Boom times for prepaid cell phone operators

Prepaid wireless providers are scooping up subscribers as cash strapped consumers downgrade to lower cost cell phone service.

First quarter earnings reports from MetroPCS Communications and Leap Wireless on Thursday provided further evidence that consumers are flocking toward no-contract, unlimited prepaid services. These carriers, which operate primarily in smaller urban areas, each reported they had nearly doubled their subscription rate compared to a year ago.

MetroPCS said its new subscriber additions increase 51 percent compared to the same quarter a year earlier. In total it added 684,000 new subscribers, bringing its customer base to 6 million. This was the third quarter in a row in which the company had a record breaking increase in subscribers.

Leap Wireless, which sells its service under the Cricket brand, also had a big quarter, increasing subscribership by 40 percent compared to the same quarter a year earlier. In total, the company added 493,000 new customers, ending the quarter with 4.3 million wireless subscribers. A year ago, Leap ended the first quarter with 3.1 million customers.

MetroPCS increased revenue 20 percent to $795.3 million and posted earnings of $44 million.

Leap actually posted a wider first quarter loss, mostly due to the company's expansion into new markets, such as Chicago and Philadelphia. The company lost $47.4 million, or 74 cents a share, compared a loss of $16.9 million, or 28 cents a share, in the first quarter of 2008. Revenue increased 25 percent to $587 million.

All of this news comes just days after Sprint Nextel reported huge subscriber gains in its prepaid service from its subsidiary Boost Mobile. Boost added about 764,000 customers to its service.

What all three services have in common is that they offer low-cost, prepaid plans with all-you-can-eat voice, text messaging, and Web browsing. The Boost Unlimited service, which launched in January, costs only $50 a month. And MetroPCs's and Leap's services are in the same neighborhood.

Based on these strong subscriber numbers, it appears that consumers are looking for more affordable cell phone plans. This is likely a direct result of the ailing economy, which has resulted in high unemployment throughout the country.

While it's true that cell phone service has become essential for most Americans, that doesn't mean consumers are willing to pay a lot of money for it. And as finances tighten, people are looking to reduce their monthly expenses by finding cheaper options for phone service. Prepaid service plans, which allow customers to pay in advance for service without signing a contract, provide a good alternative. And now the low-cost unlimited plans make it an easy choice even for wireless subscribers that talk and text a lot.

MetroPCS and Leap Wireless have each been offering their low-cost prepaid unlimited plans for quite some time, but as these carriers move into bigger markets, such as Chicago, Philadelphia, and New York, they are putting pressure on other wireless operators to match or beat their prices.

Sprint's Boost was the first to answer that challenge with its $50 unlimited plan. Virgin Mobile followed with its own all-you-can-eat plan for $50 a month. And T-Mobile USA, owned by Deutsche Telekom, is also getting more aggressive with its prepaid cell phone plans.

The question now is whether the two biggest cell phone companies, AT&T and Verizon Wireless, which make millions of dollars in profits from postpaid subscribers, will also go after the prepaid market. And if they don't, will they slash prices on their postpaid contract service plans? AT&T is already rumored to be considering lowering the price of its iPhone service plan by $10 when the new iPhone comes out this summer.

[slacker15]

I'd be interested in the churn rates among these prepaid companies. Many customers of these prepay services complain of lackluster service, 0 tech support, and faulty phones. I wonder how many users switch for a few months and then go right back to a contract.

Great article though!

[terminalblue]

i know there churn is much higher BUT they dont lose money on subsidized phones, multi year contracts, credit checks, and infrastructure the same way most of the post paid companies do. there are no "free" prepaid phones, customers pay for them up front. No locking people into unfair contracts either means that even if those users leave one company for another, they can always come back without suffering huge deposits, and mostly likely they can use their existing equipment. without the companies "investing in the customer" they dont have to credit check the customer, saving them a huge chunk of money. And with only using the existing infrastructure, they do push cost down to the customer, but they will never have to build giant networks.

[chris_d]

How is that different from the postpaid experience? I can't tell the difference!

The verizon solution for any reception problem is get a new handset and sign a new 2-year contract. Yeah, I can't get reception so what would really be good is if I was locked into paying the service for another 2 years!

[jemiller0]

I want to know why cell phones don't just work the same way a normal land line does. i.e. Why can't I just be billed for the minutes I use at the end of the month? Because it's a sham, that's why. The phone companies want you to "buy minutes" you never even use and then they penalize you if you do use them and you go over. Also, a lot of the companies have eliminated the plans they used to offer that had few minutes. So, if you don't use a lot of minutes you still have to buy a lot because they don't over low minute plans. Gotta love the telecomms.

[Poshie232]

Prepaid cell phones are the answer to all problems. I canceled my contract and bought a Trafone which saves me over $30 every month. Tracfone is so much cheaper, they don't have any hidden charges like roaming or any daily fees. Now my land line is no longer necessary because I can make long distance and international calls for the same price as local calls. Even texts are cheaper, I was paying 20cets per text on contract but now I'm only paying 5 cents each. I will never go back to contract and I don't plan to change carriers either.

