According to new data recently released, American mobile phone operators have faced the first-ever net decline in contract, i.e. "postpaid" subscriptions, losing as many as 52,000 subscribers. Meanwhile, the number of non-contract, i.e. "prepaid" mobile customers soared to record levels and now accounts for roughly 25 percent of all mobile phone users in America.
"While one data point doesn't make a trend, we are approaching the peak of the curve where new, traditional postpaid subscribers will be hard to find," wrote mobile industry analyst Chetan Sharma in his report for the first quarter of 2012. "It is possible that the newly minted prepaid subs might return to postpaid subscriptions. The shift is correlated to the economic woes. Majority of the new subscribers will come from connected devices as we have been saying for the last couple of years."
On the other hand, Sharma told Ars Technica that the 25 percent of American mobile phone customers who use prepaid plans are just a tiny fraction compared to most other parts of the world. Western Europe, for instance, has a higher level of 70 percent prepaid, while India, China, and Africa have 70, 95, and 99 percent, respectively.
The American mobile industry, however, is at a crossroads. Attracting new customers has become increasingly more difficult, as 110 percent of American residents already own cell phones, meaning there are actually more phones than people. Even so, the industry is still growing. "Connected devices," meaning devices such as tablets that use a mobile network but are not traditional phones, marked a 23 percent market growth despite the 15 percent rise of prepaid mobile service, said Sharma. Meanwhile, postpaid growth crept up just 1 percent.
Verizon remains the top postpaid carrier in the U.S., but AT&T is the leader in providing data to connected devices, while Sprint leads by number of prepaid customers. Data now accounts for as much as 85 percent of all mobile traffic in the U.S. This trend shows that consumers want more services on multiple devices, preferably while saving some money as well, hence the rise of prepaid services.
New Times, New Possibilities
As carriers across the nation are becoming increasingly more aware of the shift in customer habits, they strive to adapt to current times and needs. As part of this effort to adapt, both AT&T and Verizon have said they are working on offering shared data plans across multiple users and devices. Verizon's recently announced "Share Everything" family plan, for instance, will launch later this month on June 28, and offer unlimited phone calls and text messages along with a pool of data that can be shared by up to 10 Verizon Wireless devices. Meanwhile, AT&T announced earlier this month that it will offer data-only plans within two years.
"The key advantage is that then you can tailor your usage according to your cloth, so to speak," said Juniper Research analyst Windsor Holden, as cited by Ars Technica. "It can be considerably cheaper, and there's an increasing amount of competition for prepaid services."
Riding the Tide
There are also many new mobile virtual network operators (MVNO) launching now, leasing spectrum and towers from the four giants. Ting, which runs on Sprint's network, and payLo - Virgin's new brand - which also runs on Sprint, launched May 21. The prepaid trend has gone so far that even Apple's iPhone has gone prepaid in the United States, via Leap Wireless' Cricket prepaid wireless carrier.
Sprint seems to be the most adapted to this trend and actually taking advantage of the rising prepaid market, as its new offerings are being resold by Virgin, Boost, and now Voyager. "Most of the world doesn't live with contract anyway, and that was the only place we were going to be able to grow," Sprint spokeswoman Jayne Wallace told Ars.
According to Wallace, prepaid phones were "crappy" from a historical point of view and at times it was difficult to sell the service, especially as postpaid plans offered better handsets. "From a marketing standpoint, we would use the term 'no-contract' rather than 'prepaid.' That has a negative connotation with people," she said.
In the United States, however, ditching your reliable contract and diving into a prepaid plan is still a bigger move than in other markets that don't see it as a challenge.
