Prepaid pricing infiltrates SMBs

Prepaid has been one of the biggest growth areas on the consumer side of wireless, and now that growth is starting to seep into the enterprise, according to market research firm Compass Intelligence. Particularly in small businesses, decision makers are setting up their employees with prepaid plans to cut costs and long-term commitments.

The prepaid wireless market exceeded 55 million subscribers by mid-2009, accounting for nearly 17% of the US wireless market, Compass Intelligence found. Of the overall market, business wireless subscribers make up one of the fastest growing segments. Compass forecasts business users to grow from a market share of 54.3% today to 64.2% by 2013. President and Chief Strategist Kneko Burney said that as much as 22% of survey respondents planning to get a new prepaid device in the second half of the year will give one or more of those devices to their employees as a way to avoid a long-term commitment to a carrier – or perhaps even to their employees in an unstable economy. 

“We believe the data suggests that in these small companies they think why go and get another contract because maybe something will happen – the economy’s down, I may have to lay somebody off or what have you,” Burney said.  “They might as well get a prepaid phone for any new employees and that will be a way to save them from some risk.”

Even with the economy showing signs of improving, Burney said she expects this trend to continue – albeit not at the level that consumers were adopting prepaid at the beginning of 2009. Businesses and consumers alike have responded to tougher times by making lifestyle changes, many of which will likely persist when things turn around. Prepaid can be an easy way to add a nice-to-have feature at a marginal cost, she said.

For the wireless operators, prepaid has been a mixed blessing. Sprint, in particular, has seen a huge surge in prepaid consumers stemming from its popular unlimited prepaid brand, Boost Mobile. This growth is likely to continue as Sprint works through its acquisition of subsidiary Virgin Mobile. These are the brands most likely to win over enterprise users – or at least those that travel – given their national presence compared to regional prepaid providers like MetroPCS and Leap Wireless. For Sprint, this has meant more subscribers, but lower margins.

Some have even said that prepaid is causing wireless instability and is a market plagued by too many competitors. Burney said that the lesson carriers should take away from the growth in prepaid is not necessarily to increase their focus on this market segment, but to introduce more flexibility into their postpaid offerings. Prepaid will always have higher churn, she said, but the plans are increasingly mirroring the postpaid market with high-end smartphones, unlimited data offerings and advanced features. The line between postpaid and prepaid, consumer and enterprise is only getting blurrier.

“The smart carriers will create contract arrangements that will allow people to have more flexibility,” Burney said. “Of course carriers want to force you to stay in that relationship for a year or two, but for the customer – especially for business customers that want to make an investment in wireless, particularly something like data that could add value, but they aren’t sure – in those cases, carriers if they are smart will add some kind of easy out contract – maybe only for business customers that will make it easy for them to try these solutions in their business to see if it works for them. Or they can shape it so they start out at a low point of entry and grow it over time or if their business needs change, change the agreement, so the risk is smaller.”