Prepaid Wireless the new "Cheap Chic"

We all know that times are tough. As consumers try to find ways to cut costs, Fifth Avenue designers are flocking to strip malls, discount stores are introducing even more affordable designer clothing lines, and celebrity chefs are opening gourmet sandwich shops instead of posh restaurants. "Cheap" is definitely the new "chic."

Prepaid service is becoming the "cheap chic" of the wireless world. No longer just for people with bad credit, prepaid services gained online interest as the economy faltered. However, this interest isn’t coming to the prepaid market veterans like Virgin Mobile and Tracfone, it is coming to the new and smaller prepaid players in the market. As the chart below illustrates, although online traffic to Virgin Mobile (in red) and Tracfone (in green) have not increased, Metro PCS (in blue), Leap (in orange) and Boost (in black) saw traffic increase 42%, 80% and 93% respectively year over year.

The emergence of unlimited plans, where consumers pay a fixed price for all the services they can use each month, may be the secret ingredient for such strong growth. For example, Boost’s unlimited plan offers unlimited talk, text, web and push-to-talk service for $50 a month with no contract or credit check. Price advantage along with aggressive online and offline marketing (including several memorable TV ads) seems to be doing the job for Boost. In March, almost 40% of visitors to boostmobile.com – about half a million people – went to the Unlimited Plan page.

Unlimited plans aren’t unique to prepaid-only carriers. Sprint’s Simply Everything plan has been around for over a year and both AT&T and VZW offer versions of unlimited plans. But prepaid carriers are often undercutting the competition, and without a commitment. AT&T, T-Mobile and Verizon Wireless have also been relatively slow to capitalize on the new-found interest in prepaid (although VZW recently launched a new, highly flexible prepaid plan). As the chart below illustrates, the average number of unique visitors expressing interest in prepaid handsets on the AT&T, T-Mobile and Verizon Wireless websites has declined 45% in the first 14 weeks of 2009 compared to the same time last year. (Sprint doesn’t offer a prepaid option through its brand.) A large portion of this decline was seen last summer when the iPhone 3G launched. However, prepaid interest has continued to decrease (15% in the last 6 months).

It seems that while bigger prepaid carriers along with AT&T, T-Mobile and Verizon Wireless are hesitating on the sidelines, the little guys are riding the "cheap chic" wave. In this weak economy, carriers have to adjust quickly to the demands of the much more price-conscious consumer or risk loosing their customers to the new kids on the block.