MetroPCS: has the flat rate bubble burst?
Published: 14 January, 2010
MetroPCS and Leap Wireless have suffered rising competition from tier one US operators, which were once snooty about their flat rate model. Now they are seeing the market shifting towards usage-based charging as the all-you-can-eat approach becomes unsustainable amid the mobile data explosion. The dangers were clear in the quarterly results of the larger flat rate specialist, MetroPCS.
While the downturn created a boom in prepaid services in the US, this was not all good news for the pioneers. Leap and MetroPCS have seen their territory invaded by T-Mobile and Sprint, the latter with its Boost sub-brand and Virgin Mobile acquisition. And they have faced challenges from new MVNOs focused on undercutting their offerings, such as TracFone. Now there are fears that, if the flat rate data approach is unsustainable amid exploding usage and network strain, there may be nowhere for the two operators to go.
MetroPCS reported lower subscriber growth and increased churn in its fourth quarter, just a taste of the challenges to come. It added only 317,000 customers, a figure down 39% on a year earlier, and churn was 5.3%, up from 5.1% (not bad considering the increased competition). It closed the quarter with 6.6m users. But its only response was to announce aggressive new pricing plans, only increasing the fears that it will struggle to stay profitable, or move into higher value service areas, in future.
Pali Research telecom analyst Walter Piecyk said in a blog post that the drop-off in gross customer additions, which were flat on last year despite 40% coverage expansion, was the biggest surprise, especially as "Sprint distributors had been complaining about the impact of Metro and Leap's pricing on their gross adds. It could be that the industry is experiencing a greater slowdown than we thought." This suggests that all the prepaid players will experience problems in 2010, taking some of the shine off a segment that was seen, in 2009, as a key defense against telecoms slowdown.
MetroPCS' new pricing scheme for unlimited prepaid voice and data is called Wireless for All, simplifying matters for consumers by including the cost of taxes and fees in the price tag, which ranges from $40 to $60 a month. For $40, users get unlimited voice, text and web access, while the $50 option supports smartphones and $60 includes some additional premium services. The operator also offers individual add-ons such as $5 bundles for social networking or navigation.
One way forward for the flat rate duo may be to offer higher value services via a partner network rather than investing in further build-out, though both have talked of LTE plans. Both have also recently been linked to Clearwire, as possible new MVNOs on that firm's WiMAX network, and CEO Bill Morrow even mentioned MetroPCS as the type of partner Clearwire could be interested in (see separate item).
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