The Year of the Prepaid Carrier
You know what is something that very few people care about? Mergers between businesses that are worth more money than any average person can ever fathom. Yet here I am thinking about the Sprint & T-Mobile merger that was officially approved by Judge Victor Marrero recently. A lot of articles have focused on what this means for T-Mobile in their ever evolving deployment of 5G. I find myself thinking about the consumer, and why this move could trigger a massive shift in the way we view wireless carriers here in the United States. Could this latest move by the big carriers be the move that pushes prepaid and mobile virtual network operators (MVNO’s) to the forefront as a potential solution for the American wireless customer?
A concern about this gigantic merger has been around competition. More specifically, the lack of competition. Despite the fact that the language of the merger indicates that Dish will be sold spectrum from Boost Mobile to establish itself as a 4th carrier, the general feeling has been that there are really now only three carriers. A situation that is very similar to the mobile carrier landscape in Canada. The situation in Canada is that where all plans are priced equally. There is no disruptor driving prices down. Instead the major three players (Rogers, Telus, and Bell) all charge $75 for a single line plan. The benefit of a competent fourth carrier is that while the big two or three are charging higher rate plans they can introduce special offers to try and gain market share.
This is a tactic that T-Mobile has executed to perfection under the leadership of John Legere. But now T-Mobile needs to fortify their 5G network. And conveniently, Sprint is on life support but with enough of their own infrastructure built out to contribute to this future of 5G. So here we are, on the cusp of these two companies beginning the process of becoming one. Left to wonder who now will be the disruptor in this very volatile yet essential industry? What if the answer to that was that we as American cell phone consumers changed the way that we look at purchasing a phone and a phone plan? What if MVNO’s and prepaid carriers are the answer?
Let’s back up for a second. A prepaid carrier, generally speaking, is a company that operates independently but rents towers from a larger carrier. So they can charge less for their service as the do not have to build in the cost of maintaining any towers or spectrum like the bigger companies do. The trade off for this is that these carriers have lower priority than the big three’s customers do. This difference most manifests itself when the phone is being used in a high traffic area. Think a concert or sporting event. This is the fear tactic that companies use to convince you that going with the bigger carrier is the answer. And for a while, I bought into that theory. However, in 2020 this issue isn’t exactly as easy as it used to be.
T-Mobile simplified wireless back in 2013 when it shook up the industry by eliminating contracts. Instead, customers would lock themselves in to a 24 month financing agreement for the phone they were purchasing. While one could argue that this was basically the same thing but erworded, it was definitely more transparent. When the only thing tying you into the carrier is the device that you are now financing, it becomes easier to contemplate leaving since you could pay off the device whenever you please. To ensure that they don’t lose out on customers the carriers had to come up with a wrinkle. This wrinkle was buy one get one offers and bill credit promotions. These promotions are spread out over 24 months, making leaving the carrier then much less appealing.
Now that the merger is close to being complete, T-Mobile has promised not to raise prices for another three years. But this implies that inevitable price jumps will be coming. Compared to Europe, our smartphone data plans are outrageous. Prepaid carriers offer the promise of lower costs with one main caveat: no special financing for phones. This has been a dealbreaker for a majority of the population for many years. But as time has gone by, there are many more ways to finance a phone than walking into a Verizon store. The manufacturer directly may offer a financing program. Apple, Samsung, Google, and Motorola all offer this option. Amazon and Best Buy offer financing offers that are competitive with carriers. Even if you decided that buying a used phone was the right solution, there are even financing offers through PayPal on websites like eBay and Swappa.
This abundance of choice has given us, the consumer more leverage than we have ever enjoyed. These prepaid carriers have seen the opportunity and are pushing advertising for the modern consumer, through online advertisements. A couple of examples of this are Google Fi and Mint Mobile. Both companies use spectrum from T-Mobile (Fi also uses Sprint and US Cellular towers) and have gone all in on social media marketing. The message is simple, paying a lot for wireless is senseless. Going to a store is too old school and that hurts the bottom line too much and the customer is the one who suffers because of it. These are carriers designed for the millennial crowd that is comfortable shopping online and managing their account online.
The context here all makes sense. The generation aged 21–40 don’t have the same brand loyalty to a wireless carrier that the previous generation did. With the increasing focus on web services to communicate such as WhatsApp, Instagram, Snapchat, Facebook, and Twitter by this generation, cheap data becomes king. This was a formula that prepaid carriers such as Metro PCS and Boost Mobile used when they first went to market. Position the brand as a low cost alternative that has a cool factor to appeal to the younger generation. This is merely the next generation of this. As it seems now, the time is absolutely right for people to move to an MVNO.
Phones have never been better, they are lasting much longer than they used to. Where phones would last 1–2 years before, they are now very usable 3 years into their use. The mid-range segment of the industry has also continued to see rapid improvement in quality. Motorola, Nokia, and now Google are offering very compelling devices for under $400. The last quality that really drives this home is the lack of confidence in the storefront experience of the larger carriers. I cannot count how many times an uninformed friend told me how a sales representative at a carrier store got them to get add-ons and unnecessary features because they didn’t know any better.
As someone who has worked on that side of the industry before, this is always the goal. To sell add-on features. This is where the people who operate these stores make all of their money. So if someone ever says that a store pushed heavy for them to purchase insurance and a bunch of accessories there is a reason for that. For the more savvy younger customer base, the value in this is getting lower by the minute. Add on to all of these elements, and the prospect of spending more on a wireless bill every month loses its appeal with a lot of the next generation.
Now of course, there are quite a few types of people that cannot even think of going the prepaid/MVNO route. People that live in more remote or rural areas need the advanced tower infrastructure that a Verizon or AT&T will provide them. Business customers as well will still need to use the main carriers for multiple account reasons with multi-line incentives and company discounts. But it is not outside of the realm of possibility that more budget focused customers could go the route of prepaid much how this same generation went away from cable packages for the streaming video arena.
These two situations are intertwined in the way that they are very transparent to their customer bases. A flat rate fee that can be started and stopped whenever the customer desires to do so. This is what the market is increasingly demanding. More transparency, less hidden charges and long term lock in. This level of flexibility and clarity is really what is being demanded. In fact that is how T-Mobile even became in this position to merge with Sprint in the first place. They were the first carrier to really get more clear on what is being offered to their customers as opposed to having page after page of regulatory fees and taxes that most people will never read.
So is 2020 the year of the MVNO? Perhaps, but it is really just another step in a process that has been going on for the last few years. A shift in the way that industries intertwined with the internet have had to adapt. Ironically, T-Mobile acting more like a traditional telecom entity could be driving this change. For too long, we collectively as consumers have accepted the elevated pricing models of services that should be much more clear and simple. Now more than ever, we are in a position to say that this is not the accepted norm, a time where we can control what was previously accepted as uncontrollable.
