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Unlimited Data Plans Heat Up U.S. Prepaid Wireless Industry

Zacks

The U.S. wireless industry is saturated, where spectrum crunch has become a major issue in the domestic telecom industry. Most of the carriers are finding it difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become acute with the growing popularity of iPhone and Android smartphones as well as rising online mobile video streaming, cloud computing and video conferencing services.

Apart from saturation issues, competition is intensifying in the U.S. wireless prepaid industry. The gap between prepaid and postpaid average revenue per user (ARPU) has narrowed significantly, forcing telecom biggies to turn their attention to the domestic prepaid mobile service business.

This was not the case a few years back when the prepaid segment was largely ignored by wireless carriers who were interested in the lucrative postpaid wireless market. However, this new development has forced these wireless operators to concentrate on the prepaid segment, consequently escalating, competition in this market has intensified.

Unlimited Data Plan War


Stiff pricing competition in the industry is a genuine concern. Few months back, we witnessed four major wireless telecommunications companies, Verizon Communications Inc. VZ, AT&T Inc. T, T-Mobile US Inc. TMUS and Sprint Corp. S, participating in the unlimited postpaid data plan war in order to stand out in the landscape. These wireless operators are now extending their unlimited data plan to the prepaid market as well.

T-Mobile US’ prepaid wireless service, MetroPCS Communications, Inc. has heated up the battlefield with its latest offering of unlimited LTE data, talk and text for $75 for two lines. In terms of the service differentiators, video streaming is supported in SD at 480p along with a $100 instant rebate on devices for new customers for each line.

That’s almost in line with Sprint’s Boost Mobile, which offers a prepaid unlimited plan for $50 per month for the initial line and $30 per month for each line after that, for an $80 per month deal for two lines. That offer, unlike MetroPCS, includes an international flair consisting of unlimited talk and texts to Mexico and 8GB of roaming data while south of the border. On the video front, Boost also touts “mobile-optimized streaming” in HD.

U.S. telecom behemoth AT&T’s Cricket prepaid wireless brand, offers a special two-line bundle of unlimited talk, text and data also for $80 per month, along with free phones (certain models) for new customers. It also allows calls and texts to Mexico and Canada, with no roaming charges.

On comparing, we find that the top three prepaid brands are offering the basics for about the same amount, although the target market may be different. MetroPCS’s new plan looks perfect for students, with a “back to school” theme while Boost and Cricket have a wider range of customer targets, as evident by the HD streaming for the former and the NAFTA-like North American calling plan for the latter.

Furthermore, United States Cellular Corp.’s USM decision to increase the amount of data available in its existing prepaid plans have helped it gain 35,000 prepaid subscribers in the recently reported second-quarter 2017.

All the above-mentioned companies currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bottom Line

Rapid technological invention and innovation have resulted in significant competition within the telecommunications industry. Product life-cycle and upgrade-cycle have declined drastically with several firms coming up with new versions of products and services within a short span of time. To combat competition, the players are thus increasingly looking at new avenues. Extending unlimited data plan to the prepaid market is one such avenue.

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