Sprint touts prepaid as balm for bad economy

Prepaid is no longer the stepchild that the industry has disdained yet tolerated—at least according to Sprint (NYSE: S) Chief Executive Officer Dan Hesse. For the first time, industry growth is being driven just as much by prepaid subscribers as it has been more lucrative postpaid subscribers, Hesse said today in Sprint’s first-quarter earnings call, and Sprint, more than most, has tapped into that trend with its Boost Mobile $50-a-month unlimited plan.

“The first quarter of 2009 is the first quarter in which, we believe, there were as many prepaid as there were postpaid decisions in the US,” Hesse said. “The prepaid share of the market could increase in future quarters.”

In its first-quarter report, Sprint added 764,000 Boost customers, most of them subscribers to the new unlimited plan announced in January. Those adds offset 719,000 Nextel postpaid customer losses on the iDEN network, marking one of the first times since Sprint and Nextel merged that subscribers on the Nextel network grew rather than fell. “It’s been a very long time since we’ve reported the number of iDEN network subscribers actually increasing,” Hesse said.

Prepaid often comes with a stigma in the US, Hesse said, but traditionally prepaid has brought in low average revenue per subscriber (ARPU) and is subject to extremely high churn rates. Boost’s $50 unlimited plan, though, is not only bringing in $50 a month per subscriber—just $6 lower than Sprint’s overall postpaid ARPU—the plan is likely to be far stickier than the average prepaid plan. Furthermore Sprint doesn’t have to invest in capital improvements to support the demand, Hesse said: Since Sprint’s iDEN network has been shedding customers for the last two years, there is more than enough capacity to support a flood of new traffic.

Hesse added that Sprint hasn’t been seeing too much cannibalization of its postpaid subscribers in its higher prepaid numbers. Along with boosting average prepaid revenues, unlimited plans like Boost’s are actually “expanding the overall size of the wireless pie,” Hesse said. Boost Mobile as well as unlimited no-contract providers like MetroPCS and Leap Wireless, he said, are attracting some of the last hold-outs in the wireless market—customers signing up for their first-ever wireless phones.

The prepaid adds weren’t enough to reverse Sprint’s continuing subscriber losses, though they did much to staunch the flow. Combined prepaid and postpaid, CDMA and iDEN and retail and wholesale operations posted a net decline of 182,000 subscribers, 1.2 million fewer than it reported in the fourth quarter. In 2008, Sprint’s customer base shrunk by 6.7% while the industry’s grew 7%, forcing it to sharply scale back operations to meet the needs of a much smaller company. Still Sprint is the only major operator that didn’t grow in the first quarter. Verizon Wireless and AT&T reported subscriber gains of over a million each, and while T-Mobile felt pressures in its postpaid base, it still grew by 415,000 subscribers.