service is everything which is why I am staying with Net10. I use Net10 for all my personal and business calls because they only charge 10cents per minute for all calls, no roaming charges and the reception is the best. Now when you being to compare with these unlimited packages it seams expensive but the big difference is that I can make long distance and International calls to over 100 country's for 10cents per minute. I make a lot of international calls and travel all over America so Net10 still rates the best for me.
Posted by Sandy | August 13, 2009 - 4:37am
One has to feel sorry for Metro & Leap. Both of the are caught between a rock (Tracfone) and a hard place (Boost). I think that neither of them will last two years.
Of the remaining options I will most definitely place my money on Tracfone. As somebody who has used Boost's network before, I know they can't keep it up. I had so many dropped calls, delayed texts and bad reception on my phone it made me switch quick enough. They continue to draw customers because of the low price but I think many people will realize quickly that their network is terrible and go for the much more reliable and cheaper Straight Talk on VZ's network. It is certainly working for me at the mo.
Posted by Kirwood Derby | August 18, 2009 - 4:08pm
Page Plus? They sell those at gas stations and convenience stores... right next to the pickled eggs.
TracFone, Net10 and Straight talk have got it all covered.
Boost can take a flying Leap!
LOL!
Posted by Anonymous | August 21, 2009 - 12:05am
Not only do they need to pay attention to customer service, but they need to improve their network! I switched from Metro to Tracfone because a friend told me that it had better service for the same price and I completely agree! If they were to fix those two minor issues, they would be golden in the market!
Posted by TabithaH | August 29, 2009 - 9:25am
I also made the switch to TracFone b/c it's more economical. I don't ever use more than 60 min. a month so why pay for unused minutes with Metro. With my current plan, I average about $7/month.
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