Summary
Regardless of the toxic economy, the wireless market was already shifting to prepaid and I saw this shift coming a few years back. Even when the economy recovers, while prepaid might not have the enormous growth it is currently having, prepaid will be the driving force of wireless for many reasons.
Analysis
Regardless of the toxic economy, the wireless market was already shifting to prepaid and I saw this shift coming a few years back. Even when the economy recovers, while prepaid might not have the enormous growth it is currently having, prepaid will be the driving force of wireless for many reasons.
In my opinion, in no particular order, some of the main reasons for this drive from postpaid to prepaid are:
1) Obviously the toxic economy which affects consumer spending, along with many people who had a decent credit rating, now having a poor credit rating.
2) At 80% or higher in some markets, postpaid is saturated.
3) People are fed up with contracts and credit checks, although postpaid carriers must do this to recover their phone subsidies and investment.
4) Many subscribers are fed up with tracking their overcall voice minutes and data volumes calls and want to keep it simple.
5) These same subscribers are fed up with overcall charges and fees that run up their wireless invoices way over the monthly rate.
6) Despite what industry experts and carriers state, most subscribers today do not travel all that far and do not need the nationwide coverage that postpaid carriers offer. If some of these subscribers must have nationwide coverage that is better than Metro PCS and Leap, they now have the option of Boost's IDEN nationwide coverage. While it might not equal the two giant’s coverage - Verizon and AT&T, it is nonetheless more than adequate for most.
Since all of the major carriers continue to offer more at the same price or less and since they are all "tweaking" their prepaid plans and will continue to do so, I truly believe we are going to continue to head towards mostly prepaid subscribers. It might take years, even a decade or more before we see most postpaid subscribers on prepaid, but it will happen. When the economy recovers, postpaid might pick up somewhat, but it will never be the model it once was for obvious reasons.
One other issue I would like to clear up that most articles fail to portray accurately between postpaid and prepaid is the alleged "Free Phone" offered by postpaid carriers. Most of the wireless phones activated by postpaid carriers are the so called "Free Phone". The average carrier subsidy is approximately $100 on a "Free Phone" to a new subscriber or one that signs another two-year agreement. Since it is postpaid, the subscriber is billed for their service in arrears. They are billed for the 1st month of service, an average $36 activation fee and in many cases, a pro rate on service to put them into a billing period. In most cases this averages approximately just under $100.
Prepaid carriers Metro PCS, Leap and Boost charge for their phones at point of sale. Instead of listing their constantly changing promos, simply using the standard pricing, the average low end phone model price they charge a subscriber is approximately $80. But their new subscribers receive a FREE first month service and FREE activation. Most of my subscribers take the $45 plan with Metro PCS and obviously the $50 Boost unlimited plan. Doing the math, this translates into under $100 of "freebies" to new subscribers of Metro, Leap and Boost.
Therefore on low end phones, the start-up cost to the subsriber on low end phones for postpaid and prepaid subscriber is about the same. The only difference is that postpaid subscribers pay on the back end for the service and activation, whereas prepaid subscribers pay on the front end for the phone, but receive the first month and activation free.
