Can Sprint tackle the last barrier to prepaid adoption?

The high cost of marquee smartphones on prepaid providers is a dilemma. The new head of Sprint's prepaid business talks about that and how he will position Boost and Virgin to be more competitive.

The iPhone 5S is highly coveted by prepaid customers, but the upfront cost of $550 might be too much for most people. Apple

Dow Draper has his work cut out for him.

As the new president of Sprint's prepaid business, Draper is tasked with reversing the slowing growth of its no-contract business -- primarily its Boost Mobile and Virgin Mobile arms -- as well as contend with a resurgent prepaid business from AT&T and an increasingly loud rival in T-Mobile.

One way to ignite some excitement in prepaid is to tackle a long-standing issue in prepaid: the need to pay the full price of a device. While that's less of an issue for basic phones and budget Android smartphones, the upfront payment requirement is a bit more cumbersome when an iPhone 5S costs $550. Even the year-old Samsung Galaxy S3 sells for $320 at Virgin Mobile.

Draper, who was at a Sprint-hosted event Tuesday night to schmooze with journalists, acknowledged the issue and said he was thinking about a financing model for smartphones, allowing customers to put little-to-no money down and pay a monthly rate for the device -- a model that could potentially be applied to Virgin Mobile.

Draper was quick to note that he was just mulling it over and that he had no immediate plans to institute such a change. He also explained the complications that come with offering a financing model, as the Virgin or Boost would take on the risk of a customer signing up for a device and potentially walking away. If they were to offer a financing plan, they would also have to institute a credit check to ensure customers passed muster and qualified for such a deal.

As prepaid players, Virgin and Boost have built their businesses on offering wireless services and devices without a contract or credit check, and it's unclear how customers would react to the change.

Draper said he was looking into whether enough customers would make the move to such a model for the change to make sense, all while not alienating its traditional prepaid customers -- many of which wouldn't pass that credit check. He added he was exploring ways to make the phones affordable to customers, but in a way that makes business sense to Sprint.

"Our customers are aspirational," he said. "They want an iPhone or Galaxy S phone."

T-Mobile has made a lot of noise over its no-contract model and monthly installment plan. The carrier touts the small upfront payment required for even its most expensive phones. But its plans still require a credit check, and those that don't qualify either end up paying more upfront or are required to buy the phone outright.

A financing model would be attractive to budget-conscious customers and gadget enthusiasts, combining a low-upfront fee for the device with its low service plans. Virgin's plans range between $35 and $55 a month, while Boost offers a $45 BlackBerry plan, $50 feature phone plan, and $55 smarpthone plan, as well as the ability to see those rate fall by $15 through its Shrinking Payments program.

Sprint's prepaid arms could certainly use a shot, and Draper could be it. With all of the drama involving the SoftBank takeover, the acquisition of Clearwire, and the shutdown of Nextel, prepaid was largely focused on getting integrated into the larger business. Draper marks the first leader solely focused on building the brands back up.

The lack of care is evident in its financial results. In the third quarter, Sprint added a net 84,000 prepaid customers, not bad by itself but a disappointment relative to the nearly 460,000 net customers it added a year ago.

In comparison, AT&T, which hasn't traditionally been strong in prepaid, added 192,000 prepaid customers in the same period. It's poised to become more of a threat when it completes its acquisition of Leap Wireless, which runs the Cricket Wireless prepaid business.

Draper, who previously ran the sales and marketing division of Clearwire's Clear retail business, considers both AT&T and T-Mobile, which runs the prepaid MetroPCS arm, worthy competitors. He said one his initial goals was to build up the distribution capabilities of both Boost and Virgin, and getting those brands "front and center" at retail outlets ranging from national chains such as Wal-Mart to local cellphone retailers.

More than a good marketing effort, getting retail partners trained and comfortable with its prepaid phones and plans makes a big difference in getting consumers on board, Draper said.

One thing Draper said he wouldn't do: cut prices further. He said there wasn't much growth chasing even increasingly budget conscious customers. Instead, he said he wants to "add value" to the plans as a way to entice customers, either by offering up new features or adding other benefits. He cited T-Mobile's offer of free international data roaming as one example of boosting the value of a plan without cutting the price.

The other issue for Draper is one he can't control is the quality of the network. Even as Verizon Wireless and AT&T are finishing up the deployment of their LTE networks, Sprint has gone through the slow -- and painful -- upgrade of its network, which promises both LTE and improved 3G service. Even T-Mobile, which started after Sprint, has eked ahead of Sprint and covers more top markets, a fact that T-Mobile CEO John Legere hasn't let anyone forget.

The lack of LTE coverage is just as frustrating on the prepaid side, where its Web site touts speedy 4G service in select areas. But things are at their worst, and are poised to get better over the next six months or so, Draper said.

An improved network is a nice step. But Sprint -- and Draper -- needs to get more vocal about why consumers should keep looking at Virgin and Boost as their go-to prepaid wireless providers. The competition is just heating up.

Tags:
Mobile
Phones
About the author

Roger Cheng is the executive editor in charge of breaking news for CNET News. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade. He's a devoted Trojan alum and Los Angeles Lakers fan.

 

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