It looks like companies competing in the U.S. prepaid sector can rest easy knowing the two biggest U.S. carriers aren’t going to tread heavily on their turf. At least, not for the foreseeable future.
Executives from both Verizon Wireless and AT&T, speaking separately at the J.P. Morgan technology conference in Boston earlier this week, gave prepaid voice the brush-off and emphasized their skill set for attracting higher-ARPU postpaid customers, particularly for data.
AT&T Mobility and Consumer Markets President and CEO Ralph de la Vega, whose career has included overseeing prepaid in Latin America, said the growth opportunity in this country is in postpaid data, not in prepaid voice. He was pretty clear on that, pointing out that AT&T’s revenue growth of over $1.2 billion is more than twice the revenue growth for the entire prepaid industry. “We go after where the revenue is,” he said. “We go where the margin growth is.”
That said, the iPad 3G version is offered on a prepaid basis for $30 a month. But that’s a data device, and AT&T is offering prepaid data in a way that a lot of others cannot. (Read: with an Apple device.)
Interestingly, de la Vega said his own experience with the iPad is very Wi-Fi-centric. He uses it at home, at work and in between on airplanes. He also said he recently worked his email inbox to zero on an airplane, which should serve as an inspiration to us all. (If only I had an iPad, I’m sure I would do the same. Really.)
Yet some customers understandably feel less constrained when they have the 3G option, so AT&T provides that, although de la Vega shared no data on how many customers are using 3G and how many are using Wi-Fi. Incidentally, this same type of question came up when the first iPhone was released – the theory being that more people were connecting to the Internet with Wi-Fi than the carrier’s network.
But in the area of traditional prepaid – which is getting less “traditional” by the day, de la Vega made it clear that’s not AT&T’s playground. The company for a long time has offered the GoPhone, one of the early advertised prepaid offerings to come from a postpaid-oriented carrier. Its marketing for that has varied over the years, but it hasn’t been super aggressive in recent memory. Over at Verizon Wireless, it’s a similar story in terms of its focus on prepaid or lack thereof.
At the J.P. Morgan conference, John Killian, executive vice president and CFO for Verizon Communications, said the pay-in-advance market is “something we monitor, something we’re watching. I wouldn’t say it’s a big concern right now. It’s the lower end of the market.”
Verizon has prepaid options and supplies its network for the Straight Talk service through TracFone and WalMart, but no broad-based assault on the prepaid market is on the drawing board at the moment. Company executives feel confident they can continue growing the retail postpaid base with snazzy Android and other devices.
Still, it’s no wonder investors are asking questions about prepaid growth versus postpaid. Sprint, while still losing postpaid customers, gained 348,000 net prepaid subs in the first quarter – low compared to some other prepaid providers but better than the net loss on its postpaid side. And presumably, it will gain steam with its new multi-brand strategy that was unveiled in the second quarter.
No-contract carrier Leap Wireless International/Cricket reported 446,000 net additions in the first quarter, and rival MetroPCS added nearly 700,000 in the first quarter. Compare that to the 423,000 retail postpaid subs that Verizon Wireless added in the same quarter.
Stifel Nicolaus analysts estimate that prepaid subscribers grew by 14.7 percent year-over-year while postpaid subscribers grew by only 2.9 percent year-over-year.
For their part, MetroPCS executives at the J.P. Morgan conference estimate one-third of their base has come from the contract world in recent months. Of course, they’re bullish that more people will choose the no-contract option in the broadband world, too.
To de la Vega’s point about prepaid data, some other long-timers in prepaid see the opportunities there as well, even if they don’t have a flashy iPad to sell. Sprint’s Virgin Mobile brand is the data-oriented one, with plans starting as low as $25 a month. Leap executives have said in the past that they see a lot of opportunity for broadband data, and of course MetroPCS Communications is getting out in front with LTE and anticipates market launches later this year.
The prepaid space overall is getting more and better devices to choose from, but people who really want the iPhone, Droid or Incredible are going to sign contracts. For now, Verizon and AT&T can enjoy those high-ARPU, low churn contract customers on voice and data plans and the prepaid carriers can duke it out among themselves.