MetroPCS, Leap, Virgin stay strong despite economic downturn

Some wireless segments, such as prepaid are thriving as consumers turn to wireless providers that don't require two-year contracts and credit checks. 

The wireless industry is happily bobbing like a buoyant cork while most others sink in the economic red ink sea. In fact, some parts of the industry-prepaid or pay-in-advance--are actually exuberantly hanging five on the market's turbulent waves.

But this positive picture does not necessarily hold true for all of telecom. Some wireless industry segments such as handsets and all the pieces that contribute to a handset, are taking on water. The wireline space is sinking like a rock with no bottom in sight. Still, considering the daily doses of bad news coming from Wall Street, Pennsylvania Ave., and Main Street, the wireless guys are doing pretty well.

"We're going through the worst economic downturn in our lifetime (and) we're seeing more innovation in electronics and mobile products than ever before," said Jim McGregor, chief technology strategist for In-Stat.

This innovation is driven partially a way to build orders by creating "device envy" among wireless users and partially by the circumstances of a product development cycle where chipmakers start product designs up to four years in advance. It's also leading industry bifurcation.

"On the high end you're seeing a lot of device envy that's prying people away from their existing plans and getting them to move across carriers. On the other end of the spectrum you're seeing people seeking out value who want a good handset with a camera, QWERTY keyboard, great pricing and lots of flexibility so they can adjust their spending on a monthly basis," said Bob Stohrer, chief marketing officer of prepaid giant Virgin Mobile.

As for the rest, "a lot of people would tell you the middle of the market, maybe having a decent phone on a postpaid plan, is going away right now," he continued.

The big carriers, AT&T, Verizon Wireless, T-Mobile USA and to some extent Sprint Nextel are all doing pretty well convincing consumers, at least now, that they need the latest bells and whistles to match the iPhone. The plan is working as long as these subscribers take those services at the expense of something else and right now that something else is wireline.

The market's real winners, though, are the non-traditional carriers who have earned their niche via a Statue of Liberty strategy of welcoming the poor, the tired and the huddled masses yearning to breathe free.

"As the economy has worsened, we've actually found our service to be in demand by a lot more segments," said Tom Keys, chief operating officer of MetroPCS.  

Some sort of mobile phone is becoming as necessary as breathing in a connectivity-conscious society. People will discard their wired phones in favor of the flexibility of wireless. That starts with a good basic phone but, more and more, includes a lot of the features that used to be associated with high-end contract carriers.

"Even though we have customers that are earning $50,000 and under a year (some as low as $15,000), they want as much technology as they can afford," said Greg Lund, a spokesman for Leap Wireless. "They're not coming in and looking for the rock-bottom price on handsets all the time."

You won't get a $500 combo WiFi, WiMAX, 3G smartphone from Leap. But you also won't get the wireless equivalent of a basic phone either, he said.

At Virgin, the rate plan is the draw. "You look at the impact of the economy on somebody like Virgin Mobile and you'll see that our active customers are self-optimizing and as a result some of them are using less," said Stohrer, who also said, surprisingly, that a greater number of customers are "looking for something that looks like a traditional contract plan" that Virgin offers with a monthly deal.

Flexibility, he said, is as important as understanding what your customer base can handle."We see a lot of customers out there today who are no longer eligible for contract plans move into the category. People who would typically pass a credit check can't anymore and they're coming into this category," he said.  Once there, they can "easily move" between plans that meet their financial needs "and take their spending down $10 or $15 a month until they're ready to start spending more."

The trick for these carriers is not attracting new customers, but keeping them when things improve. Key's predicts that could be as far as three years out. When that day comes, though, these new subs might wander off to carriers with more full-featured devices and plans. "The need for a wireless phone is only going to increase. It's no longer a luxury; it's a must-have category," he agreed.

To fight this potential loss, carriers are offering full-featured phones and better networks and some are even perusing femtocells as a way to make a wireless subscriber really attached to that phone. "We see a lot of interest from the MVNOs who want their offering to be a little bit different and will focus on an offering that might be placed in a retail environment or in the home," said Simon Saunders, chairman of the Femto Forum. The Femto Forum believes the femtocell proposition of boosting the value of a device by increasing its capabilities will be a big seller in a down economy.

The prepaid carriers, though, are somewhat wary. These are not companies that go out of their way to add cap ex to the budget by committing to cutting-edge devices. "I don't like the term fast-follower, but you're not going to see us with the latest and greatest," admitted Lund, whose company is offering a broadband product designed for laptops and desktops where the uptake has been "a pleasant surprise for us," he said.

Virgin Mobile is finding similar success with texting services. "Text is the new talk," Stohrer said. "Our customers are sending and receiving as many text messages as they are using minutes of call time right now" and the carrier might be interested in femtos if they helped consumers better use this capability.

MetroPCS is probably the least interested of the three when it comes to a device intended to boost a mobile signal or offload data traffic. However, the company doesn't totally dismiss femtocells. "A lot of our new market builds, Philadelphia, New York or Boston were built with DAS (distributed antenna systems) that are nodes on telephone poles right close to the home to improve in-building penetration," Keys said. "We think the in-building penetration we provide gives us phenomenal coverage where you can utilize our phone in the home as well as throughout the area that you live in."

Femtocells might help, however. "We just think that at some point in time the retail price has to come down the curve to be a bit more affordable... a sub-$90 price," he said.

These types of carriers, despite wishful thinking by the Femto Forum, "won't drive innovation," McGregor said. What will is an industry-wide urge to continue to move forward with plans that have been in preparation for years. "There's a lot of innovation that's enabled both from the silicon content, from the applications on the Web... and in terms of the business model. Service providers can look at different models and maybe find one that may be more attractive to consumers," said McGregor. "The main part of the ecosystem from the service providers to the device OEMs and ODMs to the service and technology companies are going to be pushing innovation to new levels. If nothing else the downturn makes them focus on that even further." Click here for more MetroPCS pics...

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