Virgin Mobile faces stiff competition

Correction: Virgin Mobile began selling its $50 unlimited plan in April after the first quarter had ended.

Competition in the prepaid cell phone market is heating up, making it more difficult for companies, like Virgin Mobile USA, to hold onto subscribers in an increasingly crowded market.

Virgin Mobile USA, a longtime player in the prepaid cell phone market, reported Monday it had lost a total of 133,292 net customers during the quarter to end the period with 5.2 million subscribers. Even though subscribers were up 2.8 percent compared with last year, the company's losses during the quarter point to growing competition in the prepaid market.

The market appears to be especially competitive when it comes to flat-rate, contract-free wireless services. Regional players Leap Wireless International and MetroPCS, which have long offered cheap flat-rate services, reported strong subscriber growth during the first quarter, as they each expanded into new markets. And Sprint Nextel's Boost Mobile, which began offering its $50 unlimited plan in January, also added about 764,000 new subscribers in the first quarter.

Virgin Mobile, which had been successful in the past selling pay-as-you-go service in the U.S. market, lowered the price of its all-you-can-eat plan in April to $50 a month, as well. The company also launched the Pink Slip Protection program, which offers customers who have lost their jobs free service for three months.

Virgin Mobile has managed to improve its churn rate, or the rate at which subscribers leave its service. The company reported that its churn fell to 4.8 percent from 5.1 percent during the same period a year ago.

The company sees the $50 flat-rate plans and other "hybrid" plans, which offer a set number of minutes at a standard price without a contract, as its growth engine for the future. Chief Executive Dan Schulman said that 55 percent of the gross customer additions during the quarter came from "hybrid" plans, according to the Wall Street Journal.

This makes sense given that consumers say they are considering prepaid cell phone services as a way to reduce costs and avoid lengthy carrier contracts.