Carriers sharpen focus on family plans as single-line users look to prepaid

Colin Gibbs Editor's Corner

Carriers are honing their focus on family plans as competition in the U.S. market continues to ramp up. And they’re increasingly looking to prepaid to offer service to users with single lines.

T-Mobile underscored that trend earlier this month when it announced plans to scrap its long-standing Simple Choice plans in favor of its T-Mobile One plans, killing taxes and fees for users on the “unlimited” offering. A single line of unlimited voice, text and LTE data costs $70 a month for customers with accounts that pay automatically. A second line is an additional $50, and additional lines (up to a total of eight) are $20 each.

The operator markets its plans as four lines for $40, but the T-Mobile One offering is actually more expensive than the old Simple Choice plan for users with a single line. COO Mike Sievert dismissed concerns that the move might alienate single-line customers, saying most of those single-line customers go with prepaid anyway.

“We still continue to have—both on MetroPCS and on T-Mobile—great single-line deals on prepaid,” Sievert said. “And the vast majority of phone customers today who have single lines tend to buy prepaid.”

Carriers have good reasons to target families with postpaid plans, of course. Multiple-line accounts generally have lower churn than those with single lines, and while they obviously don’t generate as much ARPU, their monthly bills are generally significantly higher.

But another major factor is that the revenue gap between prepaid and postpaid has closed in recent years. MoffettNathanson estimated last year that T-Mobile has seen its postpaid ARPU fall from $54.07 to $46.05 since the first quarter of 2013, for instance, while prepaid ARPU has risen from $35.96 to $37.58.

Similarly, Verizon's postpaid ARPU peaked at $58.04 in the third quarter of 2014, but has since fallen to $51.87. But its prepaid ARPU rose from $22.86 to $31.68, which may signal that nation's largest carrier is better monetizing the prepaid users it isn't shedding.

“The carriers’ focus on postpaid family plans has always been there since a family plan (in the past with two-year contracts) presents a low churn scenario,” William Ho of 556 Ventures told FierceWireless via email. “That is, every line is tied to phone upgrades around the 2-year mark. That subscriber retention focus hasn’t really changed. Equipment installment plans with 24- and 30-month installments also create a similar low churn (handcuffed) outcomes. But the same multi-line strategy is also in play in prepaid with some carriers with the same goals—more subscribers, lower churn and higher per account revenue.”

Indeed, competition among the major U.S. carriers in the prepaid market has ramped up significantly in the last few years. T-Mobile’s MetroPCS and AT&T’s Cricket have come to dominate the segment, but Sprint is plotting to regain market share with its upcoming relaunch of Virgin Mobile. And Verizon—which last year all but gift-wrapped its prepaid business for TracFone—has begun selling prepaid services through some exclusive dealers.

The trend of targeting families with postpaid services and focusing less on single-line postpaid accounts is likely to continue as carriers do battle in a U.S. market where growth has slowed to a crawl. But operators may be overlooking an opportunity to market their offerings to families who don’t need four or five lines, Roger Entner of Recon Analytics observed.

“That free fourth person is becoming the anchor to keep an account at the carrier,” Entner said via email. “T-Mobile has been particularly aggressive when it comes to chasing and catching up to AT&T and Verizon when it comes to family plan customer numbers as they are leading in that segment. At the same time, the focus on four line accounts is a bit misguided as the average household size in the U.S. is still 2.7, which would make the true hot spot target the three-line family. None of the carriers have really recognized this demographic fact.” - Colin | @colin_gibbs