Analysis of article at: online.wsj.com/article/SB10001424052748704586504574653924216981890.html
Well, I am not one to say I told you all so but I told you all so. Things will get worse for MetroPCS and Leap Wireless before they get better. Sorry I had to say this. I recall getting bashed by supporters of those two companies – folks were telling me that in no way would Sprint, AT&T, or Verizon ever get into prepaid. By the way this was during late 2007/early 2008 when we were already in a recession.
I have never made a secret of it: prepaid is here to stay. MetroPCS and Leap Wireless would lose market share to carriers like Sprint Nextel. With a wrecked economy, prepaid will begin to make its way even into high end media plans. The goal for carriers is to sign up new subscribers. As I have said in numerous past postings, the prepaid model flies in the face of the post paid subscriber revenue model used by carriers to not only project future revenue but also to assist in establishing corporate valuation of the carriers.
People should expect the market to get far more competitive. Carriers like Sprint, AT&T, and Verizon will likely increase their positions in prepaid with music, video, and data. We are in a recession and will likely be in a recession through 2010. The carriers will need to respond to the depressed market with aggressive pricing in both postpaid and prepaid markets. The carriers will likely increase their efforts in the prepaid market this year. The recession will have a lasting effect on the revenue models of all the carriers.
This is a matter of survival. High end phones (smartphones) have already made their way into the prepaid market. It is going to get even worse for MetroPCS and Leap. Even if the companies continue their network expansion, it will be an uphill battle for the two companies to remain competitive. Think about it they are spending capital on building out markets while competing with carriers that have both a prepaid and postpaid revenue model.
At some point, MetroPCS and Leap Wireless will need to consider merging.