Low-cost US operators feel the pinch too

Posted by Chris Garland Friday, February 27th, 2009

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US-based flat rate operators are used to relatively low ARPU from the cost-conscious prepaid segment, but even they are feeling the pinch, as cash-strapped subscribers seek to economize.

MetroPCS, which targets prepaid subscribers is one such example: the operator saw ARPU decline to US$40.5 in 4Q08 down from US$42.8 for the same period a year earlier – a marked contrast to previous upbeat expectations that had expected strong 4Q08 results thanks in part to the global credit crunch, boosting demand for no-contract prepaid services.

The decline in ARPU recorded by MetroPCS, which specializes in offering prepaid ‘contractless’ subscriptions along with operators such as Metro, Virgin Mobile USA, and Cricket, will be seen as an alarming sign by rival players that financial difficulties are having a knock-on effect across all segments as consumers seek to reduce non-essential outgoings, in turn hitting ARPU levels.

The operator had total revenues for 4Q08 of US$724 million, up 22% from US$591 million for 4Q07. Metro PCS saw its total mobile subscription base increase to 5.36 million at end-4Q08 up from 3.96 million for the same period a year earlier. Churn in the fourth quarter increased to 5.1% in 4Q08 up from 4.8% for the same period a year earlier, although the operator posted a profit of US$15.0 million for 4Q08 up from a loss of US$47.0 million at end-4Q07.

Prepaid subscriptions are popular in the US, where forms of credit including postpaid contracts have traditionally been harder to come by.

A big question that MetroPCS’ ARPU results pose is: will other, non low-cost operators such as Verizon Wireless and Sprint Nextel also feel the pinch from the economic downturn, or will their user bases prove to be more resilient?