Prepaid growing, but still not big money maker for carriers

As we’ve learned over the course of 2009, prepaid wireless is poised to grow faster than its postpaid counterpart. This is for a number of reasons, not least of which is the economic climate. Specifically, analysts forecast that prepaid will grow at 11 percent per year through 2013, while postpaid will grow about 4 percent per year in the same span. Yet because of the financial realities of prepaid customers, from a carrier’s perspective, we might not see much emphasis placed on prepaid — at least not as much as we’ve seen in other countries, where the majority of users are on prepaid plans. Matt Hamblen at Computer World takes a look.

The two biggest obstacles for widespread prepaid adoption in the US are ARPU and churn. ARPU, average revenue per user, is a big stat among US wireless carriers. When they get a postpaid customer to sign up, the ARPU is at $40 minimum, since that’s the cheapest plan with most major providers. Prepaid ARPU, at its best, tends to be about half that.

As far as churn, it’s expected to be markedly higher in prepaid. There’s only so much room for churn when customers are on a two-year contract, so carriers naturally want these committed customers on their ledger. They bring in more money, and it’s guaranteed money. Carriers like Verizon Wireless and AT&T normally post churn rates between one and two percent, while prepaid carriers like MetroPCS and Cricket wireless tend to be in the 4 to 5 percent range.

The question we’ve been asking is of whether prepaid will continue to grow at this rate even if the economy recovers. Hamblen has some quotes on the matter, both from the optimistic and skeptical side. The optimists, of course, are the players in prepaid, like Virgin Mobile CEO Dan Schulman. The skeptics tend to be analysts who look at the issue from the perspective of bigger carriers. With innovation focused on the postpaid sector, it’s hard to disagree with the skeptics.

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