MetroPCS a Symptom of the Ailing Prepaid Space

MetroPCS this morning reported lower subscriber growth and increased churn in the fourth quarter as the cutthroat competition in the prepaid space continues to heat up. The company only added 317,000 customers, down 39 percent from the year-ago period. Unfortunately, MetroPCS — which added fuel to the fire today by rolling out aggressive new price plans — is only a symptom of a prepaid market whose health is very much in doubt.

The entire prepaid space saw explosive growth last year thanks to the plodding economy and plans that have become so attractive that even Stacey took the prepaid plunge. But the market has become a race to the bottom as operators like Straight Talk gain traction with bargain-basement all-you-can-eat plans, leading to a market where users happily switch service providers overnight to get the best deal.

The competition was underscored in the third quarter of 2009, when both MetroPCS and Leap Wireless saw growth slide as AT&T and Verizon Wireless increased their leads over the rest of the field. And the prepaid guys don’t have much to look forward to this year as Verizon, Sprint and others try to increase their share of the audience, according to a recent note from Pali Research:

Pre-paid was a big story for 2009, first enthralling investors and then severely disappointing them.  Yet its still represents only 20% of the industry subscribers and we expect that to grow to 23% of subscribers by the end of 2011.  Things could worsen in 2010…The question remains whether Boost grew the pre-paid market or merely took existing market share that is in the process of purging out of Metro and Leap. We believe it’s the latter and while new pricing and competitors could sustain industry pre-paid gross additions in the near term, we believe the underlying trend is in decline.

So it appears the prepaid space may be peaking unless we see a new player with even more attractive plans. That’s unlikely, though, given the razor-thins margins most players in the space are having to squeak by on.

Image courtesy Flickr user fourstarcashiernathan.

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