Scalper1 News
The one-fifth of U.S. mobile phone users that buy prepaid wireless services stand to get much better data deals as AT&T ( T ), T-Mobile US ( TMUS ), and Sprint slug it out. “The prepaid market is heating up with surprising deals,” said Roger Entner, chief analyst at consulting firm Recon Analytics. So-called postpaid wireless subscribers historically got the most bang for their money. Postpaid subscribers had two-year service contracts and were billed monthly. Service contracts have been phased out recently along with retail subsidies for Apple ( AAPL ) iPhones and other high-end smartphones. Most postpaid subscribers now buy phones in monthly installment plans. Prepaid customers, who typically bought less pricey phones upfront, generally were provided slower data services. But that’s changing. “Prepaid users are getting more 4G data at cheaper rates than ever,” Entner said. “When you look at the fighter brands (Cricket and MetroPCS, the most aggressive), you see the old days of prepaid being more expensive (per megabyte) than postpaid are gone.” Entner says MetroPCS customers get unlimited voice calls, texting and 3 gigabytes of 4G data for $40. A similar deal at Cricket provides 2.5GB of data. T-Mobile sells prepaid services under the MetroPCS brand, while AT&T has Cricket. AT&T acquired Leap Wireless and its Cricket brand for $1.2 billion in March 2014. Since then, AT&T has stepped up Cricket advertising while opening more retail stores. AT&T has expanded Cricket’s marketing reach through deals with Wal-Mart ( WMT ), Target ( TGT ) and GameStop ( GME ). T-Mobile acquired prepaid specialist MetroPCS in 2013 and has kept the brand alive. Both T-Mobile and AT&T, by coincidence, said they added 469,000 prepaid subscribers in the December quarter, while Verizon Communications ( VZ ) shed 157,000 and Sprint ( S ) lost 491,000. Some of Sprint’s prepaid subscribers upgraded to postpaid plans. On T-Mobile’s Q4 earnings conference call Feb. 10, CEO John Legere said that he expects the prepaid battle to heat up. “We’re killing it in prepaid,” Legere said. T-Mobile also sells prepaid services under the Boost Mobile and Virgin Mobile brands. “The majority of our growth is on MetroPCS, as opposed to our other brands,” Legere said. “Cricket has had some success, but AT&T is bleeding postpaid subscribers. We see MetroPCS’ main target not to be Cricket per se but to be Sprint. And I think you’ll see a lot more competition between MetroPCS and Sprint.” AT&T has lost postpaid phone subscribers for five quarters in a row, including 256,000 shed in Q4. Prepaid, Postpaid Wireless Lines Blur Marketing lines have blurred between the prepaid and postpaid customer segments, analysts say. Many prepaid plans renew automatically every month. Phone financing plans still lock in postpaid subscribers, though it’s easier for consumers to exit deals. “We’ve seen a shift in consumers from low-end, pay-as-you-go type (prepaid) plans to higher-quality plans,” Legere said. Prepaid plans start at around $25. America Movil ’s ( AMX ) TracFone subsidiary, with 25.6 million U.S. customers, focuses on the lower-spending part of the prepaid market. TracFone’s growth has stalled, though. Analysts say the prepaid market could be more important strategically if the U.S. economy slows down. Most economists do not forecast a recession in 2016. Some of T-Mobile’s postpaid subscriber growth has come from prepaid users converted to postpaid plans, with monthly installment plans for phone upgrades. Sprint in the second half of 2015 began adding postpaid phone subscribers for the first time in five years, including its Nextel brand. Some of Sprint’s prepaid subscribers also have migrated to postpaid plans. One concern among investors, said Oppenheimer analyst Tim Horan in a 2016 outlook research report, “remains that T-Mobile and Sprint are financing low-credit-quality customers and will get hurt in any potential economic weakness.” In Q4, T-Mobile reported “bad debt expense” of $228 million, up 52% from the year-earlier period. But Craig Moffett, an analyst at MoffettNathanson, says that worries could be overblown. “T-Mobile has never been able to fully shake the perception that its subscriber base is of lower credit quality than that of its peers,” said Moffett in a report. “Those customers would be hard hit in a recession. “The counter-argument is equally compelling. (It) holds that in a recession price sensitivity generally rises and that T-Mobile would actually benefit.” T-Mobile has gained share with its Uncarrier-branded marketing and price cutting. In November, T-Mobile launched “Binge On Demand,” which offers free video streaming. In Q4, T-Mobile added 917,000 postpaid phone subscribers. Verizon added 449,000, while Sprint added 366,000. In 2015, T-Mobile added 4.5 million postpaid subscribers, including about 1 million tablet users, and it added 1.3 million prepaid customers. AT&T lost 1.27 million postpaid phone subscribers, while gaining 1.36 million prepaid subscribers in 2015. “We expect AT&T will continue to be active with prepaid Cricket promotions while focusing on profitable, high-value customers in postpaid,” said UBS analyst John Hodulik in a report. Image provided by Shutterstock . Scalper1 News
Scalper1 News