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Lowenstein: Is TracFone the new Southwest Airlines of wireless?
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With little fanfare, a new service was announced this week that I think is a signature event for the U.S. wireless industry. TracFone has launched a new brand called Straight Talk, which offers 1,000 minutes, 1,000 texts/MMS, and 30 MB of data over Verizon Wireless' network for $30 per month. Service is nationwide, and can be purchased on a month-by-month or recurring basis. There are three handsets ranging from $30 to $100. For the time being, this service can be bought via the Web or through Wal-Mart, and is available in select major markets such as Chicago, Atlanta, Dallas, Las Vegas, Denver and Phoenix.
What's the significance? First, as a simple, low-cost, no-frills service plan for individuals, it is the best deal in the business. Decent phone, the benefits of the Verizon network--clearly branded on the box--and a price package that is dramatically lower than comparable plans available from T-Mobile USA, MetroPCS and Boost Mobile.
Second, this represents a shift in course by Verizon. The company has historically eschewed prepaid, wholesale and the lower end of the market. But with 80 million (mostly postpaid) subscribers (the majority of whom are on family plans), industry penetration of nearly 90 percent, and a tough economy, the carrier has to get a little more surgical about where growth and subscriber wins are going to come from. This is an acknowledgement that the category represented by MetroPCS, Leap Wireless and more lately Boost Mobile has become meaningful. With Straight Talk, Verizon appears to be setting a new threshold in wholesale price per minute (can you say 2 cents, anyone?). Verizon is apparently prepared to accept a lower margin for its TracFone business than AT&T in order to win over the 70 percent of TracFone subs who use AT&T's network.
Third, with consolidation among the facilities-based operators, we are seeing growth in so-called "flank brands," which are far more prevalent in other geographies than they have been in the U.S. wireless market. But there is historical precedent here, going back to the long distance business where brands such as 10-20-220 were proxies for MCI's discounted long distance service. Verizon must take great care to not cannibalize its main brand, which is associated with a premium overall experience. And between unlimited mobile-to-mobile with 80 million subscribers and the Friends & Family option, Verizon's core service is getting closer to "flat rate" on the voice side, albeit at a higher entry level.
Fourth, it's clear we are entering a new world with respect to capacity and network economics. On the one hand it is possible to have a profitable voice business with wholesale rates of 3 cents or less, while on the other hand Randall Stephenson, AT&T's CEO, states that wireless operators are "not prepared for the onslaught of data traffic brought by smartphone growth and other connected devices." Hmm... (On a related note, I wrote in a recent Lens that we need a new framework for mobile broadband pricing.)
This increased activity in the areas of prepaid, wholesale and differentiated distribution is also a sign that the wireless industry is finally getting more sophisticated about market segmentation. For better or worse, there are comparisons to the airline industry. "First class" is represented by premium devices, services and experiences--for example iPhone, Blackberry and other smartphone "products" that generally require a contract and minimum $75 monthly commitment. Full-fare coach is represented by the "branded" postpay offering of the leading operators, with the expected level of customer service, free "on-net" calling, and some unique, branded content or service such as ESPN MVP, MediaNet, Sprint TV, Rollover and so on. Then there's the Southwest Airlines approach of a TracFone--same basic service as the main guys but no frills (i.e. we'll get you to Chicago for less but no seat assignments, no food, no movies).
What effect will this have on the competitive landscape? Initially, you won't see this show up that much in the numbers. Straight Talk is initially being offered in limited geographies and distribution, with very little marketing. But I think it's a sign that wireless competition is now being fought on two fronts: at the high-end, it's much more focused on devices like the iPhone, BlackBerry, Android, Palm Pre, etc; and at the lower end, it's focused on prepaid and sub-brands. (TracFone alone has four in the U.S. The New Yorker recently published a terrific profile of Carlos Slim, chairman of America Movil, which has 200 million subs and owns the TracFone brand.)
