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MetroPCS a Symptom of the Ailing Prepaid Space

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MetroPCS (s pcs) 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 (s leap) saw growth slide as AT&T (s t) and Verizon Wireless (s vz) 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 (s vz), Sprint (s s) 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.

11 Responses to “MetroPCS a Symptom of the Ailing Prepaid Space”

  1. Quite odd that they are losing customers in a time when all the other prepaid providers are adding customers. There must be something else wrong. MAybe their spotty coverage? I hear one of my friends complain about it all the time and he’s got MEtro.
    I use NET10 prepaid which is much better anyway. No dropped calls, no delayed texts. They have much better handsets than MEtro and lower texting rates which is great!

  2. Prepaid is really fantastic, Its no guess why prepaid is doing so well with companies like Straight Talk. Not only does Straight Talk offer the $45 monthly unlimited but they also have all you need $30 monthly, giving you 1000 minutes, 1000 messages and 30mb data. Now thats enough for me for every month and just think about how much that saves you in comparison to any contract.

  3. Kimberly

    In terms of the prepaid market, I had wonderful luck with Walmart’s Straight Talk line. I heard a lot of mixed reviews concerning other prepaid carriers like MetroPCS (in terms of service and calling area) and happily Straight Talk has given me no reason to complain. The best advantage of Straight Talk is the plans, paticularly the $45 month unlimited plan – including data, calls, and texting. While other companies might offer such a plan, Straight Talk’s Verizon network makes them the best choice – the coverage area is amazing and I don’t drop my calls. Straight Talk’s prices, strong network, and convenience make it a wonderful choice in the prepaid and general cell phone market.

  4. You should review the Neilson monthly numbers and revise your opinion. Boost, MetroPCS and Leap don’t fight each other. Boost scavenges from their parent and a major portion of MetroPCS are switchers from Tmobile and Sprint. Razor thin margins? Really? If you’re AT&T sure, their business model can’t handle playing in this space, but those structured for PrePaid are doing quite fine with their margins. MetroPCS’s problem is that their cheap and it isn’t until recently that they realized that having better/best handsets was important. They constantly battle that stigma from their early years.

    Anand, Nexus 1 doesn’t provide independence, open architecture only refers to operating system, not the network architecture. There’s still only one carrier ready to receive it, Tmobile. It can’t operate on AT&T 3G yet and there’s no plans to launch a CDMA version until late Spring.

  5. I just switched to pagepluscellular and I get whatever I got from Verizon without contract and cheap as well.
    Outside US pre-paid is kinda the norm.
    Inside US ATT & Verizon and such companies control the devices and that’s one reason its tough for companies like Nokia to do business in US. Hopefully Nexus one is start of operator independence of the devices.

  6. Colin,

    There is a bigger issue that prepaid subscribers are still seen as a 2nd Class Mobile Citizen. The growth in prepaid is thwarted by the handset selection and devices are heavily subsidized in the US.

    In developed countries like the UK, prepaid is actually the dominant method of mobile subscribers with no negative connotation attached.