Playing for Keeps

US carriers gear up for a potential subscriber shift

In the US, the market for mobile connectivity is made up primarily of post-paid services, with high average revenue per user and low churn rates. It’s an envious place to be in the world of telecom operators. However, one in four subscribers in the US rely on prepaid plans, and now, given the economic uncertainty, the largest carriers in the country are adjusting for a possible shift in consumer preferences from post-paid to prepaid plans. Carriers are introducing ways to increase the number of prepaid customers and create more loyalty.

The prepaid service market in the US was changing even before the pandemic started, largely as a direct consequence of the merger between T-Mobile and Sprint. T-Mobile gave its MetroPCS sub-brand a makeover, rebranding it as Metro by T-Mobile and proudly associating its name with its prepaid appendage. Sprint’s sub-brand Boost has officially become part of Dish Network, a company that provides broadcast satellite services and owns the Sling streaming platform. Earlier in 2020, Sprint folded its Virgin Mobile business into Boost, meaning that Dish Network is getting the subscribers of Boost and Virgin Mobile. Dish Network, running as a virtual carrier, is the new kid on the wireless block.

T-Mobile, thanks to its Metro sub-brand, is the largest player in the US mobile prepaid market, with more than 21 million lines. It’s closely followed by TracFone Wireless, owned by Mexico-based America Movil. TracFone operates as a virtual carrier, selling its services through 11 different wireless brands including Straight Talk and Walmart Family Mobile, which was a T-Mobile sub-brand that TracFone bought a few years ago. The US prepaid market has been evolving in all sorts of ways, and it continues to do so.

Last month, AT&T and Verizon both launched new prepaid pricing strategies to fight churn, rewarding customers who stick with the carriers longer.

AT&T introduced a multi-month prepaid plan, providing subscribers with 8GB of data per month, as well as unlimited calls and texts for $99 for a three-month period. This brings the monthly cost to $33 — 34% lower than its regular monthly prepaid pricing of $50 for the same plan.

Verizon also rolled out a new prepaid pricing scheme, with several discounts that kick in as subscribers stay longer. Verizon Prepaid gives customers a $5 discount after three months of prepaid service and $10 after nine months. Customers who set up a recurring automatic payment for their bill can get an additional $5 off their monthly cost.

A few years ago, Verizon launched a sub-brand of its own, called Visible, competing against T-Mobile’s Metro and AT&T’s Cricket. Visible was launched at a monthly price of $40 with unlimited data, calls and texts. Late in 2019, Visible introduced a pricing scheme called Party Pay, offering a $5 monthly discount for each new line associated with an account — the number of users in a “party” is limited to four. With Party Pay, each subscriber in a group is responsible for paying their own bill. It’s an interesting way to create a viral effect, banding friends and sometimes even strangers together to a common service.

Prepaid services in the US have typically attracted customers who don’t want to spend a lot of money or who are looking for a simple device for emergencies, generating a low average spending. These services have also drawn many people who sign up for a month of service, for example, tourists and nefarious users looking for throwaway phones.

Although the post-paid wireless market is still the cash cow for AT&T, T-Mobile and Verizon, all three are readying for a change in the mobile world. As unemployment rates in the US reach lifetime highs, and with no guarantees of a quick economic turnaround, these carriers are running what-if scenarios. One question they should ask themselves is “What if the US wireless market evolves during the coming years to look more like that of Germany, where 40% of mobile subscribers choose prepaid?”.

US carriers are looking at ways to play the prepaid game for keeps, holding onto subscribers as a reliable revenue stream.