Verizon Wireless, AT&T Mobility content to sit out current prepaid frenzy

Few would question the phenomenal growth in the prepaid market over the past several quarters with nearly every operator posting stronger growth from its prepaid operations than postpaid. However, the nation’s two largest operators, Verizon Wireless and AT&T Mobility, are content to sit on the sidelines of that increasingly competitive battle, at least for now.
Speaking at the J.P. Morgan Technology, Media and Telecom Conference this week, executives from both Verizon Wireless and AT&T Mobility said they were not ready to dive deeper into the prepaid space.
“It’s something we monitor, something we’re watching,” said Verizon Communications Inc. EVP and CFO John Killian. “I wouldn’t say it’s a big concern right now. It’s the lower end of the market. We do not see – we see a little bit of move from our postpaid base, not much. And we still see the ability for others to take postpaid customers away from other carriers.”
Verizon Wireless last tweaked its InPulse prepaid service earlier this year, but more recent moves from competitors have blighted the relevance of some of those changes.
“[Verizon Wireless CEO] Lowell [McAdam] is looking at that right now in terms of – and there could be a little bit of modification in some of our prepaid offerings,” Killian added. “But it’s not a broad-based assault on the prepaid market. It will be some tweaks to some of the pricing, some of the offerings, probably making sure the marketing of it is more prominent in terms of the Verizon network and the network quality behind that. But, I don’t think you will see us from a retail prepaid perspective trying to be the leader in the prepaid market.”
AT&T Mobility’s president and CEO Ralph de la Vega took a similar approach to the subject, noting that the carrier was more interested in revenue and margin growth and that was coming from postpaid data services, not prepaid voice.
“There is an insatiable appetite for data,” de la Vega said. “We don’t see that with voice.”
AT&T Mobility last updated its GoPhone prepaid plans late last year, though more recently it has consolidated its offerings.
Both carriers are on basically solid footing in their stances. Verizon Wireless reported that direct customer additions for the first quarter totaled just 288,000 subscribers, compared with 1.3 million additions through its third-party partners, which analysts noted was composed mostly of Tracfone Wireless Inc.’s Straight Talk prepaid service. AT&T Mobility was a little better off on the postpaid front noting it added just over 500,000 direct postpaid subscribers during the quarter, though its indirect channels contributed nearly 1.4 million customers.
However, the industry’s No. 3 and No. 4 operators, Sprint Nextel Corp. and T-Mobile USA Inc., both posted losses from their postpaid operations during the quarter and greater reliance on prepaid users. In addition, prepaid-focused carriers like MetroPCS Communications Inc. and Leap Wireless International Inc. both posted solid first-quarter results, and both Sprint Nextel and T-Mobile USA have recently updated their prepaid offerings in an attempt to capitalize on the segment.
Network updates
De la Vega also reiterated the carrier’s belief that its recently announced plans to roll out HSPA+ technology on its network will prove beneficial for its LTE deployment plans as customers will be able to fall back on the HSPA+ network when outside of LTE coverage. The carrier has said it plans to begin deploying the 14.4 megabit per second version of HSPA+ on its network beginning later this year, building on its HSPA 7.2 updates that included beefed-up backhaul capabilities.
“What I loved about our architecture was our flexibility to improve speeds using software to drive more and more speeds in our network,” de la Vega said, adding that following the 7.2 update, the move to HSPA+ will be a simple process.
De la Vega noted that the 7.2 update has allowed consumer to take advantage of 7.2-enabled mobile devices, like Apple Inc.’s iPhone 3GS, and that it expects to start providing HSPA+ data cards later this year to support the new update.
As for its LTE plans, de la Vega said the carrier remains on track, which from recent announcements means deployments beginning in 2011.
AT&T Mobility’s notion that customers would benefit from having HSPA+ to fall back onto is an obvious dig at network deployments from Verizon Wireless (LTE) and Sprint Nextel (WiMAX) that would presumably have consumers falling back to their legacy CDMA2000 1x EV-DO Revision A networks when outside of coverage on their newer networks. The Rev. A networks provides peak download speeds of up to 3.6 megabits per second compared with the 7.2 Mbps being offered by AT&T Mobility’s current HSPA network and the 14.4 Mbps expected from HSPA+. (Actual network speeds are often a fraction of these “peak” speeds.)
However, in the case of Verizon Wireless, the carrier has said it plans to have virtually its entire Rev. A network overlaid with LTE by 2013, negating some of AT&T Mobility’s claims. Sprint Nextel is a different story as the carrier is only committed to WiMAX as far as its partner Clearwire Corp., which to this point is only at 120 million pops covered by the end of this year. Clearwire has been tiptoeing around the possibility of eventually deploying LTE on its network and recently amended a deal with investor Intel Corp. that would allow Clearwire to diverge from the WiMAX path.
T-Mobile USA has said it plans to have the 21 Mbps version of HSPA+ covering 185 million potential customers
by the end of this year.
As for
its network upgrades, de la Vega said the carrier was still working through some issues on the west coast, an area the carrier has acknowledged it had capacity constraints in the past. De la Vega noted that some of those issues include its vendor partners being short on some components that had left them unable to meet some of the upgrade timelines.
De la Vega also attempted to calm fears that the potential loss of its current exclusivity agreement for Apple’s iPhone could spell financial ruin for the company. De la Vega noted that currently 70% of its customer base were on family plans that he said prove difficult for customers to churn away from, while 40% were on business discount plans that also are “sticky.”
“Our non-iPhone customer churn has seen similar improvements to our overall customer churn improvements,” de la Vega said.