T-Mobile, cable likely big winners in recession: analysts

In the past, when the economy took a turn for the worse, prepaid phone plans provided the best value. But that’s changing, according to analysts at New Street Research.

Nowadays, the better value is in postpaid, they said, naming T-Mobile and cable companies as the main beneficiaries of this trend – at the expense of AT&T and Verizon.  

They stopped short of saying there is a recession, explaining they’re not economists. But they analyzed what happened in the mobile industry in the last two recessions and subsequent recoveries. In the past, market share shifted to value-focused offerings and the best value was in prepaid.

But things changed. “Competition has driven down the price of postpaid plans, while eliminating barriers to adoption (contracts; credit thresholds),” wrote New Street’s Jonathan Chaplin and Philip Burnett in their August 20 report for investors. “Service pricing is now similar and, in some cases, lower for unlimited postpaid plans.”

When you factor in device subsidies, content and other features included in postpaid plans, they’re a much better value than prepaid, they said, adding: “If households become more value conscious, we would expect them to move to value-focused postpaid offerings.”

But what about credit?

Traditionally, recessions cause a shift in activations from postpaid toward prepaid service, said Jeff Moore, principal of Wave7 Research, who just returned from hosting sessions at the 2022 All Wireless & Prepaid Expo in Las Vegas last week.

“Fewer customers are credit-worthy during a recession. A recession likely would lead to an increase in involuntary churn,” he told Fierce, noting that involuntary churn was cited as a reason for Verizon’s poor second-quarter results.  

One thing that’s making a big difference this time around is the FCC's Affordable Connectivity Program (ACP) that benefits folks who can’t afford broadband. That’s a $30 benefit for anyone who qualifies, and a substantial chunk of the prepaid market is eligible for that, he said. “So there will be a lot of cushioning” that hasn’t been there in past recessions, he said.

More aggressive pricing

Interestingly, the cable companies forced wireless carriers to come out with lower-priced rate plans, but those plans are still new or new-ish, so time will tell how much they help the wireless carriers.

In a report for investors last week, analysts at MoffettNathanson commented on the “steady rise of cable wireless.” After adjusting for 3G network shutdowns, cable took nearly half of industry net additions in the second quarter of 2022, the report said.

With cable taking a growing share of both gross and net additions, incumbent wireless carriers had no choice but to respond. Each of the national wireless carriers has introduced a new low-cost plan in recent months, noted analyst Craig Moffett.

For example, last month Verizon unveiled its Welcome Unlimited plan, which costs $30 per line/month with four lines. The report noted that T-Mobile’s Base Essentials plan exactly matches Comcast’s pricing structure for up to four lines.

Pricing turned even more competition on Monday, when Comcast announced new pricing for Xfinity Mobile and emphasized the savings customers could see over AT&T, Verizon and T-Mobile. It’s offering the same $30 plan that it’s been advertising, but it added a $20/line offer for those wanting five or more lines.

Postpaid vs. prepaid

With so many wireless plans tied to auto-pay these days, it can be increasingly difficult to distinguish between prepaid and postpaid offers. Back in the old days, the prepaid space was dominated by a lot of independent companies.

Leap Wireless was behind the Cricket brand before it was acquired by AT&T. Metro PCS was a standalone entity until T-Mobile bought it. More recently, Verizon got into the prepaid space with the acquisition of TracFone, an MVNO.

“We’ve seen prepaid brands going from being independent a decade ago to be basically a flanker brand of a national carrier today,” Moore said.

The major difference between postpaid and prepaid customers nowadays is not the timing of payment; it’s the choice of device, he said. 

Postpaid customers overwhelmingly choose an iPhone or a high-end Samsung Galaxy smartphone, and prepaid customers generally choose a low-end smartphone, typically in the $200 range, he said.

Perhaps the blurring of the two is most obvious at Boost Mobile, which was under Sprint’s control until it became part of Dish Network through the Sprint/T-Mobile merger. Boost has long been known as a prepaid brand, but it’s gearing up for a postpaid service launch coming this fall. Just today, Dish announced the Twitter account for Boost Infinite is now live and the only place to get exclusive information about the launch.