Pre-Paid Price Wars Call For Consolidation; Who’s Next?

The recent introduction of a $45 unlimited calling and texting plan by Tracfone Wireless has kicked off another round of price wars in the wireless industry, which may lead to consolidation in the pre-paid market, Dow Jones Newswires reports.

In recent months, pre-paid offerings have gotten more popular as they have become cheaper and don’t require a credit check or lengthy service contract. Likewise, carriers have looked to them as a way to lure subscribers away from each other with really aggressive offerings. This has gotten more important as the pool of people without cellphones has dwindled in the U.S. But with prices falling and margins deteriorating, analysts question whether these companies can continue to be profitable and how long they can stand on their own?

Tracfone’s Straight Talk, which runs on the Verizon Wireless (NYSE: VZ) network, competes directly with other pre-paid players such as Sprint’s Boost Mobile, Leap Wireless International, MetroPCS Communications and Virgin Mobile USA (NYSE: VM). The $45 Tracfone offering is five dollars cheaper than Sprint’s pre-paid service Boost Mobile’s unlimited $50 offer, which became so popular this year that Sprint (NYSE: S) had to increase the network’s text-messaging capacity to handy the spike in volumes.

The players say that they aren’t just competing on price and are better for one reason or another — wider selection of phones, or specialty offerings, such as MetroPCS’s $5 international calling plan.

Tracfone is considered the largest pre-paid provider with roughly 12 million customers, but still questions remain as to whether they can make money off of its new plan. “We doubt it,” said William Power, an analyst at Robert W. Baird. The severe competition may just lead to consolidation. Last year, Virgin bought Helio Amp’d Mobile to beef up its higher-end pre-paid offerings. But after that, the two most likely candidates are MetroPCS and Leap, which both cover regional territories, and have been rumored to be in and out of talks for years. But who knows?