Boom times for prepaid cell phone operators

MetroPCS and Leap Wireless are the latest prepaid operators offering a low-cost unlimited plan to announce huge subscriber gains.

Prepaid wireless providers are scooping up subscribers as cash strapped consumers downgrade to lower cost cell phone service.

First quarter earnings reports from MetroPCS Communications and Leap Wireless on Thursday provided further evidence that consumers are flocking toward no-contract, unlimited prepaid services. These carriers, which operate primarily in smaller urban areas, each reported they had nearly doubled their subscription rate compared to a year ago.

MetroPCS said its new subscriber additions increase 51 percent compared to the same quarter a year earlier. In total it added 684,000 new subscribers, bringing its customer base to 6 million. This was the third quarter in a row in which the company had a record breaking increase in subscribers.

Leap Wireless, which sells its service under the Cricket brand, also had a big quarter, increasing subscribership by 40 percent compared to the same quarter a year earlier. In total, the company added 493,000 new customers, ending the quarter with 4.3 million wireless subscribers. A year ago, Leap ended the first quarter with 3.1 million customers.

MetroPCS increased revenue 20 percent to $795.3 million and posted earnings of $44 million.

Leap actually posted a wider first quarter loss, mostly due to the company's expansion into new markets, such as Chicago and Philadelphia. The company lost $47.4 million, or 74 cents a share, compared a loss of $16.9 million, or 28 cents a share, in the first quarter of 2008. Revenue increased 25 percent to $587 million.

All of this news comes just days after Sprint Nextel reported huge subscriber gains in its prepaid service from its subsidiary Boost Mobile . Boost added about 764,000 customers to its service.

What all three services have in common is that they offer low-cost, prepaid plans with all-you-can-eat voice, text messaging, and Web browsing. The Boost Unlimited service, which launched in January, costs only $50 a month. And MetroPCs's and Leap's services are in the same neighborhood.

Based on these strong subscriber numbers, it appears that consumers are looking for more affordable cell phone plans. This is likely a direct result of the ailing economy, which has resulted in high unemployment throughout the country.

While it's true that cell phone service has become essential for most Americans, that doesn't mean consumers are willing to pay a lot of money for it. And as finances tighten, people are looking to reduce their monthly expenses by finding cheaper options for phone service. Prepaid service plans, which allow customers to pay in advance for service without signing a contract, provide a good alternative. And now the low-cost unlimited plans make it an easy choice even for wireless subscribers that talk and text a lot.

MetroPCS and Leap Wireless have each been offering their low-cost prepaid unlimited plans for quite some time, but as these carriers move into bigger markets, such as Chicago, Philadelphia, and New York, they are putting pressure on other wireless operators to match or beat their prices.

Sprint's Boost was the first to answer that challenge with its $50 unlimited plan. Virgin Mobile followed with its own all-you-can-eat plan for $50 a month. And T-Mobile USA, owned by Deutsche Telekom, is also getting more aggressive with its prepaid cell phone plans.

The question now is whether the two biggest cell phone companies, AT&T and Verizon Wireless, which make millions of dollars in profits from postpaid subscribers, will also go after the prepaid market. And if they don't, will they slash prices on their postpaid contract service plans? AT&T is already rumored to be considering lowering the price of its iPhone service plan by $10 when the new iPhone comes out this summer.

 

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