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NMRC: “25 Million U.S. Consumers Set To Switch To Prepaid Wireless In Next 6 Months.”

December 31, 2010

The Mass Exodus: The Shift From Contract To Prepaid Wireless

To me, the mass exodus of the American population from contract cell plans, IOW (in other words) the switch to prepaid, is imminent and the evidence is overwhelming.  However, I’ve recently had some doubters question whether this was really going to happen, and they point to some predictions that estimate only a small fraction of people will switch over the next few years.  To them, I’m happy to share the following blockbuster news.

The New Millennium Research Council has 3 PDFs on the front page of its website, all filled with an avalanche of data exposing the trend.  The quotes below all come from those documents.  Bolding and red highlights are mine.

In March 2009, NMRC was the first to correctly forecast an imminent shift by cell phone consumers from more expensive contract-based cell phone service with often hefty cancellation penalties to less expensive no-contract prepaid service.  In March of this year, NMRC reported that – for the first quarter ever — the number of new prepaid wireless phone customers in U.S. eclipsed the number of new contract-based phone customers during the final three months of 2009.

The headline on the NMRC Nov. 4, 2010 press release:  “Survey:  25 Million Penny-Pinching U.S. Consumers Set To Switch To No-Contract/Prepaid Wireless In Next Six Months.”  Let’s do the math:  25 Million ÷ 6 months = 4 Million people each month switching to prepaid!  Granted, that’s a small fraction of all wireless users, but it’s a HUGE jump from the current one million a month that are switching, and it’s an amazingly (alarmingly) fast increase.

Sam Simon, senior fellow, New Millennium Research Council, said:  “Even without the need to pinch pennies during the current economic downturn, consumers are clearly fed up with the high prices of contract-based cell phone service and the gouging that goes on with early-termination fees (ETF).”

Also from the Nov. NMRC press release:  47% (nearly half) of U.S. contract cell users are “‘very likely’ (23%) or ‘somewhat likely’ (24%) to switch” to prepaid when their ETF period ends.  Of customers with contracts who “are unlikely to switch to prepaid service in the next six months“: 56% are “very or somewhat open to switching to a prepaid cell plan at some point in the future, but not planning to do so now.”

To summarize the numbers, that’s half who are very likely or somewhat likely to switch, and of the remaining half, half of them are open to switching at some point in the future.  That covers MOST of the remaining contract users.

Sam Simon called 2011 “The Year of the Prepaid Cell Phone Consumer.”

we may have actually underestimated just how quickly this trend would catch on.

As the prepaid space offers new pricing, better phones, national coverage, … the trend away from [contracts] will accelerate as never before.

[This] is starting to look an awful lot like what happened in long-distance service 20-25 years ago. People once scoffed at the notion that consumers would ever pull the plug on Ma Bell and go over to an upstart competitor.”

That story goes perfectly with Verizon’s announcement a few weeks ago that its prepaid rates were reluctantly being cut in half.

In the third quarter Verizon lost 137,000 prepaid voice subscribers.”

The fact that it (Verizon) restricts its available handsets with its [prepaid] plans is a clear indication that it’s preventing any possible cannibalization from customers in higher-end plans.”

The prepaid sector continues to gather speed

At the launch of LightYear Wireless in 2008, LightYear Founder & CEO Sherm Henderson said:

This wireless project is bigger than anyone can imagine.  I have been in the telecommunications industry for 20 years and have watched consumers evolve from using a stationary, land line telephone to cutting the cord and going wireless.  Wireless communications has become the number one choice for making phone calls and will soon become the way everyone accesses the Internet.”

Today, 84% of all consumers already have a cell phone [now it’s 99%].  That means the big companies will be aggressively marketing to each other’s customers to gain more market share.  We have the perfect vehicle to gather customers in that environment. Everyone we know has a mobile phone yet none of us currently get paid when someone else – a family member, friend, neighbor – pays their mobile phone bill.  Now we will.  With over 254 million customers [now 292 million] using wireless today, if we just get 1% of those customers to choose Lightyear, that’s 2.5 million customers.  With an average bill of $60 per month, we will be a $150M per-month or $1.8B per-year company.  And that’s just with a 1% market share!

Every person with a pulse will be jumping at this opportunity.  In 1993, Lightyear gave hundreds of people the same opportunity in the long distance industry, to get paid on everyone’s long distance bill.  The average bill was $20 per month and many became extremely wealthy.  Now, the average customer spends at least $60 per month on wireless bills and the business is a lot bigger than it was in 1993.  Surely, there will be a lot of people making a ton of money!

What an amazing time to be able to get a piece of this pie …

Happy New Year!


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