NPD: One-third of U.S. smartphone sales were prepaid in Q1

Nearly one-third of U.S smartphone sales in the first quarter were on prepaid carriers, the highest on record, according to a report from the NPD Group. The statistic is another indication of prepaid's growing momentum in the smartphone market.

According to NPD, prepaid smartphone unit sales doubled year-over-year in the first quarter, representing 32 percent of total smartphone sales, which is an 11 point increase year-over-year and a 10 point increase from the record-high share of 22 percent reached in the fourth quarter of 2012.

NPD found that postpaid smartphone unit sales made up 68 percent of all smartphone sales in the first quarter but that they grew just 23 percent year-over-year. Overall, NPD reported that total smartphone sales in the United States increased 42 percent in the first quarter compared with the year-ago quarter.

"Prepaid has proven to be a real winner for national retailers," NPD analyst Stephen Baker. "The easy purchase cycle and grab-and-go nature of the product play into the strength of large-format stores. Certainly, companies like AT&T (NYSE:T) recognize this shift in purchasing as they ramp up their focus on prepaid phones with their recently announced 'Aio' product branding initiative."

NPD's findings fit with a growing pattern of data about the strength of the prepaid market in the U.S. Recon Analytics analyst and FierceWireless contributor Roger Entner found that new wireless customers in the first quarter chose no-contract service over contract service by a 10 to 1 ratio. Entner found that the nation's wireless carriers added around 140,000 contract customers in the first quarter, far fewer than the 660,000 no-contract customers.

Financial analysts are expecting growth in average revenue per user at Tier 1 carriers to slow as the transition from feature phones to smartphones trails off. Prepaid carriers, by contrast, still have room to grow there and are doing so, according to NPD's numbers. 

The trend is likely to continue as carriers put more emphasis on prepaid in the quarters ahead. T-Mobile US (NYSE:TMUS) plans to significantly expand the footprint where its MetroPCS brand offers service--by around 100 million POPs over the next six quarters. AT&T Mobility recently launched its new prepaid Aio Wireless brand. Sprint Nextel (NYSE:S) continues to lean heavily on its prepaid brands for growth. Verizon Wireless (NYSE:VZ) recently launched a $35 prepaid plan for feature phones that includes unlimited mobile Web and texting and 500 calling minutes. And in February, Verizon effectively cut the price of its high-end prepaid smartphone plan from $80 to $70.

NPD found that Samsung Electronics took 32 percent of prepaid smartphones sales in the first quarter, LG Electronics had 22 percent, Huawei took 11 percent, and HTC and Apple (NASDAQ:AAPL) took 8 percent.

"For consumers looking at prepaid phones today, value does not equate with finding phones that are cheap or obsolete," Baker said. "In fact, the Galaxy S2 and the iPhone 4S, two of the top five prepaid smartphone models in 2013, were among the top-selling phones overall just one year earlier."

Indeed, as GigaOM notes, the boom in prepaid smartphone sales is likely benefiting Google's (NASDAQ:GOOG) Android platform more than any other since Android has long been the platform of choice for U.S. prepaid carriers.

For more:
- see this NPD Group release
- see this CNET article
- see this GigaOM article

Special Report: Grading the top 10 U.S. carriers in the first quarter of 2013

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