Competition is good. Competition is also bad; usually for the early entrants. What this all means is that Leap and MetroPCS are getting their heads handed to them by carriers like Sprint Nextel, AT&T Mobility, and Verizon Wireless. The prepaid market has become that hot. The market is so hot that the analysts who denied its viability last year are now pretending they were always for it. I love stock analysts they are the thought leaders of 20/20 hindsight.
Shares of Leap Wireless International Inc. and MetroPCS Communications Inc. fell Thursday after a JPMorgan analyst downgraded both companies to "Neutral". This analyst has stated that rising competition in the prepaid wireless market presents a challenge for Leap and MetroPCS. Both companies have seen their stocks drop by up to 10%.
In early 2009 there were those who doubted the wisdom of prepaid. These same individuals also doubted Sprint Nextel’s, AT&T’s, and Verizon’s wisdom of entering the prepaid sector so aggressively. These same individuals doubted any carrier’s ability to effectively compete against Leap and MetroPCS; even going so far as saying that Leap and MetroPCS would suffer no ill effects. Boy, talk about being wrong - big time. Yep, I am crowing a bit. I had yelled loud and clear that the prepaid market was a viable one and that the big carriers would take market share away from Leap and MetroPCS.
As important as pricing is, the next couple of quarters will require the carriers to focus less on pricing and more on services. It is time for the carriers to evolve their networks to the next level, jack up prices and make some margin.
I have made no secret of it; I am a huge supporter of prepaid services – there is value to the consumer. As I have said many times in my own blog, prepaid will be key to the success of high end mobile media programming.
Carriers are going to need to answer the following question from prepaid and postpaid customers: “What do I get for the money I am paying?” The question will eventually lead to new services. The cycle goes on.
Eventually everything new becomes a pricing issue because eventually all carriers provide the same services. However, once they reach that level playing field of services, the carriers use pricing. After they mine the value out of pricing, the carriers launch new services. Once new services are launched, sufficient efficiencies have been developed to lower overall costs to the carrier. Telecom is about change and renewal. It is a vicious cycle.
The carriers will be focusing on new types of prepaid services. I doubt Leap and MetroPCS can maintain a defensive strategy against AT&T, Verizon, and Sprint Nextel for more than another 12 months. Think deep pockets versus big deep pockets. The best way for Leap and MetroPCS to survive this marketplace is to merge. If the two companies don’t do something soon; things are going to get much worse for the both of them.
I am hoping Leap and MetroPCS strongly consider a merger. A merger would enable both of them to be able to put up a fight for the prepaid market. Why would I want them to put up a fight? Because I love competition.