Sprint's retreat from Virgin and prepaid underscore strength of MetroPCS and Cricket

Mike Dano

Sprint yesterday said that it is de-emphasizing its Virgin Mobile prepaid brand and may introduce a new strategy for the Virgin brand at some point in the future. The news highlights Sprint's continued struggles in the prepaid sector, mainly due to the successes that T-Mobile's MetroPCS prepaid brand and AT&T's Cricket Wireless prepaid brand have had in the market.

As Re/code noted, Sprint CEO Marcelo Claure said that Sprint is retreating from the prepaid sector because "You've got to figure out where do you want to fight and where do you want to grow. We are keeping the customers that matter."

Not surprisingly, T-Mobile's MetroPCS used the opportunity to target Sprint's Virgin customers: "Hey @VirginmobileUSA customers, we think you matter! Get more value, a bigger, faster network, and two free phones!" the company tweeted shortly after Claure's comments.

But Sprint's disavowal of Virgin is nothing new. According to iSpot.tv, which tracks brands' spending on TV advertisements and is a FierceWireless contributor, Sprint didn't spend any money to advertise Virgin during the third and fourth quarter of last year, after spending $1.6 million in the first quarter and fully $3.4 million in the second quarter pushing Virgin's brand. But Sprint isn't giving Boost Mobile much love either: In the third quarter the company spent $1.2 million advertising the brand, iSpot said, and just $144,000 in the fourth quarter of 2015, the industry's critical holiday shopping season.

In comparison, T-Mobile spent $19.6 million in the third quarter advertising its MetroPCS brand, and a whopping $34.6 million in the fourth quarter. And AT&T outdid that effort by spending $19.7 million pushing its Cricket prepaid brand in the third quarter -- and an astounding $63 million promoting Cricket in the fourth quarter.

Thus, it's no wonder that T-Mobile and AT&T continue to tout their progress in the prepaid market. In the third quarter, T-Mobile added 595,000 total prepaid customers, up from the 178,000 it notched in the second quarter and the 411,000 it gained in the third quarter of 2014. And AT&T in the third quarter of last year added 466,000 prepaid net subscribers, a sharp improvement from the loss of 140,000 prepaid customers it reported in the year-ago quarter and the 331,000 prepaid net adds it reported in the second quarter. In its most recent quarter, AT&T's roll continued; it added 469,000 net prepaid customers.

Indeed, Sprint's Claure is so uninterested in prepaid customers that he announced in the third quarter that the carrier would begin actively moving customers from Boost and Virgin to Sprint's postpaid plans. "During the three-month period ended September 30, 2015, we introduced a program to provide certain tenured Boost and Virgin Mobile prepaid subscribers with the opportunity to receive an extension of credit for their use of wireless service," the carrier said in its third-quarter SEC filing. "During the three-month period ended September 30, 2015, approximately 175,000 subscribers chose to participate in this program and were migrated from the prepaid subscriber base into the postpaid subscriber base under their respective Boost and Virgin Mobile brands."

And that program continued in the fourth quarter: Claure said on the company's earnings call yesterday that the number of Sprint's prepaid customers moving to postpaid service "have gone through the roof," according to a Seeking Alpha transcript of his remarks.

William Ho, an analyst at 556 Ventures and a FierceWireless contributor, said that the percent of Sprint customers on the carrier's prepaid plans has declined from 34.5 percent at the end of 2013 to 32.2 percent at the end of 2015.

"When Sprint bet heavily on prepaid, the times were different. Prepaid forecasts were going up and they embarked on a subscriber segmentation strategy with Boost, Virgin Mobile, Assurance, and the retired Common Cents. But the market changed," Ho said. "Key competitors like MetroPCS and Leap Cricket were acquired and have parent backing in terms of network, marketing dollars and distribution. On top of which the TracFone MVNO brands like Straight Talk, Page Plus, Simple Mobile and SafeLink were also competing heavily in that segment."

"Sprint is still second among the carriers in prepaid behind T-Mobile (and third if you include TracFone), and the gap is widening -- it's lost about 1.2 million prepaid subs over the last three quarters, while both AT&T and T-Mobile have been gaining hundreds of thousands," noted Jan Dawson, chief analyst at Jackdaw Research and another FierceWireless contributor.

Dawson explained that the nation's prepaid sector is a "tough market" because it's not really growing anymore due to the rise of equipment installation plans (EIP) from major carriers like AT&T and T-Mobile that allow customers to pay off their phones in monthly installments outside of a traditional two-year postpaid service contract.

"Both AT&T and T-Mobile have been using their prepaid brands to get really aggressive around switchers. So prepaid is becoming a very competitive space with no real growth, which makes it a tough place to be," Dawson said, added that Verizon has largely left the prepaid space to its rivals.

What exactly will Sprint do in the prepaid market? Angela Rittgers remains the carrier's VP of prepaid, and Dow Draper is still Sprint's president of prepaid. The company still counts four separate prepaid brands:

  • Boost Mobile, described as "one of the best values in the prepaid wireless industry" with new offerings including family plans and the Boost Dealz app that offers discounts to customers who agree to view advertisements.
  • Virgin Mobile, which offers unlimited data plans starting at $35 per month for 1 GB of high-speed data, and the "Data Done Right Single Line" and "Multi-line Data Sharing" plans available exclusively at Walmart.
  • Sprint Prepaid, sold at Sprint stores and select national retail stores, which offers "a premium wireless experience without the premium barriers." All Sprint Prepaid plans offer unlimited data, talk and text starting at $35 per month, and mobile hotspot and international calling capabilities are available on all plans.
  • And Assurance Wireless, a federal Lifeline Assistance program supported by the federal Universal Service Fund that's currently available to low-income residents in more than 40 states.

"Sprint is the only one that hasn't had a clear [prepaid] strategy, and at the same time they've had quite a number of different brands, which has made their strategy far more fragmented than the others. It always made sense that they'd start to consolidate those brands at some point, and I think that's now happening, with Boost apparently becoming the master brand," Dawson said.

Added Ho: "Sprint never really could explain how Virgin and Boost targeted different audiences. Virgin's de-emphasis shows to me that Boost is the stronger brand for who they want to target. It will be tough for Sprint prepaid to compete against very strong competitors MetroPCS and Cricket given their 2015 momentum and with Sprint's corporate to focus more on higher-value postpaid users."

To be clear, it appears that Claure's efforts to turn Sprint around are starting to pay off; the carrier yesterday reported the addition of around half a million new customers, alongside improved financial guidance. I suspect Claure has his hands full though in working to update Sprint's network and solidify the carrier's financial footing. Prepaid is likely pretty low on his list of priorities.

Thus, it appears that right now Claure is going to use the lead that Dan Hesse's Sprint built in the prepaid market to bolster the company's situation until he's able to sell the company or complete an independent turnaround. If Claure does indeed get around to revamping Sprint's Virgin brand, as he promised to do, I suspect it will involve consolidating Sprint's prepaid efforts around a single existing brand -- either Boost, Virgin or Sprint Prepaid -- and targeting the kinds of higher-value customers that MetroPCS and Cricket are also chasing. --Mike | @mikeddano

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