AT&T and T-Mobile Continue To Make Big Strides, Killing the Gap Between Postpaid and Prepaid

For a very long time, prepaid customers have been an afterthought for major U.S. network operators including T-Mobile, AT&T etc. Typically, the network operators believed that postpaid users generate higher ARPU and lower churn. However, as smartphone sales slowdown and the gap between postpaid and prepaid narrows, the carriers are now focusing on prepaid users.   

Analyzing the first-quarter earnings, two major US carriers, T-Mobile and AT&T, continue to make big strides. "We all naturally lavish a tremendous amount of time and attention on the postpaid market," MoffettNathanson analysts wrote in a research note analyzing the first-quarter performances of the four major U.S. carriers. "But as AT&T is quick to point out, the distinction between the two is becoming increasingly arbitrary." 

AT&T, pursuing the market through its Cricket brand reported 500,000 prepaid net additions in the US during the first quarter, and an additional 450,000 in Mexico. And, T-Mobile which pursues market through its MetroPCS offering reported 807,000 prepaid customer additions during the period. Meanwhile, Sprint lost a net 264,000 prepaid users during the most recent quarter, and Verizon lost 177,000 net prepaid users during this period. And, T-Mobile and AT&T are seeing even higher ARPUs from their dedicated prepaid brands.

T-Mobile CEO John Legere recently said “MetroPCS customers generate ARPU in the range of $38 to $39, which he described as ‘very steady, very good’ and Cricket customers generated an ARPU of $41 during the first quarter.”

"The economic rationale for being a postpaid subscriber was party the subsidized handset," the analysts wrote. "If you're going to buy (and finance) your handset anyway, you might as well do it with the cheapest available price plan. Prepaid and postpaid are now more fungible. At the same time, the price distinction between the two has narrowed, in part because, well, there's just not that much difference anymore."

As the competition is heating up in the prepaid market, it is worth noting that the biggest success stories are of dedicated prepaid brands “Cricket and MetroPCS” rather than the carrier branded offerings