Certainly MetroPCS and Leap, which have expanded into more core markets in the past year, are inviting a more direct response from the major operators. I also wonder how this will affect T-Mobile, whose "full fare coach" offering is inferior across many parameters (network, device selection, content), and whose reputation as low-priced provider is being nibbled away by the Metro/Leap/Boost crowd.
Wholesale is going to be a more distinct and important part of the wireless market going forward, and will be a focus of experimentation with business models, as we have seen with the Amazon Kindle. Winners will be those that understand market segmentation and/or bring something unique to the table. TracFone understands prepaid like Apple understands the user experience.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, including a recent piece on the need for a new framework for mobile broadband pricing.
Comments
Posted by Tatum Hawkins | June 4, 2009 - 11:10am
Hi, Tatum Hawkins from Boost Mobile here ... The Tracfone plan is NOT an attractive alternative for the vast majority of customers using monthly unlimited plans, because the average monthly minutes of use by flat-rate prepaid customers across the industry is 1,700 minutes, according to several recent financial analyst reports.
Posted by Anonymous | June 4, 2009 - 11:27am
Well Boost's average is about to go up.. along with their more profitable low users.
Remember that average is made up of many many subscribers that use less than 1000.
-X
Posted by Desmond Pieri | June 4, 2009 - 12:41pm
I still don't understand why in the States we are not offered REAL Pre Pay; that is the type of service that the rest of the world calls "Pre Pay" There is no monthly charge in a real Pre Pay system. The customer pre pays for an amount of credit and they can use that credit at whatever pace they want, with no monthly charges. I just don't understand why the US companies don't get it.
Posted by PrepaidWirelessGuy | June 4, 2009 - 1:09pm
Good discussion. Europe definitely has a great and proven model. I foresee monthly plans evolving to offer opt-in via text message type features. i.e. There won't be an automated recurring charged, but you'll buy your unlimited month for $50, and 28 days later you'll get a text message asking you if you want to buy another bundle; if so, reply "yes" to the text. If not, just continue using any balance you have (or add) on a per min basis. Complete flexibility with no such thing as "missed payments."
www.prepaid-wireless-guide.com
Posted by TracFone Tracker | June 4, 2009 - 5:03pm
Glenn Lurie, President of AT&T’s Emerging Devices and Resale, boasted at Frost & Sullivan’s GoMobile Conference in May that AT&T had the most wholesale subscribers among U.S. carriers. He was alluding to America Movil’s TracFone having 12 million prepaid subscribers in the U.S. market. Now Verizon has snatched six major market plus the coveted prepaid distribution in Walmart AT&T promptly exited reselling except for TracFone when Section 202 of the 1996 Telecom Act’s Section 202 expired for mandatory resale. AT&T renamed the resale unit as Emerging Channels, imagining that e-tailers would be big in mobile services. Mr. Lurie renamed Emerging Channels to Emerging Devices dreaming that AT&T would be a marketer and biller for a slew of mobile products. For now, he has to retain resale and play across the emerging prepaid models. The nightmare might be that AT&T reports negative subscriber additions for the third quarter from TracFone turnover to Verizon.
Posted by Ike D | June 4, 2009 - 8:09pm
I'd like to tell Tatum Hawkin from Boost to not worry about Straight Talk competing with them for one big reason. Unlimited is unlimited. And Straight Talk themselves advertised that the average adult US wireless user (Not average prepaid unlimited flat rate user) uses under 800 minutes. A full 1000 minute difference.
This would be the heavy user niche below unlimited user and above light to moderate user.
It does have a better network back bone (Verizon vs Boost/Nextel). Phone selection is no worse then what Boost cdma used to be (they had only three models too.)
If the average flatrate unlimited user hits 1700 minutes, then Boost should worry if someone starts rolling out $40 2000 minute/2000 text/data plans.
Frankly, if Boost unlimited iden wants to keep being competitive they should just fix all their texting/dropped calls going through issues rather then worrying about another contender in the prepaid market.