[chris_d]

There are a lot of good prepaid options out there. google 'the cell guru' and look at his prepaid comparison chart to find one that's right for you.

[startouch]

I LIVE IN NYC AND ALL MY FRIENDS ARE MOVING TO "METRO-PCS" AND ITS $40 MONTH "ALL YOU CAN EAT !!!!
NEXED MONTH ILL JOIN THEM . NO PEAK CRAP . I DO LOVE MY SPRINT PHONE (PALM) BUT $75 A MONTH NOT SO GOOD, WHEN I CAN CUT MY BILL IN HALF !!!!!!

[baconstang]

I've been using Virgin for over 4 years now. Service is fine and so it support. Sometimes I'm gone for weeks or months and can crank it up for that time and reduce it when I'm back in town and use my land line. @jemiller: check out their minimal plans, I think you can spend as little as $20 every 3 months.

[jofssie]

The major cell providers (AT&T, Verizon) should certainly wake up and get their act together. They are losing more and more customers first because of bad customer service and now because they are obviously not competitive with pricing.
I love the fact that the prepaid providers are stepping out and dropping the prices of their service and unlimited plans. Healthy competition will benefit the consumers. I still won't sign up for any unlimited plan because even at $50 it's too much to pay for my relatively low usage. I find the NET10 prepaid phone I use costs me about $15 a month. No need to spend more than that.
Btw @slacker: The customer support is one of the best I've dealt with, coverage is better than I used to get with the previous (major carrier) contract I had and they have decent phones at least, if no smart phones.

[jimlogas]

With the economy like it is, its no suprise were seeing this now.

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[bob61744]

Marguerite,

from your article above,
"The question now is whether the two biggest cell phone companies, AT&T and Verizon Wireless, which make millions of dollars in profits from postpaid subscribers, will also go after the prepaid market."

Verizon Wirelesshas a prepaid plan called Verizon Impulse.
AT&T has a prepaid plan called GoPhone.

You can find them online, or at a Wal-Mart(or Target) electronics department.

[cohaver]

After Dealing with ALTEL AT&T and Sprint contract services ,I moved to Boostmoblie.
Why no hidden fees no dealing with people that should not be in telecommunications services.
ALTEL AND AT&T tech support works like this you get sent not to central support systems but to stores that sell phones where you get person who is not all there in technology but a customer support clerk. Next time ask and you find im telling the truth. AT&T turned my phones off early because they wanted me to up a month early for another 2 year contract . I said no so they sent me bill for early termination $500.00 even after i paid for service to end of my contract 14 days on phone and talking to 25 people my bill was a check they mailed to me for 39 cents , Altel tried to sell me phones in which they knew they had no local exchange service after 60 days 50 people im hoping they can pull their head out sent the phones back with in 10 days of them mailing them to me. cost me 190.00 for that experience. Sprint all i can say is there phones were very bad 4 years ago and i went through 3 and microphone never worked right . So far im very happy with BOOST mobile flat 50.00 for unlimited calling, web ,walkies and message service and i bought my phone up front so no hidden contract fees and if i don't like them i can cancel
Finally the customer in charge again

[PrepaidWirelessGuy]

Postpaid is not only on a decline but this is a prelude to its death. It takes no more than to look abroad to at countries where prepaid is the predominant choice. Carriers focusing on evolving their prepaid plans are wise or risk being left behind.
http://www.prepaid-wireless-guide.com/postpaid-wireless-demise.html

[question4seller]

Verizon has the best coverage but they lock out the features, plans are too expensive, and they nickle and dime you for everything, not to mention that they add such thing called surcharges which meanse that they can charge you an additional 45% on top of your plan. Read it it's in your verizon contract. And no those are not taxes just some made up verizon fees which are made to look like taxes.

ATT has sub-par coverage and the only reason they are doing well is because of the iphone. They're cust. service is pretty bad too and their plans are too expensive.

Tmobile has the best cust. service and descent to sub-par coverage and the cheapest plans as of now but ive read that they're going to increase their rates.

Sprint is the absolute worst, they continue to screw their customers over and over. Just read the nightmares on the net from previous sprint customers. Their coverage is descent in some areas to bad in others and they have the very worst customer service period. Sprint family plans are a sham no way even competitive with Tmobile family plans and sprint is much worst rated than tmobile. Sprint is also loosing customers every quater by the hundreds of thousands...

I say if you want to save money just go for the prepaid boost/ or metro pcs for under $50 a month with unlimited everything. I cant wait for my contract to be up so that i can stop overpaying.

[Fall011]

It's true, the economy is bad! But you dont have to disconnect because of that. I would recommend purchasing a prepaid cell phone instead of dropping your phone completely. It is well worth it. You purchase the phone and minutes as you go along and never have to worry about not having enough minutes, or going over your minutes. It's a great deal. Net10 , TracFone , Virgin , etc. are sold at KMart for cheap prices and the refill cards are well worth the purchase. I would recommend this idea to anyone who is in need of a cheaper communication plan.

[yhicr]

To me, Net 10 is the best because it's only 10¢ a minute and a nickel for texts. International calls are an unbelievable 5¢ a minute. Awesome!