Selling Prepaid without hurting Total Churn and ARPU Ratios

Implications: AT&T’s enhanced GoPhone prepaid offering will target the following problems: 1) Improve the Total Churn Ratio by increasing the prepaid lifespan; 2) Increase prepaid revenue to not detract from the quarterly subscriber ARPU; 3) Sell higher priced devices and lower the acquisition cost.

Analysis: AT&T’s challenge with prepaid is to not hurt the quarterly performance metrics compared to Verizon Wireless.  For the past year, AT&T’s net additions, churn, voice and data ARPU have lagged the Verizon results.  Last quarter, AT&T had a total churn of 1.7% and postpaid churn of 1.3% compared to Verizon with a total churn of 1.08% and postpaid churn of 0.9%.  AT&T’s ARPU was $49.21 whereas Verizon attained $50.73. More significantly, Verizon had data ARPU of $8.95 versus AT&T at $7.88.
With the rollover feature now being offered with prepaid, AT&T can increase the prepaid lifespan and reduce the negative impact on the total churn ratio.  Adding messaging and data to prepaid should bolster the ARPU as well as impact the data ARPU metric.  And data features in prepaid will attract end users willing to pay a higher price for a slim device with an enhanced screen and keypad.  By promoting prepaid data, AT&T lowers its acquisition cost and improves the revenue performance to more closely match postpaid metrics.