Summary
Competition is good. Competition is also bad; usually for the early entrants.
Analysis
In early 2009 there were those who doubted the wisdom of prepaid. These same individuals also doubted Sprint Nextel’s, AT&T’s, and Verizon’s wisdom of entering the prepaid sector so aggressively. These same individuals doubted any carrier’s ability to effectively compete against Leap and MetroPCS; even going so far as saying that Leap and MetroPCS would suffer no ill effects. Boy, talk about being wrong.
As important as pricing is, the next couple of quarters will be less about pricing and more about services then pricing.
Carriers are going to need to answer the question: “What do I get for the money I am paying?”
Eventually everything becomes a pricing issue because eventually all carriers provide the same services. However, once they reach that level playing field of services, the carriers use pricing. After they mine the value out of pricing, the carriers launch new services. Once new services are launched, sufficient efficiencies have been developed to lower overall costs to the carrier. Telecom is about change and renewal. It is a vicious cycle.
I make no secret of it; I am a huge supporter of prepaid services – there is value to the consumer. As I have said many times in my own blog, prepaid will be key to the success of high end mobile media programming. Soon, the carriers will be focusing on new types of prepaid services. I doubt Leap and MetroPCS can maintain a defensive strategy against AT&T, Verizon, and Sprint Nextel for more than another 12 months. Think deep pockets versus big deep pockets. The best way for Leap and MetroPCS to survive this marketplace is to merge. If the two companies don’t do something soon; things are going to get much worse for the both of them.
P.J. Louis consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
