If you read this column regularly, you know that a major driver of Stateside demand for wholesale carriers stems from wireless demand. Even though the US wireless telecoms industry primarily operates on a post-usage, credit-based system, prepaid wireless revenues represent a high-growth segment of the market, complete with price wars and handset differentiation. Our latest study, Perspectives on Prepaid Wireless 2011-15, examines this portion of the industry that receives far less public attention than it deserves.
The first point that struck me is just how large this space has become. While headlines in the US have centred around smartphone handset wars (iPhone vs Android) and carrier wars for postpaid dominance (AT&T vs Verizon), the total number of prepaid subscribers has grown by leaps and bounds – crossing the 60 million subscriber mark last year and on a trajectory to reach 89.9 million by the close of 2015. There are now more prepaid subscribers in the US than there are people in the UK.
Interestingly, subscriber growth in this market will significantly outpace revenue growth. This discrepancy is underpinned by price wars between prepaid providers that have reached the mass markets – especially all-you-can eat plans at rock-bottom prices. In short, whereas postpaid battles are waged around performance, devices and also price, prepaid battles are being waged primarily around the price component itself. The net result? Prepaid wireless revenues in 2010 were $289 per user; in 2015, the pool of users will be much larger, but revenues per user will be $225. Clearly, competition in this space will be a game of scale. This is not to say that data and devices are irrelevant in the prepaid space, however. To the contrary, prepaid providers are beginning to aggressively pursue smartphones and tablets may not be far behind.
With margins shrinking, churn is becoming a key issue for prepaid providers. These companies are attempting to hold customers with longer-stay, lower-pay strategies (which adds pressure to price wars); and smartphones, including some capable of pulling from the various exploding app stores.
Selling to the still expanding prepaid mobile segment will take marketing creativity. Competition will remain tough as data-centric youth and family voice-centric adults become more valuable. The opportunity awaits those ready for the conquest of the monthly sale.
Judy Reed Smith is CEO of Atlantic-ACM. She can be contacted at: judyrsmith@atalntic-acm.com
