MetroPCS and Leap Take Prepaid Calling Upmarket

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prepaid demand slowing markedly

Both companies face slowing growth for their services, which let customers purchase calling a month at a time, while traditional mobile-phone agreements require subscribers to sign long-term contracts. Prepaid carriers added 264,000 users last quarter, 83 percent fewer than a year earlier, Moffett estimates. About 22 percent of U.S. mobile-phone users opt for pay-as-you-go calling, says Ovum, a London-based research firm. That may rise by only 3 percentage points by 2015.

Dallas-based AT&T and Basking Ridge (N.J.)-based Verizon Wireless, owned by Verizon Communications (VZ) and Vodafone Group (VOD:LN), lost prepaid calling customers last quarter, according to Moffett. Prepaid-wireless prices are also under pressure. They have declined 10 percent this year, after plunging as much as 30 percent in 2009, says Ratcliffe at Barclays.

MetroPCS and Leap are responding by selling higher-end devices. This year, they began carrying Research In Motion (RIMM) BlackBerrys. That's a break from the standard practice of selling inexpensive handsets. Traditional providers offer subsidies for pricier phones and make up the cost over a contract's life.

coming: tablets and music players

MetroPCS and Leap are also pitching prepaid calling plans, which boast preset monthly fees, as a way for companies to keep calling costs in check. "Our family plan is attracting small businesses," MetroPCS’s Linquist says. The company is upgrading its network so that it can offer a wider range of services such as mobile broadband, with faster transmission speeds.

Leap plans to offer tablets with related wireless plans later this year, Moschner said. In October, Leap will introduce a music-playing device with an accompanying download service.

If their efforts succeed, pay-as-you-go calling could extend to more than half of the U.S. market, says New Millennium’s Simon. By the end of 2011, as many as 20 percent of businesses may switch to prepaid mobile-phone services, from about 2 percent today, he estimates. "People are figuring out it's cheaper and easier to use," Simon says.

Kharif is a reporter for Bloomberg Businessweek in Portland, Ore.

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