Middle-Class Mainstreaming Could Push Third of US Consumers To PrePay Phones
With the growth in smartphones and wireless data services, will the prepaid wireless market in the U.S. keep expanding?
With the major milestone reached of one out of four U.S. cell phone subscribers already switching to prepaid/no-contract services, two experts -- telecommunications analyst Mark Lowenstein, managing director, Mobile Ecosystem, and Sam Simon, senior fellow, New Millennium Research Council -- are forecasting continued growth in prepaid wireless, as consumers search for lower cost, more flexible options to connect their multiple mobile devices.
Lowenstein and Simon see three major factors as making it very likely that prepaid subscribers could reach the level of one out of three in the USA in the next 12 months.
Sam Simon, senior fellow, New Millennium Research Council, said: "What we are seeing today is an almost perfect storm of factors that are making prepaid wireless increasingly attractive for middle-class consumers. When you combine the ongoing expense and rigidity of contract-based wireless service with the sluggish economy, the rise of unlimited prepaid calling, texting and Web access, and the availability of more and more low-cost prepaid smartphone handsets, it becomes increasingly difficult for any savvy consumer to justify sticking with contract-based cell phone service."
Simon and Lowenstein pointed to three factors likely to push prepaid subscriber levels to the 33 percent milestone level:
- The continuing rise of prepaid wireless with unlimited calling, texting and Web access. Where prepaid was once all about buying and reloading minutes on cell phones, the vast majority of new prepaid subscribers are opting for unlimited calling, texting and Web access for as little as $45 a month, or roughly half the cost of typical contract-based cell phone service. This trend dates back to the fall of 2009 with the launch in Walmart stores of the "Straight Talk" brand by TracFone Wireless, Inc. The Straight Talk model is now embraced by a number of other competitors and likely to continue gaining considerable steam.
- The middle-class "mainstreaming" of prepaid wireless via the introduction of smartphones, such as Android handsets. The prospect of a prepaid iPhone may be getting all the attention from the news media, but the real entry point to prepaid for cost-conscious consumers is much more likely to be inexpensive, feature-loaded Android smartphones for a fraction of the cost. For example, NET10 currently offers the Android 2.3-based HUAWEI Ascend II for just $99.99 (unsubsidized), featuring a 3.5 inch touch screen, a five megapixel camera, 3G and Wi-Fi connectivity, Bluetooth capability and a 4GB microSD card. Only a certain segment of subscribers will be able to afford the high price of a subsidized iPhone requiring a $2,000 contract commitment over two years (or $600 full retail price). But budget-conscious consumers want smartphones as well, and are increasingly finding prepaid operators offering excellent devices and affordable rate plans over good quality networks. The issue of affordability and flexibility becomes even more paramount as subscribers want to add more connected devices to the network, such as tablets and data cards.
- The emergence of what is likely to be the next big thing -- "SIM only" prepaid, also referred to as "bring your own phone" or "bring your own device." While swapping SIM cards is common practice for European wireless consumers, it is still a new and little-understand development in the United States. The attractiveness of the "bring your own phone" approach to prepaid service is that consumers who "have to have" their existing iPhone or other high-end smartphone -- but still want to save money -- can simply switch out their contract-based SIM card and plug in a new one from a service such as SIMPLE Mobile, which offers "SIM only" unlimited prepaid service plans starting at $40 a month. We believe there is a significant segment consumers who want to keep their existing device but would prefer to not be bound by a contract service.
Lowenstein noted that consumers who have not historically chosen prepaid services are being exposed to the concept with tablets, which are generally not subsidized and where the cellular connectivity option does not require a contract. Consumers will increasingly want this flexibility for their additional connected devices, thereby driving the further growth of prepaid.