Verizon Throws Handsets at Prepaid Problem
According to leaked documents and images obtained by Engadget, Verizon will introduce a slew of prepaid BlackBerrys and prepaid versions of the latest Android devices, the Palm Inc. Pre and Pixi Plus.
A Verizon Wireless spokeswoman did not respond to Light Reading Mobile's request for comment, but Current Analysis wireless services analyst Maidy Whitesell found confirmation of a prepaid version of Android-based LG Electronics Inc. (London: LGLD; Korea: 6657.KS) Ally on Verizon's testing Website.
Big Red, more so than any of the other Tier 1 carriers, has maintained its anti-prepaid stance. When asked about it in an earnings call, execs said they were focusing on the higher-value postpaid market -- positioning that makes sense for the market leader. That's why an all-out prepaid smartphone launch would be a surprise.
But Whitey Bluestein, prepaid analyst and head of advisory firm Bluestein & Associates, says this isn't a new strategy for Verizon; it is just a one-off tactic.
"When you lump Verizon and AT&T Inc. (NYSE: T) together, and you own 60 percent of the mobile market, and there are these little companies with 10 percent of your subscriber count who are coming in with lower pricing plans, you can't afford to drop your prices," Bluestein says. "It will be a world of hurt when you have that kind of share. Strategically it makes sense that they would do anything to avoid competing pricewise and valuewise.
"What's the way to do that? Throw handsets at it," he says.
Both Verizon and AT&T have always left prepaid up to the leaders like Sprint Corp. (NYSE: S) and its Boost Mobile and Virgin Mobile USA Inc. (NYSE: VM), as well as MetroPCS Inc. (NYSE: PCS), Leap Wireless International Inc. (Nasdaq: LEAP), and even T-Mobile US Inc. . But they've also never hurt for revenue as a result of it. (See Smartphone Data Makes Verizon Look Smart.)
Still, the market continues to attract new subscribers as prepaid providers take prices lower and the interest in value outlasts the recession. "One of the only barriers keeping consumers from switching from contract plans to prepaid is the handsets," Bluestein says. Verizon doesn’t need to match the price of its smaller competitors, but it can at least match, if not exceed, the handset selection.
Prepaid users have traditionally been stuck with basic brick phones, although that's started to change in the past year as the service has gained more users and better brands. Still, while MetroPCS and others offer such options as the BlackBerry Curve, Verizon's leaked plans suggest it'll go much further. (See Android Gets a Prepaid Boost.)
But, all of Verizon's planned handsets become much less enticing when the bill is due. The smartphones will require a $30 per month data plan, on top of a minimum $45 per month voice plan, according to reports. On top of that, the phones won't benefit from the subsidies that come with two-year contracts.
"Maybe Verizon can say, 'We are giving people more choices,' but from a practical standpoint, I'm not sure that that segment is going to eat the dog food," Bluestein says.
If Verizon does unleash a prepaid smartphone plan, however, it could pressure the prepaid providers to do the same, which would ultimately be great news for consumers. Even the money-minded prepaid users want smartphones, Bluestein notes.
It won't be easy for the prepaid providers to keep up, though, notes Current Analysis's Whitesell. The wireless operators have to pay a fee to the handset makers for new brands, and that's more difficult the smaller the carrier is, she says. Instead, their strong suit will always be value for consumers' money, something Verizon is wise not to try to match.
"[Verizon is] making money. They are doing well; they are adding more customers," Whitesell says. "For the company, it's better to stay that way. You don’t want your brand to diminish in value, and they have to make a profit."
[Update: Verizon confirmed its prepaid plans today. True to the rumors, it will offer a 3G unlimited prepaid data package for $30 per month on smartphones and $10 per month for 25 MB per month on feature phones -- the same deal as its postpaid plans. The plans, available at the end of the month, will work on a range of BlackBerry and Android devices and the Palm Pre and Pixi.]
— Sarah Reedy, Senior Reporter, Light Reading Mobile