Prepaid, indirect channels set to dominate Q4 results

Verizon Communications Inc. posted surprising fourth quarter results this week showing that the increasing focus on non-traditional wireless customers has hit even the most traditional of carriers.
For the fourth quarter, Verizon Wireless said it added more than 2.2 million customers to its network during the quarter, a very robust figure considering the near saturation of the domestic wireless market. However, digging behind the numbers reveals that 1 million of those net adds were through Verizon Wireless’ resale partners that typically target customers with no-contract offerings.
Verizon Wireless has always trumpeted its customer base as being made up nearly entirely of customers under contract and added directly through the carrier’s sales channel. In fact, during its conference call discussing results with analysts, Verizon executives again touted the carrier’s focus.
“… it is becoming clear that the business is expanding to include opportunities in both the retail and wholesale markets,” said Verizon CFO and EVP John Killian. “However, retail continues to be our primary focus and represents the largest portion of our wireless business. 96% of our total customer base is retail and 82.2 million or 90% of the base are retail postpaid subscribers. In the fourth quarter, we added 1.2 million retail customers, 67,000 were prepaid and the rest were postpaid.”
Verizon Wireless has historically treated its prepaid and reseller options as second class citizens compared with its direct, postpaid offerings. However, over the past several months Verizon Wireless has begun to spread some affection towards those once attention-starved segments.
The carrier has brought on a number of reseller partners, including the addition of Qwest Communications International Inc. in 2008 and more recently Great Call Inc.’s Jitterbug service, both of which migrated from Sprint Nextel Corp.’s CDMA network.
More significant for Verizon Wireless, and the industry, was an under-the-radar partnership announced last year with America Movil’s Tracfone Wireless Inc. division to offer a no-contract, prepaid offering through the new Straight Talk brand. While Verizon Wireless has allowed prepaid companies to offer service using its network in the past, the Straight Talk deal was the first that allowed the partner to use Verizon Wireless branding on the service.
(As for the impact on the industry, the Straight Talk offering provides for unlimited calling, messaging and some data usage for $45 per month. The price undercuts virtually every other unlimited calling offer, save for some from regional operators like MetroPCS Communications Inc. and Leap Wireless International Inc.’s Cricket offering, though the Straight Talk service does have the advantage of using Verizon Wireless’ nationwide CDMA network.)
Verizon was quick to downplay the impact these resale partners were having on its results with Killian saying that the strong growth numbers were not coming from just one party. Killian also noted that unlike resellers in the past, the new partnerships were bringing in significantly higher average revenue per user results. An example would obviously be with Tracfone, where the company’s traditional prepaid service that uses Verizon Wireless as one of its network partners typically generates around $10 per month in ARPU. While Tracfone’s Straight Talk offering starts at $30 per month for 1,000 calling minutes and 1,000 messages before ramping up to the $45 per month unlimited offering. Further light on Straight Talk’s impact on Verizon Wireless’ results are expected on Feb. 2 when America Movil releases its fourth quarter results.
Verizon Wireless is also looking to take a greater direct share of prepaid customer growth moving forward as it recently updated its prepaid pricing plans that allow customers to sign up for service without a contract for a $5 premium per month on its traditional postpaid plans. That means the carrier’s prepaid offerings will begin at $45 per month for 450 anytime minutes and unlimited night and weekends or $75 per month for its unlimited voice service.
With those plans still priced at a premium compared with the Straight Talk offering and other prepaid plans from its competitors, analysts are not expecting a huge impact from the update.
“Although Verizon Wireless has reprised prepaid monthly plans, when compared with prepaid unlimited offerings from Boost Mobile, Tracfone’s Straight Talk and Net10 as well as unlimited talk, text and Web bundle offerings from smaller [mobile virtual network operators] provide the (typically) price-sensitive prepaid customer better choices,” noted William Ho, research director of wireless services at Current Analysis, in a research report. “Even rival AT&T’s $60 unlimited talk & text offering beats Verizon Wireless’ similarly packaged monthly offering at $95 ($75 unlimited talk + $20 unlimited messaging).”
The growing impact of prepaid could gain steam later this week as AT&T Mobility is set to release its fourth quarter results, and in early February with results coming from Sprint Nextel and T-Mobile USA Inc. All three carriers have traditionally relied more heavily on prepaid customers to pad their growth numbers each quarter, and with Verizon Wireless showing a strong influence from its offerings, results from the others could be eye opening.