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Prepaid picking up pace: 25 percent of U.S. mobile phone users on no-contract plans

While one period does not represent a trend, we saw an interesting shift in the U.S. cellular market during the first quarter of 2012. Via Ars Trechnica, for the first time ever the number of postpaid subscribers declined. It was a mere 52,000, and the top carriers managed to add customers. But that’s a net loss overall. At the same time, prepaid has continued to add, now constituting 25 percent of the overall mobile market. While this might seem strange in the moment, it has actually been a long time coming. In fact, we heard a prediction along these lines four years ago.

In 2008 it was clear that MVNOs weren’t working in America. They had gained footholds in other markets around the world, but in America people were still hooked on postpaid. Part of this was excellent marketing and business tactics. Many people didn’t even know of an alternative to their easy postpaid plans. But part of that was also mobile adoption. Back in 2008, we hadn’t yet reached 100 percent.

Alex Besen, founder of The Besen Group, has long spoken of the power of an MVNO. He predicted, back in 2008, that as the mobile saturation in America neared 100 percent, we’d see a growth in MVNOs. That’s because when we get to that point, where there are more cell phones than people, the market will separate into niches. The large carriers will target the larger niches, while MVNOs will target smaller but still profitable niches.

You can basically substitute “prepaid carriers” for MVNOs in the preceding paragraphs. Not only do MVNOs typically offer service on a prepaid basis, but many MVNOs are now part of major carriers. Boost Mobile and Virgin Mobile are both owned by Sprint. Straight Talk, Net10, and Tracfone, all subsidiaries of America Movil, combine to make the fifth largest carrier in the US despite owning no cell towers.

Fitting, then, that Besen’s prediction came true. We’re now at 110 percent penetration, and prepaid services are growing faster than ever. There’s certainly a ceiling on prepaid growth, especially given the ingrained attitude towards postpaid services — we love our subsidized smartphones and would rather commit to two years than pay $500 or $600 up front. Until that attitude changes, postpaid will dominate. Does anyone have a prediction for when that will finally turn in prepaid’s favor?