Verizon Wireless(s vz)(s vod) is hardly the must gung ho carrier when it comes to prepaid service. Though it hosts a few million contract-free subscribers on its 2G and 3G networks, it chooses to focus on the high-dollar contract users and its brand spanking new LTE data network. But before the Thanksgiving holiday kicked off Verizon did a funny thing: It started courting prepaid subscribers with a double-data promotional offer.
First spotted by FierceWireless, the deal gives customers signing up for its $80 unlimited-talk-and-text smartphone plans 2 GB of data to consume each month rather than just the standard 1 GB. The major catch is that data must come off its 3G network — no LTE phones allowed. After years of ceding prepaid to its competitors has Verizon finally seen the light of contract-free mobility? If it has, then Verizon is attacking prepaid in a strange way. Even with the limited time promotion, its prepaid plans are by far the most expensive in the market – you can get the same plan anywhere from $20 to $30 a month less at a slew of other carriers (and in many cases access to much faster data networks).
What Verizon likely sees here is an opportunity to find a second life for its 3G CDMA EV-DO networks. Now that Apple(s aapl) has found LTE religion, almost the entirety of Verizon’s smartphone portfolio sports a 4G radio, which means its data traffic will quickly migrate off its old 3G networks. Big Red still needs those EV-DO networks as back up in areas where its 4G service is unavailable, but those areas are quickly becoming few and far between. Verizon plans to have LTE in every place it offers 3G by the end of 2013, and thanks to its LTE in Rural America program it will have 4G in places it’s never before built a CDMA network.
So in just year or two Verizon will have a largely empty 3G network. Eventually it will shutter those CDMA systems, replacing them with 4G technologies, but that could take the remainder of the decade if not longer. Verizon needs those CDMA networks for its legacy voice services, and its planned launch of an IP-based voice-over-LTE service is still on the drawing board. In short, that 3G data network is going nowhere so it behooves Verizon to find ways of filling it.
That may be why Verizon is getting the prepaid bug after so many years of ignoring the market. Prepaid isn’t just for the budget-minded or credit-challenged anymore, and say what you will about Verizon’s pricing and data plans, but it consistently scores high marks from consumers for customer service, reliability and quality of service.
Verizon may be thinking there’s room in the market for a “premium” prepaid operator and that it’s just the carrier to fill that niche. It just so happens to have a rapidly emptying 3G network to serve those customers. Sprint(s S) got the same idea when it started relegating WiMAX to its Boost Mobile and Virgin Mobile prepaid customers, reserving its new LTE network for those on its contracts.
Still, premium subscribers will expect a premium service. Sub-megabit 3G connections just won’t cut it, especially if T-Mobile or Sprint is offering far faster network connections for far cheaper prices. Verizon will need to drop prices a lot more if it hopes to make any kind of dent in the sans-contract market. But if it reserves its 3G network for prepaid users – along with contract customers using “dumbphones” – then it can afford to slash plan costs. The networks investment is already sunk, and that spectrum will be tied up for years to come. Any money it can make off of 3G is just gravy.