After all, the $30 Straight Talk is a natural offshoot of the evolution of the prepaid wireless market, which all started when BOOST themselves dropped their Unlimited everything $50 Bombshell back earlier this year and started to current price wars/upheaval.
Coming back to haunt ya , eh?
Posted by Fact Check | June 8, 2009 - 6:50pm
First issue is...
It's not all on Verizon's network... it uses multiple carriers - so to say it's all Verizon coverage would be a stretch, no?
Check the Wikipedia entry on Tracfone
Posted by Anonymous | June 17, 2009 - 9:44pm
Tatum, Couldn't agree more with you. I am Boost Mobile user and there are times when I use my phone 2 hours a day. That is a 3600 minutes a month. I would have to spend 120.00 per month with Straight Talk. The clear winner is Boost.
Posted by Anonymous | June 17, 2009 - 9:56pm
I realize that there is a problem with dropped calls but text messaging does go through, the first time and every time. Frankly, at a 50.00 all-you-can-eat rate, I am not going to care about some dropped calls here and there. Just re-dial the person. Furthermore, Boost dropped the bomb because it is in excellent market position to do so. Most other carriers don't have lots of extra network capacity. Sprint had plenty in its iDEN network. Why not make it turn a profit? This grudgingly forced other carriers, kicking and screaming, into a new reality. Other plans come close to Boost but none really touch it. Other carriers have say a really nice feature like unlimited 411 but only 1000 minutes. What good is that? I could just use Google's free 411 service, 1-800-GOOG-411. Boost really doesn't need to do anything further to position themselves in the market. I hear all the time that Verizon post-paid are flocking to Boost. I left Sprint post-paid for this plan.
Posted by Anonymous | June 30, 2009 - 10:52pm
Straight Talk just released today an UNLIMITED nationwide talk & text plan for $45/month. This is in addition to their $30 1000 & 1000 plan. Any and all 411 calls are included at no extra cost.
Posted by Anonymous | July 31, 2009 - 11:37pm
Yup they sure did. 45 unlimited. And with Sprint having to sell off its iDEN network in the midwest area to comply with a recent court ruiling having to do with Sprint and iPCS, along with many, many complaints about poor service and delayed texts, Boost may have just went bust.
Posted by Anonymous-1234 | September 1, 2009 - 9:07am
Bought the Straight Talk/1000 min and phone 2 weeks ago. It does use the Verizon Towers. Phone works great. Customer Service is deplorable. No two reps say the same thing. Have been trying for a week to have my old number ported with Str.Talk telling me I have to buy new minutes to do that. I have over 900 minutes left. Makes no sense. Was told a supervisor would call me back. That never happened. Its like no one has any pride in the company and could care less about the customers. No way to email them, so there's no written documentation. Everything is verbal from whoever answers the phone and they say whatever they want, true or not. Sad, very sad state of affairs @ Straight Talk!
Posted by Ann Karlberg | October 14, 2009 - 8:28pm
Just go with Wowmobile at $79.95 a month. Get all the features of iphone and then some with unlimited everything!!! www.wowmobile.com.
we're looking for sales reps too. Pay is excellent!
Posted by Anonymous | October 18, 2009 - 6:59pm
All StraightTalk customers are activated using Verizon network.
Posted by Michigan | November 3, 2009 - 6:19am
Just bought straight talk phone a few days ago with $45 unlimited plan, was able to port my old number within seconds of activating phone.Very good service
Posted by Anonymous | November 25, 2009 - 9:46pm
Does anyone know what the internet/mobile web browser is like on the Straight talk Samsung $100 model R451C? Is it simple to surf the web? Do we know if this would ever be compatible with an Enterprise server?
Posted by Anonymous | November 28, 2009 - 1:09pm
I'm on a Verizon contract right now, which is too much money. I've been checking out boost and their phones, but if strait talk gets better phones in a few months by the time i get off my plan,that's where I'm headed.
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