TracFone’s Unlimited Prepaid Competing against Virgin, Leap and MetroPCS

Implications: TracFone’s entry into unlimited plans indicates a crowded space for non-contract mobile customers and perhaps the end of rechargeable prepaid as a stand-alone service.

Analysis:

TracFone is advancing from rechargeable prepaid with the introduction of the new Net10 Plan at $80 monthly for unlimited calling and texting.  TracFone has the largest non-contract base of almost 10 million subscribers and the strongest presence in the major retailers of the U.S. market.  TracFone is even promoted at Circuit City despite Verizon’s exclusive for postpaid.  And Radio Shack advertises TracFone along side its contracted carrier offers of AT&T’s GoPhone and Sprint’s Boost prepaid.  Being owned by America Movil, TracFone has the scale to refurbish handsets and position a low priced SKU on retail displays.  But at an $11 ARPU, TracFone has to migrate from rechargeable prepaid to unlimited plans.  Virgin Mobile USA had introduced its $80 unlimited to bolster the $19.93 ARPU and lower the 5.1% churn during the first quarter.

The challenge is finding customers that can use a credit card but also willing to pay about $40 more per month than Leap Wireless and MetroPCS because of no credit check.  Leap Wireless aggressively complemented its rechargeable Jump prepaid with the unlimited pay-as-you-go Cricket plan.  Leap maintained the Jump offer for the youth segment without credit history.  A concern for TracFone is the wholesale pricing from the major carriers focused on high value, low churn postpaid customers.  Sprint Nextel still has about 13 million subscribers on prepaid or through resellers, and AT&T had prepaid net adds as high as 1.5 million for the last quarter of 2007.  But Verizon Wireless recently reported having only 2.9 million prepaid and 2.0 million reseller subscribers on its 68.7 million base.  Virgin Mobile USA has the MVNO approach of promoting peer communication and social networking.  TracFone as a traditional wireless reseller will need favorable wholesale pricing and a targeted market segment.