Prepaid Wireless Providers Spark Paradigm Shift

by Matt Klassen on December 16, 2011

Although historically not able to compete with any of the Big Four American wireless carriers, prepaid wireless service providers are increasingly making their presence felt in the wireless market, with analysts expecting the largest among them, namely MetroPCS and Leap Wireless, to do very well in this holiday season.

Once the bottom of the barrel in terms of wireless companies, usually unable to offer the same service or devices that larger wireless competitors were able to, prepaid service providers have lately njoyed a renaissance of sorts, with both MetroPCS and Leap Wireless seeing their stock value upgraded this week, results of a strong upward revenue trend.

Beyond an encouraging financial outlook, however, the rising popularity of these companies once again brings to light an ever-present reality of the wireless business, customers hate contracts, and if prepaid providers can offer the same powerful networks and high quality devices as their contract competitors we may be seeing the beginnings of paradigm shift in the wireless industry.

While I don’t often write about MetroPCS, the fifth largest wireless carrier in the US, the company has built a solid subscriber base by offering competitive package deals, one’s that offer incredibly competitive rates and in return often yield significantly lower turnover rates.

Recently the company has seen great success with its lower priced family plan, which offers four different lines for only $100. The benefit, as I mentioned, is that when locked into a plan with other family members, customers are much less likely to cancel their contract, influenced, I would assume, by the fact that cancelling the contract would affect their loved ones as well.

Leap Wireless, which operates its service under the name Cricket Wireless, is experiencing its own unique success as well, hinging largely on its Muve Music service and recent expanded distribution. Leap, like MetroPCS, has seen a steady rise in budget conscious customers looking for a way to escape the high priced long term contracts of the country’s larger providers.

In a country where 98 percent of the available customer base is already a wireless subscriber the increased success of both MetroPCS and Leap Wireless will invariably come at the expense of other competitors, so who stand to lose the most?

With AT&T and Verizon so far out in front in terms of overall subscribers—the two companies having locked up over half of the population of America—don’t expect their contract customer base to be affected, although I wouldn’t be surprised if customers avoided their lower end services—like 3G—in the near future.

Instead, I would expect the relative success of MetroPCS and Leap to come at the expense of Sprint and T-Mobile, both of whom stand at the nexus between prepaid and contract services. Both Sprint, with its Virgin Mobile and Boost prepaid services, and T-Mobile have long depended on the prepaid market for a substantial chunk of their revenue, but with MetroPCS and Leap increasingly eating into that market share we could be seeing the beginnings of a substantial paradigm shift in the American wireless sector.

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