Sprint (NYSE:S) competes with AT&T (NYSE:T) and Verizon (NYSE:VZ) in the mobile phone subscription plans business as well as TracFone, MetroPCS and Leap in the prepaid plans business. Due to the weak economy, an increasing number of cost conscious consumers are opting for prepaid mobile phones that offer lower ownership costs than monthly subscription (postpaid) plans. We expect the growth in the prepaid mobile market to help Sprint curb its overall market share declines.
Below we discuss importance of the prepaid business for Sprint, and how it could benefit from the growing prepaid market.
Prepaid Mobile Plans Important for Sprint’s Stock
The Mobile Plans and Phones business, which constitutes 46% of Sprint’s stock, is the most important division for Sprint. Amidst a declining Sprint postpaid subscriber base, the prepaid business is gaining more importance for the company.
Sprint’s new prepaid plan called Boost added more than 2.5 million net subscribers in 2009, boosting prepaid revenues up by 39%. Sprint’s overall prepaid subscriber count has risen from about 2.6 million in 2005 to 10.7 million in 2009, primarily as a result of the acquisition of Virgin Mobile’s business. Sprint’s prepaid subscriber base now accounts for 3.9% of US wireless subscribers.
Sprint Can Gain Share in Growing Prepaid Market
According to research by New Millennium Research Council, out of 4.2 million net subscribers added in Q4 of 2009 by nine largest US wireless carriers, about 65% were prepaid subscribers. This means around 2.73 million prepaid subscribers were added in the last quarter of last year.
With consumers becoming more cost conscious as a result of the weak economic environment, the value proposition of prepaid plans will get stronger. Using prepaid plans from Sprint ($50/month unlimited) or TracFone ($45/month unlimited) can result in half the cost a customer would typically incur from postpaid plans on their smartphones.
Sprint is Moving Closer To #1 Position in Prepaid Business
Sprint wants to be the leader in the prepaid wireless industry. With the recent acquisition of Virgin Mobile, the company now has the second largest prepaid customer base of about 10.7 million, about 3.7 million less than the leader TracFone. We currently estimate that Sprint prepaid’s wireless market share will increase to about 4.4% by the end of Trefis forecast period. The growth in prepaid market coupled with slowdown in postpaid subscriber losses can help Sprint curb overall market share declines.
Disclosure: No positions