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Jim Patterson, Founder/CEO, Mobile Symmetry: In 2012 we may see “the end of the post-paid market as we know it.”

May 11, 2011

Another HUMONGOUS PREPAID prediction!

Jim Patterson, CEO and co-founder of Mobile Symmetry, and former President of Wholesale Services for Sprint, yesterday wrote a blockbuster article, “Reality Check: Is 2011 the year of prepaid?” that gives us ANOTHER voice predicting the impending end of contract (“postpaid”) cell service.

He begins his article with (red highlights are mine):

“This time, it’s for real.”  If I have heard that phrase once, I’ve heard it a thousand times this week to describe how the prepaid carriers are going to take over the low end of the wireless market.  I wrote about the role of pre-paid carriers and did a fairly detailed analysis of the economics a little less than a year ago.  The economics certainly make sense at the individual (and, in the case of MetroPCS Communications Inc., at the family) level.

But can the prepaid carriers (in this case, Wal-Mart/Tracfone Wireless Inc., MetroPCS, Leap Wireless International Inc./Cricket Communications Inc., and the divisions of T-Mobile USA Inc. and Sprint Nextel Corp.) really make an impact for the entire year?  Can they hold on to gains made in a particular quarter (usually the fourth or the first) through subsequent quarters?  And, with handset availability being driven to new heights (MetroPCS now carriers a Samsung Electronics Co. Ltd. Galaxy handset for $299), and the Chinese vendors more than willing to develop Android handsets for double-digit retail (subsidized) price points, can this part of the wireless industry really shine?

The short answer is no. 2011 is a set-up, not a breakout year. 2012 is – “for real!”

He notes the significant growth of prepaid last year – “almost two-times post-paid”:

The most important thing about the prepaid segment is that it’s growing.  Sprint Nextel added 2.1 million net prepaid subscribers in the past year; MetroPCS 1.6 million; T-Mobile USA 670,000; and Leap just over 500,000.  Wal-Mart, which usually counts in the carrier wholesale/reseller figures, added at least 2 million customers in the past year.  With Wal-Mart, it looks like 6.9 million prepaid net additions in the past year, versus 3.6 million postpaid. Bottom line: Lots of growth, almost two-times post-paid.”

And he touched on the increase in revenue per user and profitability, pointing out that, “Average revenue per user … is steady to growing for each carrier as smartphones become a larger part of the sales mix.”

Then Jim maps out the industry’s looming upgrade to smartphones, which is where the real excitement begins:

“The four prepaid providers plus Wal-Mart have about 46 million subscribers, and about half of them will be upgrading to a new device (likely Android) this year.  That’s 23 million total new devices sold in the prepaid channel, and 12 million of those are Android smartphones. AT&T Mobility and Verizon Wireless have 152 million postpaid retail subscribers, and half of them will be out of contract this year.  Judging from the latest reports, about two-thirds of the base that is upgrade eligible will upgrade to a smartphone.”

His “46 million” prepaid number sounds low, or sounds like a number for 2010, but we win either way:  if the number is ONLY at 46M, that’s more market share switching soon for us to take!  And he’s predicting half of prepaid users “will be upgrading to a new device (likely Android) this year.”  That’s incredible and right in line with our strategy.

He follows that with, “Two years ago, the thought of having a postpaid smartphone for free was preposterous.  Now you can go to T-Mobile USA and get a Samsung Fascinate with a 1 Ghz processor or a BlackBerry Bold for free …  We saw similar offers on the Verizon Wireless Droid product line through Wal-Mart.com in December.  Is it impossible to think about a $49 Android smartphone from MetroPCS or Leap with a decent (600 MHz or 800 Mhz) processor for December?  How about a 4G model for $199 in 2012?”  Again, that is LightYear’s exact strategy, to offer a great selection of Android smartphones at a lower price, and then lock up customers with an unbeatable data plan.

“If the consideration is a $199 premium smartphone from Verizon Wireless or Sprint Nextel vs. a $199 1 Ghz smartphone from MetroPCS, will the decision be difficult for an individual user?  Bottom line:  The closer the “walk out costs” converge between postpaid and prepaid offerings, the higher the probability of success for the prepaid providers.”

I personally think Sprint has already prepared for this, as LightYear this month adds the Sprint fone lineup to the LightYear store!  This will be a revolutionary step that will catapult our growth.

Jim ends his article by saying, “… until 2012, we have the year of Android.  2012 could be a “dual year” with both Apple products and LTE. That “two-fer” could spell the end of the post-paid market as we know it.”

Echoing my predictions beautifully …
JC


http://www.rcrwireless.com/article/20110510/REALITY_CHECK/110509929/-1/

Reality Check: Is 2011 the year of prepaid?
May 10 2011 – 6:00 am ET | Jim Patterson, founder and CEO, Mobile Symmetry | RCR Wireless News

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