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Jan. 25, 2009

Strategy Analytics says that this year, wireless carriers will be positioning for real value instead of competing for price as ARPU (average revenue per user) drops, and prepaid accounts should get a lift from budget-conscious consumers.

The research firm says that the drop in subscriber growth is likely to prompt mobile phone carriers to address tightening consumer spending, says Phil Kendall, director of the Strategy Analytics Wireless Network Strategies service.

“Rather than just promoting prepaid accounts as the perfect recession-proof solution, wireless carriers will work to make postpaid plans more attractive to budget-conscious customers who are re-examining their cellular spending," Kendall said.

Such thinking actually match existing industry trends, but the report also suggests service revenue will remain fairly healthy despite a slowdown in U.S. cellular subscriber growth, which is expected to increase at a rate of about 5 percent this year, down from 7.5 percent for most of 2008.

"For this year, it is likely that competition in the U.S. prepaid market, along with the weak economy, will drive a bit more traction for prepaid than in the past,” Kendall added.

Strategy Analytics sees potential movement toward prepaid accounts as a small step, rather than a paradigm shift, expecting prepaid to grow from a little over 15 percent of total subscriptions last year to about 17 percent this year.

More significantly, the shift represents growth in prepaid share of total net adds, from a little over 26 percent last year to an expected 46 percent growth for this year.

Susan Welsh, an author of the report says "this will favor "all-you-can-eat" mobile operators like Metro PCS and Leap Wireless but pose serious challenges to others, especially T-Mobile USA."

Prepaid mobile accounts will continue to be favored by wireless carriers given the high churn rate and low ARPUs of prepaid. Strategy Analytics expects the customer lifetime value (CLV - calculated as annual ARPUs divided by annual churn) for postpaid to remain more attractive than prepaid in 2009.

“We anticipate wireless carriers will work to create more flexible postpaid plans rather than just pushing prepaid for consumers looking for more flexible, lower cost wireless options," Grimaldo says.

She also expects to see AT&T Mobility and Verizon Wireless jockey for position on LTE technology, increase their market share of subscribers and service revenues and push wireless connectivity in consumer electronics devices.

"Overall, U.S. wireless carriers will respond to the economic pressures with more flexible postpaid service offerings and an emphasis on cost savings, but will not be derailed from global leadership on LTE deployments and pushing for new subscriptions for connected consumer electronics devices," she says.

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Source: Strategy Analytics.