Reality Check: Prepaid-a-Palooza – is it for real this time?

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
There have been a host of stories in the past week on prepaid services, and we touched on prepaid in previous discussions of first quarter earnings. Things look good for prepaid plans in 2010, thanks largely to Wal-Mart.
I love a party and hype as much as the rest of the wireless community, but is it really different this time? Is Tracfone just another MVNO that will be eaten up by completion and churn? Will Wal-Mart follow Target with decreasing interest, promotion and training on wireless sales? Is prepaid for poor folks, and after they get some more money, this phase will all blow over and we’ll be back to the good ‘ol days of two-year contracts and family plans with unlimited messaging/text additions?
The answer to all of these questions is no. This time it’s different, and, with a few additions to the prepaid arsenal, the effect on the post-paid marketplace will be significant.
Here’s a brief timeline of what’s changed in prepaid over the past six months:
October 18, 2009: Wal-Mart introduces Straight Talk, a $45 all you can talk/text/surf plan over Verizon Wireless’ network. $30 plan also introduced. 3,200 stores go live on the same day.
October 25, 2009: T-Mobile USA introduces Even More and Even More Plus plans. Even More Plus trades a higher handset price for a lower post-paid monthly rate.
Nov 24, 2009: Sprint Nextel completes acquisition of Virgin Mobile USA.
January 12, 2010: MetroPCS introduces revised plans that include taxes and fees from $40-60 per month. (We’ll use the $40 plan for comparative purposes in this column.)
March 23, 2010: Leap (Cricket) modifies their plan structures to include more nationwide options; offers $40 unlimited voice, text, and mobile Web option.
May 6, 2010: Sprint Nextel announces Beyond Talk, a new pricing plan from Virgin Mobile that includes unlimited messaging and Web access to 3G (EV-DO) devices.
May 6, 2010: Sprint Nextel adds unlimited 411, e-mail, and instant messaging to Boost Mobile’s $50 unlimited plan.
May 13, 2010: Sprint Nextel announces Common Cents brand exclusive to Wal-Mart (debuts in 700 stores this weekend). 7 cent voice (rounded down), 7 cent text highlights “pay as you go” pricing.
This timeline highlights the distribution and pricing plan activity. But pricing has a floor. Several analysts have predicted this is around $30-40 for all in voice, text, and (3G) data with no handset subsidy (and likely exclusive of fees). That’s probably about right for a very basic unlimited plan.
Virgin Mobile has broken from the pack, however, with their Beyond Talk pricing. This plan includes unlimited 3G data and messaging + 300 anytime minutes for $25 per month. Straight Talk, their closest competitor (see attached chart) and Verizon Wireless post-paid (which includes no voice) have their limitations. And, with an affordable Blackberry $10 adder, it’s a winner for their devoted fans ($35/mo. vs. $60/mo. prepaid and $80/mo. postpaid – the phone pays for itself vs. the post-paid world in six months).
(Click to enlarge)
For an individual consumer, the decision between Beyond Talk plans and likely competitive responses is, “How much do you talk?” If you are below 30, you probably don’t talk as much as you text, and you might not even use 300 minutes per month (10 minutes per day). Or, if you do, you have a home phone (remember those?) to cover any long-duration calls. For talkers, Straight Talk’s All You Need plan gives you 1,000 minutes per month but none of the phones are 3G capable (yet).
But an attractive pricing plan means nothing without an affordable and post-paid looking handset lineup. Those lines are quickly blurring as Blackberry Curve, LG Rumor 2, LG Touch, and other keyboard-based models replace lesser known 2G-only, voice-centric handsets.
What could be better? The new prepaid has the tri-fecta of success: a) innovative and affordable pricing, b) more normal looking handsets, and c) the largest retailer in the world running TV ads touting the service. What could be better?
Without a doubt, it’s the Android operating system (Virgin Mobile U.K. already has four Android phones in its line-up). Android will be free (although Google will want some of your privacy for that freedom), and with Google Maps and Latitude, you also get free navigation. Google builds on their operating system expansion, Qualcomm sells a few more chipsets, and the developer community adds a few more million potential buyers to their audience.
Google Android on Virgin Mobile USA. Android on MetroPCS. Android on Cricket. Android on Boost. Android on Straight Talk. Where will this leave AT&T and Apple? Where will this leave traditional post-paid services? Can it happen in time for the 2010 holiday season?
If this happens (and I can’t come up with a plausible scenario that it won’t happen, soon), then the effective “re-balloting” of the wireless world will occur. (Sorry for that last term, but the last time something of this magnitude happened was AT&T divestiture). This time, however, the ballot distributor isn’t the states, it’s retailers – specifically Wal-Mart. And it’s how Google’s Android operating system eclipses Apple in the next three years.
Yes, this time prepaid services are for real, and their success is facilitated by Google and Wal-Mart, not Verizon and AT&T. Let the prepaid-a-palooza party begin.
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments at jim@mobilesymmetry.com.