Tech Talk: The Gap Between Prepaid And Postpaid Narrows

There are four national carriers providing end to end service for the United States of America: AT&T, Sprint, T-Mobile USA and Verizon Wireless. These carriers are often divided up between the bigger pair, AT&T and Verizon, and the smaller two, T-Mobile and Sprint. However, after the first quarter subscriber and business performance data has been released, it seems that we can now divide these four into the two carriers chasing prepaid customers - AT&T and T-Mobile USA - and those that don't, Sprint and Verizon. We have already seen how Verizon is effectively distancing themselves from the prepaid market and instead concentrating on what it assumes is the better quality end of the market. Sprint's prepaid business lost over a quarter of a million customers in the first quarter of 2016 and Verizon shed 177,000 subscribers: AT&T acquired half a million prepaid additions in America plus another 450,000 in Mexico. T-Mobile USA gained 807,000 prepaid subscribers.

Traditionally, the prepaid market has been viewed as a way to entice customers into using postpaid deals. Postpaid deals offered the customer more but appeared to cost less as they also came with the benefit of a subsidised handset, but as we have seen, the way that carriers and device manufacturers sell smartphones is changing. The harsh reality and one that many customers are oblivious to is that postpaid deals including a handset often cost more than the equivalent prepaid service. Sprint are alone in offering a traditional two-year plan with a subsidised handset: the other carriers are using "equipment instalment plans," whereby the customer pays the price for their 'phone typically over a two-year period. We have America's Uncarrier, T-Mobile USA, to thank us for this change! If the handset costs the same regardless of the tariff used, some customers are rediscovering that prepaid deals cost less per month than postpaid and are either sticking with prepaid or moving to this service. Price pressure within the industry is reducing postpaid tariffs and moving them closer to the narrow-margin prepaid deals: essentially, the carriers earn less with a prepaid deal compared with a postpaid contract. Industry analyst MoffettNathanson estimates that T-Mobile USA has a postpaid ARPU (average revenue per user) of $46.05 whereas the prepaid ARPU over the same period is $37.58. Three years ago, the postpaid ARPU was up at $54.07 and for prepaid, $35.96. MoffettNathanson's data suggests that Verizon's prepaid ARPU has risen from just $22.86 three years ago to $31.98: Verizon is losing prepaid customers but is earning more off of those remaining with the carrier.

Going forwards, Verizon appears set on concentrating on the higher revenue customers and is effectively ignoring the prepaid market. They understand that they're offering is not competitive and that the business is losing customers. AT&T and T-Mobile USA, meanwhile, are happy to acquire these customers. Sprint is perhaps the odd one out here, as it has dropped the focus on Sprint Prepaid plans but appears to instead be waiting for the relaunch of their Virgin brand later this year.

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