Verizon Is Testing Prepay Service Via Exclusive Dealers

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America’s largest carrier, Verizon Wireless, has confirmed that it is selling prepay devices and service plans through a small number of exclusive dealers. A Verizon spokesperson and communications director, Kelly Crummey, explained that the carrier is “currently testing out a new concept with exclusive prepaid dealers.” Crummey’s statement confirms a recent report from Wave7 Research, where the market research company explained that the company has launched a small number of dedicated prepay stores. To date there are five such stores managed by wireless dealer, My Peak Wireless, and the oldest two in Las Vegas opened in mid December. There are two more in or around Phoenix and another one in Socorro, Texas. Verizon Wireless are believed to be working on opening a similar store in the New York area. Crummey explained the company employees “are always looking for ways to increase our prepaid market share.”

Verizon Wireless has relatively recently improved its prepay offerings and has increased its supporting advertising spend since May 2016. This represents a significant U-turn with regard to how it treats prepay customers. This time last year the company did not consider itself directly interested in the prepay market and this was reflected in its numbers: for the fourth quarter of 2015, Verizon Wireless reported a fall of 188,000 net prepay customers, which reduced slightly to 177,000 for the first quarter 2016. At the time, Fran Shammo, Verizon’s former Chief Financial Officer, explained that Verizon were using TracFone as their prepay product thanks to their mobile virtual network operator contract with South American telecom operator, America Movil. In the Q3 2016 results, Shammo explained the carrier has seen “some shift” from customers moving from postpay to prepay, but the business was content that the customer stayed with them.

The original reason why Verizon was shying away from prepay customers is because these plans traditionally provided less ARPU (average revenue per user) for the carrier, which ultimately results in smaller profits. However, owing to the intense competition between the four national US carriers, this has squeezed ARPUs for postpay plans lower such that the gap between a prepay and postpay plan is now much closer. As such, in the last year there is much less of a financial penalty associated in acquiring a prepay customer compared with a postpay customer. Verizon’s new strategy of using a dedicated prepay deal arrangement could yield good results for the carrier as it improves on its prepay offerings. For the third quarter 2016 the company announced it had gained 83,000 prepay customers, and fourth quarter results are due out before the end of the month.