Telecoms feeling effects of the economy?

So it appears the economy isn’t doing too hot. Without getting into the specifics, we’re seeing a meltdown of the subprime mortgage lending practice. This has led to all sorts of messes, including the recent buyout of investment bank Bear Stearns. Virgin Mobile actually cited the country’s economic downturn when it reported its less than stellar fourth quarter sales. Not only that, but they predicted that these economic conditions would continue to hamper their efforts in 2008.

There was a report on Fierce Wireless yesterday that backed up Virgin’s statements in a way. To quote: “Virgin Mobile, which solely relies on prepaid services, is logically one of the first operators to be impacted by a recession.” I’m not buying that logic.

The economy is taking a major hit because of the credit crunch. Without getting technical, the overall theme is that without a free-flowing line of credit, our economy cannot expand. Many banks are wary about lending, and people wary of borrowing, thanks to the subprime mess.

Yet your postpaid cell carriers rely on credit. You have to pass a credit check to get a postpaid phone. And the bills aren’t cheap: $40 per month is the lowest you’re going to get from Verizon or AT&T.

Prepaid is far more economical. You only pay for the minutes you use, and there are no credit checks. So if you’re in a lending bind, you can always nab a prepaid phone from Wal Mart or Target. Seemingly, this would help Virgin’s business, not hurt it.

Yes, the economic recession most greatly impacts Virigin’s current target audience. However, as we get deeper into the throes of recession (it’s pretty much inevitable at this point), people who used to have postpaid accounts will likely transition to prepaid phones.

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