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A recent bump in industry-wide prepaid subscriber growth indicates that some consumers are choosing prepaid over postpaid. Some consumers are turning to prepaid as they realize they will end up paying 100% of their phones on postpaid anyhow through equipment installation plans (EIPs). EIPs are unsubsidized device financing plans that allow the customer to purchase a new phone or device with monthly payments, on top of the monthly rate of their service plan. Growth in prepaid subs among the publicly-traded wireless operators has managed 5-6% year-over-year growth in the last few quarters, annual growth rates not seen since 2012, according to our data.
But the exodus from postpaid to prepaid is not an across the board trend yet.
Of the big five, just two operators, U.S. Cellular and Verizon Wireless, went on record mentioning the trend. And while U.S. Cellular execs acknowledged the trend overall, the trend was not very strong within their base.
U.S. Cellular logged the strongest prepaid sub base growth of 26% since Q3 2015. Record prepaid gross and net adds “replicates significant growth we have seen by other carriers in their prepaid product lines recently,” said U.S. Cellular’s President and CEO Ken Meyers in last quarter’s earnings call. “This trend fits with research that shows budget conscious millennials preferring this pay-as-you-go approach, and the widespread adoption of EIP pricing pushes consumers looking for less expensive phone options to prepaid products,” continued Meyers.
However, while Meyers noted that at a “macro level” some of its competitors are seeing their postpaid customers switching to prepaid, just a small portion of U.S. Cellular’s postpaid subs are moving into prepaid.Verizon Wireless, on the other hand, noticed it first-hand. “We did launch some new prepaid pricing and what we did see was a double amount of our postpaid subscribers move over to our prepaid, more than we've seen in history. And that accounted for a little less than 50% of our prepaid net adds this quarter,” noted Verizon Wireless CFO Fran Shammo in the company’s third quarter earnings call.
Overall, four of the top five wireless operators grew prepaid bases annually with AT&T Mobility and T-Mobile citing the strength of their acquired prepaid brands Cricket and MetroPCS driving prepaid growth. Sprint is in the midst of revamping its prepaid strategy and recorded a double digit percentage loss in its prepaid base. All-in the category was up 5% year-over-year, from 49.4 mil. in Q3 2015 to 51.8 mil. in Q3 2016.
As such, the recent bump in prepaid subscriptions is a testament to EIPs blurring the line between prepaid and postpaid subscriptions. Evidently, paying off a device upfront with a lower monthly service fee down the line under a prepaid plan is looking more attractive to some consumers than being locked in a two-year contract with phone subsidization, or in paying a monthly phone installment fee until it is paid off.