What is the future of prepaid unlimited?

2009 was a busy year for prepaid carriers as they jockeyed for leadership by cutting their prices and adding new features. What does the future hold for these firms?

The main U.S. prepaid unlimited carriers--Boost Mobile, Leap Wireless, MetroPCS and TracFone--will likely migrate toward data services and more advanced devices in a bid to bridge the gap between themselves and postpaid services. In the meantime, they will still have to compete on price.

"If these guys want to grow going forward, I think incremental or additional price cuts are inevitable," said Walter Piecyk, an analyst at Pali Research.

An evolving market

The price war heated up last year. After Boost Mobile, one of Sprint Nextel's prepaid units, unveiled its $50 monthly unlimited plan for voice, texting and data early last year, the rest of the market's prepaid carriers spent the entire year engaged in a price war. Notably, América Móvil's TracFone subsidiary ratcheted up the heat with its $45 monthly unlimited Straight Talk plan, now nationwide through a distribution deal with Wal-Mart and riding on Verizon Wireless' network.

Perhaps due to the intensifying competition, both Leap and MetroPCS saw sharp drop-offs in their second and third quarter subscriber growth compared with the first quarter of 2009. And Leap recently disclosed that it added 300,000 net subscribers in the fourth quarter, below the 385,000 it scored in the year-ago quarter.

But it seems prepaid players may have reached their limits, and are now casting about for ways to compete beyond price. The answer? Data, and smartphones.

"They're going up-market by moving into smartphones and the data world, and competing more aggressively with what you see from the postpaid offerings," said John Byrne, an analyst at Technology Business Research. "That's a change because it's not where they've traditionally been, but it's almost a necessity because the focus going forward is going to be on data."

Leap, for instance, is hoping its mobile broadband offering--$40 per month, without a contract, for up to 5 GB of data--will entice underserved Internet users in urban areas.

"I think from a growth standpoint, the mobile broadband space today reminds me of where the prepaid voice space was in 2002," said Jeffrey Toig, Leap's vice president and general manager of voice and data products. "This is a space that is just developing. It's just finding its footing in the retail marketplace. And as consumers begin to understand it better, it will continue to grow."

From a wider price perspective though, Toig said Leap will continue to evaluate its pricing as the market evolves. "We typically refresh pricing a couple of times per year, and will probably do that this year," he said. "This is a dynamic market. I don't know that it's necessarily price cuts everywhere. There are definitely ways to add more value to the services that you have, and deliver a high-value product to consumers at price points that are still compelling competitively."...Continued

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