Is prepaid causing wireless instability?

TracFone’s plan brings prepaid competition to three carriers in every market, and four in Metro and Cricket markets, with competing unlimited plans in the $40 to $50 range, Bluestein noted. In conjunction with its unlimited offering, TracFone also introduced a plan for 1000 minutes and texts per month for only $30, a deal with VZW that Bluestein said is unbelievable.

“That means that Verizon is selling TracFone minutes at somewhere between 1 and 2 cents a minute, which is an amazing confirmation that Verizon does not want to be left out of growth in the prepaid market,” Bluestein said. “Verizon has historically had a pretty low penetration in the prepaid market. They go and give this incredible deal to TracFone, and basically steal business away from AT&T and at least have the potential to build up the number of prepaid subs and minutes, if not profitability. They can’t be making much money on this. Still, it’s incredible.”

WILL PREPAID LEAD TO M&A?

All of these cost-cutting moves could have the combined effect of driving more mergers and acquisitions in the wireless space, according to several industry analysts. That the wireless market is reaching saturation is not a well-kept secret, and it has encouraged operators to look for new forms of data-driven revenue generation. According to a Barron’s report, there is no meaningful growth left for VZW, AT&T, Sprint or T-Mobile to find. All these carriers, as well as the regional and prepaid operators, are just stealing share from another one month and giving it back the next, an article today stated.

Bluestein agreed that M&A is definitely going to continue in wireless, with the next most logical merger being Leap and Metro. A merger has been attempted in the past but never came to fruition. They both share the strategy of targeting densely populated urban areas but have little overlap in terms of their coverage and already have roaming agreements in place. Metro reaches the Northeastern markets, while Leap covers Philadelphia and Chicago, the third largest US market.  Neither carrier will confirm the possibilities, but given their complementary nature, it is the most natural outcome, according to Bluestein. AT&T and VZW may be blocked by monopoly concerns from concentrating more, but it’s not a scenario that he’d rule out for the regional players, which need to be national to survive.

“I think right now, the likelihood is that Leap and Metro would finally come together,” Bluestein said. “All the rumblings from Metro suggest they will go it alone, but I really do think you have to be a national player. I don’t know if the spectrum is available for either of them to be national without merging…They also become very significant if they merge. That is the next big, logical merger, but when it will happen is anybody’s guess.”