Migration From Postpaid to Prepaid Slowing

In my previous blog, I provided some early insights into the postpaid wireless landscape via data my firm was crunching for “U.S. Telecom Wired and Wireless Sizing and Share: 2011-2016," the latest edition of our market sizing and opportunity study. The overall market picture shows continued growth for prepaid, but at an increasingly slower rate year over year: 

Prepaid growth will come, to some degree, at the expense of postpaid revenues. During the economic downturn, the lower costs and limited commitments of prepaid wireless has been appealing to customers facing economic challenges. This trend will continue, but years have passed since the economic downturn began and any customers bound by contracts have had opportunities to change to prepaid plans. Hence, while many consumers still face financial hardships, and there will continue to be prepaid migration, it likely will not be as dramatic as it was over the past several years.

A major factor that will drive up prepaid ARPU in coming years will be the continued growth of data plans among prepaid users. The smart phone penetration rate among prepaid users lags well behind that of postpaid users, and thus, so does data consumption. This is changing over time, and, as more prepaid customers find value in larger data plans, marketwide prepaid data ARPU will continue to climb.

It is worth noting, however, that while the number of devices on prepaid will continue to grow, as will the data consumption per user, overall revenue will not keep pace due to price competition. Prepaid providers continue to constantly undercut one another in pricing, and many offer lower-cost plans that have limited voice, or other unique offerings. While these may be great for certain segments of the public, they still result in lower ARPU for the providers. Continued price pressure will keep the overall prepaid revenue growth from reflecting larger growth in devices and consumption.

Overall, the prepaid market is in a fairly good position, with the only threat to success being the aggressive price competition between providers. There always will be price-centric prepaid customers to be gained by offering lower-priced plans, but as the market continues to become more refined, service and handsets will play increasingly significant roles.

Fedor Smith is president of ATLANTIC-ACM, a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools.