US prepaid operators should benefit from the downturn

Posted by Chris Garland Wednesday, January 7th, 2009

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US-based operator MetroPCS expects strong 4Q08 results thanks in part to the global credit crunch, boosting demand for no-contract prepaid services.

According to the operator, it added 1.4 million subscriptions over the course of 2008, a 37% increase from 2007. It also said it added 520,000 net additions in 4Q08, taking its total mobile subscription base to around 5.4 million, up 74% year-on-year.

MetroPCS saw increased net additions in spite of increased churn of 5.1% in 4Q08 up from 4.8% at end-4Q07, a sign that the prepaid segment is itself not invulnerable to the global credit crunch, as subscribers tighten their belts.

Prepaid subscriptions are especially popular in the US, where such forms of credit have traditionally been harder to come by, something of an irony when considered against the backdrop of the sub-prime mortgage meltdown.

However operators specializing in prepaid ‘contractless’ subscriptions such as Metro, Virgin Mobile USA, and Cricket could yet face financial difficulties as consumers seek to reduce non-essential outgoings, in turn hitting ARPU levels.

Unlike the higher-end segment comprised largely of subscribers on postpaid contracts, ARPU looks set to further decline among the lower-end prepaid segment, although higher-end users of devices such as the iPhone are unlikely to suffer significantly in terms of reduced ARPU despite the worsening downturn.