Consumers Not Carriers Benefiting From Prepaid Price Wars
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As the price of prepaid continues to come down, operators are starting to feel the burden, but not consumers who appear to be jumping from one provider to the next to get some of the cheapest wireless deals in history.
Overall, the discount operators are struggling, mostly because they are forced to slash prices to compete, only then to see their margins erode. MetroPCS and Leap Wireless were both able to add about 200,000 net customers during the second quarter, and on Monday, we’ll find out how Virgin Mobile USA (NYSE: VM) performed. So far, the big winner at this game was Sprint’s Boost Mobile, which gained about 930,000 customers in the quarter based on its $50 unlimited offering.
Sprint’s CEO Dan Hesse told the AP yesterday that it isn’t losing its higher margin contract customers to the cheaper offering. He said only “a low single-digit percentage” of new prepaid customers are coming over from Sprint’s contract plans.
In the near-term, competition isn’t likely to decrease, even though Sprint (NYSE: S) has agreed to acquire Virgin Mobile USA. Walter Piecyk of Pali Research called MetroPCS’s results “ugly,” and Mike McCormack, an analyst with JPMorgan, wrote that “disappointing” results for MetroPCS may continue as competition continues to put pressure on subscriber growth, reports the NYTimes. Rough waters ahead also led Leap to lower its expectations for subscriber gains for the year. Leap CEO Doug Hutcheson told WSJ in an interview the adjusted forecast reflected the “turmoil” in the industry.
Posted In: Companies, Sprint, Virgin, Virgin Mobile
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