The line separating postpaid and prepaid mobile services is getting a bit more porous, as costs for single-line postpaid service are starting, in many cases, to approach the recurring cost of a prepaid account.
“If you look at single line pricing, those price points are pretty darn close to what a prepaid customer would pay on prepaid,” said Fran Shammo, Verizon Communications CFO.
The significant difference, some might say, is not just the matter of whether service is paid for in advance, or after service is provided.
“The hurdle is there is a credit check,” said Shammo.
Sprint reportedly has revised its credit standards, allowing more customers to qualify for postpaid accounts, instead of buying prepaid service. That shift in demand is relatively recent, beginning in 2013.
But at least in the single-line segment of the market, it appears as though postpaid now stands to benefit as more former prepaid customers are able to qualify for a postpaid plan.
That should have implications for many providers of prepaid service, at least in the U.S. market, especially mobile virtual network operators (MVNOs) that often specialize in prepaid service.
From 2007 to 2010, North American prepaid grew from about eight percent of total subscriptions to about 12 percent. But changing credit standards and retail price points could put a brake on MVNO subscriber growth.
In fact, prepaid growth had been substantial from 2000 to 2010, though adoption has leveled off since then.
Of course, prepaid is more important for T-Mobile US, AT&T and Sprint than it is for Verizon. Verizon Wireless has only around five percent of its total connections base on prepaid deals, while prepaid accounts for more than 30 percent of connections at AT&T, Sprint and T-Mobile US, according to the GSMA.
The four biggest mobile service providers appear set to add a net 4.3 million postpaid phone subscribers in 2014, according to UBS estimates, compared to just 737,000 in 2013.
Conversely, the U.S. mobile industry saw a big drop in prepaid subscriber additions in 2013 to 1.2 million from 4.5 million the previous year, for example.
The industry should add only 959,000 prepaid subscribers in 2014, UBS says. There were some 74 million prepaid subscribers in the U.S. mobile market, compared to 228 million postpaid subscribers.
Fran Shammo, Verizon Communications CFO, confirmed the trend during the Verizon Communications third quarter of 2014 earnings call.
Noting that during the first nine months of 2014 Verizon prepaid net adds were only 5000 compared with 274,000 in 2013, Shammo added that “we believe that price sensitive prepaid customers are moving to the postpaid market.”
Initially left unsaid was a judgment about whether that means Verizon prepaid customers are moving up to become Verizon postpaid customers, or whether potential prepaid customers are choosing to become postpaid customers on other networks.
Shammo answered that question during the question-and-answer portion of the call. “We see a shift from prepaid to postpaid--not necessarily within our base--because of high quality and strict requirements we have from a credit perspective,” Shammo said.
The latter seems likely, given Verizon’s positioning in the U.S. mobile market. “Growth in wireless revenue and profitability continues to be driven by our high quality retail postpaid customer base,” Shammo said.
In other words, Verizon will continue to focus on the “premium provider” segment of the market.
And that almost certainly means Verizon will continue to shy away from the prepaid segment, and value end of the single-line segment as well.