In marked shift, Verizon moves to shore up prepaid segment in Q3

Fran Shammo
Outgoing Verizon CFO Fran Shammo

Verizon highlighted steps it has taken to shore up its prepaid market segment in its earnings call Thursday morning, marking a big shift from previous quarters when the telco has all but ignored this segment.

The company noted in the call it had updated its prepaid pricing structure, allowing the segment to increase by 83,000 in the third quarter, according to a Seeking Alpha transcript. Its retail prepaid connections now total 5.5 million, Verizon said in a press release announcing its quarterly earnings.

“We made some moves in prepaid because where we're losing the subscribers is mostly in the basic phone category, and we know that our postpaid pricing is more premium to the marketplace and less attractive to that segment,” said Verizon’s outgoing EVP and CFO Fran Shammo in the call.

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In past quarters, T-Mobile and AT&T have aggressively pursued the prepaid phone segment with their MetroPCS and Cricket brands, respectively, while Sprint has been less successful.

Verizon, on the other hand, has practically ignored the segment. Instead, it opted to view the MVNO TracFone as its de facto prepaid offering, which, crucially, sells service on all four major networks, not just Verizon’s.

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Verizon’s updated prepaid pricing likely had some effect on the prepaid adds, though Shammo noted that a portion of those adds were simply shifts from postpaid subscribers.

“We did launch some new prepaid pricing, and we saw a double amount of our postpaid subscribers move over to our prepaid more than we've seen in history and that accounted for a little less than 50 percent of our prepaid net adds this quarter,” Shammo explained. “So we did see some shift in our base, but the good news there is, is that we didn't lose the customer. We maintained the customer at least on the Verizon wireless network.”

Shammo’s successor Matt Ellis clarified that that shift was primarily coming from users of feature phones rather than smartphones.

“Look, we will have some people who have feature phones in postpaid stay as postpaid customers and we're very happy that they will do that, but we also expect to see some of those continue to move into a prepaid environment which may be a better place for them to be,” he said.

The prepaid news is a bright spot in an otherwise disappointing quarter for Verizon, which lost 36,000 net postpaid subscribers and posted a 6.7 percent decrease in revenue.