Die, contracts! Surges in prepaid cell phone use

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For the first time in the US mobile industry, contract customers fell.

Whether we like it or not, my wife and I have recently become statistics. About eight weeks ago we returned to California after spending two years in Germany. We had a T-Mobile USA contract suspended while we were away and were probably going to reactivate it on our unlocked iPhones when we returned. But knowing that we would only get EDGE speeds on our phones in the US, it didn’t seem like it was worth paying well over $ 100 for two phones per month.

So we took the leap, becoming two more of the many Americans who have recently made the switch from postpaid to prepaid.

New industry data released in May shows U.S. mobile carriers have been hit by the First time net drop in flat-rate subscriptions (“postpaid”), ie a loss of 52,000 subscribers. And the number of contract-less (“prepaid”) mobile customers has reached record highs, now accounting for around 25% of all mobile phone users in America.

“While a data point is not trending, we are approaching the top of the curve where new traditional postpaid subscribers will be hard to find,” wrote Chetan Sharma, mobile industry analyst, in his report from The First quarter 2012. “Newly created prepaid subscriptions may revert to postpaid subscriptions. Change is correlated with economic hardship. The majority of new subscribers will come from connected devices, as we have been saying for the past few years. “

What 25 percent of US mobile phone customers? Sharma told Ars that it pales in comparison to most other parts of the world. Western Europe is around 70 percent prepaid. China, India and Africa reach 70, 95 and 99 percent respectively.

But the US mobile industry is at a crossroads. It is becoming increasingly difficult for businesses to attract new customers: 110% of US residents already own a cell phone. There are more cell phones that people.

However, the industry is still growing. “Connected devices” refers to entities that use a mobile network, but are not traditional phones: your iPad, Galaxy Tab, or other tablet-like device. Sharma’s report shows that this segment of the mobile market grew 23 percent even as prepaid mobile service grew 15 percent (both exceeding postpaid growth, which only increased 1 percent). And while Verizon remains the nation’s leading postpaid operator, AT&T leads the pack in providing data to connected devices, and Sprint leads with prepaid customers. Data now represents 85% of all mobile traffic in the United States.

In other words, we all want more service on more devices. But we also want to save more money while doing it, and that may mean moving towards prepaid services.

Dan Hesse, CEO of Sprint, oversaw the rise of prepaid customers.
Enlarge / Dan Hesse, CEO of Sprint, oversaw the rise of prepaid customers.

As postpaid declines, carriers are adapting

Operators across the United States are aware that customer habits are changing – AT&T and Verizon have both said they are working on data plans that are shared between multiple users and devices. This month, AT&T announced that data-only plans would arrive in two years.

“The main advantage is that you can then tailor your usage to suit your fabric, so to speak,” said Windsor Holden, analyst at Juniper Research. “It can be considerably cheaper and the competition for prepaid services is increasing. “

Many new mobile virtual network operators (MVNOs) are now launched. These are companies that lease spectrum and towers to the Big Four. There’s Ting (which some Ars readers have already discovered) running on Sprint’s network, as well as payLo (Virgin’s new brand, also on Sprint), which hit the market on May 21. Verizon, meanwhile, announced its $ 80 All Unlimited plan late last month. T-Mobile just announced a slew of monthly prepaid portable data options. Hell, some analysts even expect Apple to launch a prepaid version of the iPhone 3GS – Cricket did so late last month, except with the iPhone 4 and 4S.

Sprint was one of the innovators in this area, probably because it was the big player facing the biggest problems as a company. Indeed, with the new Sprint offerings being resold by Virgin, Boost and now Voyager, the company appears poised to take advantage of the surge in the prepaid market.

“Most countries around the world don’t live on contracts anyway, and that was the only place we were going to be able to grow up,” Jayne Wallace, spokesperson for Sprint, told Ars.

She added that historically prepaid phones have been “crap”. Sometimes it was difficult to sell this service, especially when there were better devices available on postpaid plans.

“From a marketing standpoint, we would use the term ‘no contract’ rather than ‘prepaid’. It has a negative connotation with people, ”Wallace noted. But giving up on a contract and convincing your friends and family to follow suit always poses challenges that aren’t found in other markets.

American consumers are increasingly demanding of the handset and the operator.
Enlarge / American consumers are increasingly demanding of the handset and the operator.


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