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May 13, 2009

The global economic slump that officially started last September has translated into huge gains for prepaid mobile phone carriers.

Leap Wireless and Metro PCS Communications enjoyed very strong Q1 results and now wireless industry analysts are grumbling about Boost Mobile’s success leading to a cannibalization of Sprint’s postpaid customers.

So the big question is, how long will all of this last? Is it just a transition phase? What if something even better than prepaid appears in the next few months?

Roger Enter, senior mobile sector analyst for Nielsen says he thinks the prepaid market will continue to grow regardless of the macroeconomic situation.

“You will see growth in prepaid driven by the disruptive unlimited plans and things like the SafeLink program,” he says.

SafeLink is a program that is sponsored by the U.S. government and provides a free mobile phone and 40 to 80 minutes of airtime to low-income individuals and families.

Entner cites the worldwide recession as one obvious reason for the explosion of new prepaid subscribers. “We’re running out people that can pass credit checks,” he notes.

But what happens when the economy gets better? Are all those prepaid subscribers going to rush back into pricey two or three-year contracts?

“To be sure, Tracfone pioneered and pushed through that program with the U.S. federal government. Basically, it’s the wireless version of a lifeline phone offer and-- it’s a real cash cow. So that will drive prepaid numbers,” Enter said.

He added that it’s really up to the big wireless carriers and how they wish to play the game. When asked whether Boost is cannibalizing Sprint’s postpaid subscribers, he says there’s a certain amount of complicity on the part of the mobile carrier.

“To a certain degree, Sprint wants it to be cannibalizing... Customers get better voice per minute, more text messaging at a lower price, more data, more of everything really. But then they can’t have the Palm Pre,” said Enter.

And if the economy improves soon, Entner says there will always be a postpaid market available, recognizing a distinction in quality of service between prepaid and postpaid carriers.

“The large wireless carriers can really lure back these economic refugees, by providing superior handsets, better voice service and improved data service. It’s really a choice between riding in an economy car and a nice luxury vehicle.”

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Source: Nielsen.