2009 Year in Review: Prepaid carriers engage in a price war

The news: Boost Mobile, Sprint Nextel's prepaid unit, shook up the prepaid market in January with the unveiling of its $50 monthly unlimited plan. Immediately, analysts began fretting about a possible price war.

And the battle did indeed get heated. In April, Virgin Mobile USA jumped into the game when it cut the price of its unlimited calling plan from $80 to $50. In May, AT&T Mobility launched a new plan through its prepaid GoPhone service, giving users unlimited calling with no roaming or long distance fees for $3 per day. In June, MetroPCS added unlimited international calling to more than 100 countries for $5 per month. Then things really started getting interesting.

In July, America Movil's MVNO TracFone Wireless quietly debuted a prepaid, nationwide unlimited offering for $45 per month that included unlimited text messaging and 30 MB of data and took advantage of Verizon Wireless' network. Later that month, Sprint agreed to buy MVNO Virgin Mobile for $483 million, effectively doubling down on its bet on prepaid, which had been carrying the company amid postpaid subscriber losses.

Two days after that deal was announced, MetroPCS lowered the price of its monthly unlimited plan to $40 for limitless voice, texting and Web access. Shortly after that, Leap added new features to its unlimited plans.

But there were casualties. Both Leap and MetroPCS were hurt in the second quarter by the aggressive tactics of their competitors. The two carriers continued to take hits in the third quarter, while TracFone took its plan nationwide with a retail distribution agreement with Wal-Mart.

Why it was significant: It was not entirely surprising that prepaid took off amid the economic recession, as consumers looked to keep their wireless service while cutting its cost. Leap and MetroPCS both received some serious competition in the form of Boost Mobile and TracFone, and suffered accordingly as the prepaid market became more and more saturated. The price war and prepaid's growing momentum also meant a lot to Sprint, which came to rely on Boost as one of its few growth drivers. The pricing pressure also was likely one of the factors that led T-Mobile USA to unveil its own unlimited plans in October. 

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