Clearly the U.S. wireless market is experiencing a surge in prepaid growth. This trend was particularly apparent in the numbers reported earlier this month by Sprint Nextel, which gained a net 764,000 prepaid iDEN customers to its Boost Mobile service in the first quarter. But Sprint wasn't alone: MetroPCS, Leap and Virgin Mobile also benefited from this trend.
The obvious reason for the prepaid surge is the economy--in tough economic times consumers are much more price conscious and flat-rate prepaid price plans alleviate fears of unexpected overage charges and unpredictable monthly bills. But will this prepaid popularity stick, even after the economy turns around?
I think this shift to prepaid will continue, particularly for voice-heavy users who have no need for data-centric smartphones. I spoke with Dan Schulman, CEO of Virgin Mobile USA, earlier this week and he believes a fundamental change is occurring. Prepaid is becoming the solution for voice-centric consumers because of the value proposition, and postpaid is the landing area for data-intensive subscribers who want "iconic" devices and smartphones. "AT&T and Verizon have postpaid franchises to protect," says Schulman. "They have differentiation with handsets and I expect them to always be competitive. But I think they will focus on postpaid and data service."
Of course, AT&T and Verizon also have subscribers locked in family plans and two-year contracts so I don't expect voice-heavy consumers to suddenly dump their Tier 1 carrier in favor of some of these primarily prepaid operators. But I do believe prepaid carriers are smart to exploit this opportunity. The economy may be driving this switch from postpaid to prepaid, but subscribers will stick with their prepaid carriers as long as they get the value they want and the network coverage that they have come to expect from the Tier 1s. --Sue
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