Consumers converting to smart phone technology continues to rise, but the revenue derived from traditional postpaid customers is not keeping pace, according to a study by PricewaterhouseCoopers.
It seems prepaid providers like Wal-Mart Straight Talk and Cricket are gaining in popularity because of lower monthly charges and no-contract requirements forcing cell phone providers to beef up their own alternatives. On average, 29.2% of total cell phone service revenue was generated by prepaid plans last year as compared to 22.5% in the prior year, according to the study.
In terms of market share, pay-as-you-go plans account for 21.5% of the overall cell phone industry.
Analysts say with Wal-Mart now onboard, the era of no-contract cell phones could accelerate, particularly now that the retailer has iPhone options for $49 per month, including sales tax.
Wal-Mart and T-Mobile recently unveiled plans to win consumers over to their prepaid plans by offering iPhone service without a contract and cheaper monthly fees. Prepaid deals require users to purchase their phones, but Wal-Mart and T-Mobile are each allowing consumers the ability to finance the $649 cost of the iPhone 5 over two years.
Wal-Mart’s credit card finance option costs about $25 per month for 26 months for the 16 GB version of the phone. T-Mobile will require $100 up front, with customers paying an additional $20 a month for two years.
An internal email distributed throughout Wal-Mart last week notes the retailer’s watchful eye upon T-Mobile’s prepaid iPhone 5 offering set to debut on Friday April 12 – a move in direct competition with Wal-Mart’s own iPhone 5 Straight Talk promotion which began earlier this year.
Straight Talk is an exclusive Wal-Mart service developed with TracFone Wireless Inc. The Straight Talk program buys service from AT&T and T-Mobile providers, and then is resold under its own brand in a prepaid product.
The Wal-Mart memo pointed out T-Mobile’s move to shake up the service industry with its own contract-free cell phone plans, but also noted mixed preliminary reviews.
The T-Mobile iPhone 5 plan for prepaid customers for unlimited talk and data will run $70 per month, nearly twice the value provided by Straight Talk, sold only through Wal-Mart.
The retail giant does not break out the profits from its Straight Talk venture, but its recent aggressiveness in pursuing this segment is an indication there are profits and market share available.
One Straight Talk competitor reported last month a lackluster interest in its iPhone option. Leap Wireless, the company that operates Cricket Wireless, recently told the Wall Street Journal that sales are running at about 50% of the original projections in the contract it made with Apple last summer. At the present sales rate, Leap said it could wind up with $100 million worth of unsold iPhones come June.
Cricket was the first prepaid carrier to begin offering the iPhone in June 2012. The cost of the iPhone 4 – 8 GB was $399 and the monthly plan was $55.
Analysts say Cricket’s soft sales are likely a result of it not providing customers a pay-out option for the expensive cell phone, like competitors Straight Talk and T-Mobile.
As data becomes a more important aspect of cell phone users, Apple and its plethora of applications are still the most sought out smartphone platform, according to analysts with IDC Worldwide, a group that tracks cell phone equipment sales.
Wal-Mart and its other prepaid retail competitors hope to make the iPhone more affordable to a new demographic of customers who either can’t afford the postpaid carrier plans or those who don’t wish to commit to a two-year contract.
Analysts also warn that thousands of consumers who might like to ditch their postpaid service and try a prepaid plan to save a few bucks are tied up in cumbersome contracts. These two-year contracts allowed them to convert to the Apple platform without having to pay full-retail price for the iPhones 4 and 4S which came out in June 2010 and October 2011.
The latest wrinkle for prepaid plan competitors like Wal-Mart Straight Talk, Cricket and T-Mobile is that the iPhone 5 may be soon obsolete, regardless of contract-free offers. Reports indicate Apple may launch iPhone 6 this summer, several months earlier than previously expected.
IDC forecasts vendors will ship a total of 918.6 million smartphones in 2013, up 27.2% from last year. They expect smartphone unit sales to reach 1.5 billion units in 2017 across the globe.
Kevin Restivo, an analyst with IDC, says vendors with unique market advantages to grow market share are those who can officer lower cost devices and/or cheaper service plans.
IDC expects Apple iOS and Android to stay out front in overall usage and future sales through 2017, whether it’s via prepaid service or postpaid contracts.
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