By Jeffry Bartash
WASHINGTON (Dow Jones) - Worried by a deepening recession and
the security of their jobs, many Americans are taking a hard look
at their wireless and total phone bills.
That's good news for one group of companies - discount
wireless-phone carriers such as MetroPCS Communications Inc. and
Leap Wireless International Inc.
Discount mobile carriers represent one of the few growth
industries at a time when unemployment is soaring, consumers are
hunkering down and businesses are going on a fast - that is, those
companies that survive.
Early Thursday, MetroPCS (PCS) officially posted fourth-quarter
results, which included a previously announced gain of 520,000 net
subscribers, a company record.
More important, the Dallas-based carrier forecast a net gain of
1.4 million to 1.7 million net subscribers for 2009, which could
top 2008's net increase of 1.4 million.
After markets closed Thursday, Leap followed up with a rosy
outlook of its own. Although the company's fourth-quarter loss
tripled, Leap predicted a net increase of more than 1.5 million
customers in 2009, compared to a gain of 941,000 last year.
The success of Leap and MetroPCS no doubt stems in part from the
recession. Lots of customers, especially those who've lost their
jobs, are trying to cut expenses.
Plans at discount carriers, for instance, start at $30 and do
not require annual contracts. And unlimited local and long-distance
service can be obtained for as little as $40 a month - compared to
$100 at AT&T Inc. or Verizon Wireless.
That explains their growth.
"With unemployment rates continuing to rise, it is important for
people to have wireless service that's predictable, affordable and
flexible," MetroPCS Chief Executive Roger Linquist said in a
conference call Thursday.
"We believe the economy will continue to be difficult for the
foreseeable future and we believe we are perfectly positioned," he
added.
Ditto for San Diego-based Leap (LEAP), which added 385,000
customers in the fourth quarter. Between Leap and MetroPCS, they
now serve more than 9.2 million customers - and both carriers are
expanding.
"They've always been clear with their message: cheap voice,"
noted Jane Zweig, veteran wireless consultant who runs The Shosteck
Group.
The performance of these discount carriers is reflected in their
stocks. Shares of MetroPCS have risen 38% since a sharp plunge in
late November triggered by the financial panic. Leap has surged
almost 90% in the same span.
Moving into mainstream?
Their success has not gone unnoticed by competitors. Sprint
Nextel Corp.'s (US-S) Boost Mobile prepaid service recently
unveiled a $50 flat-rate monthly plan and T-Mobile USA Inc., the
nation's fourth largest mobile operator, is experimenting with its
own version.
Despite their growth, discount carriers are still dwarfed by the
largest carriers, which mainly sell so-called postpaid plans in
which subscribers sign annual contracts and pay at the end of each
month. AT&T (T) and Verizon serve more than 150 million
customers.
Unlike in Europe, prepaid and discount plans have never gained a
strong foothold in the U.S. The market is bigger than a niche but
doesn't qualify yet as a mainstream product, either.
Naturally, the bigger operators would prefer to keep it that
way. Postpaid customers are more profitable and the practice of
annual contracts assures AT&T and Verizon (VZ) of a certain
amount of revenue each month.
Both companies offer prepaid plans, but they do not market them
heavily. Instead, they've focused lately on upgrading customers to
more expensive data and Internet plans or smartphones such as the
Apple iPhone or new BlackBerrys.
So far, executives at AT&T and Verizon say they have not
seen much change in the behavior of their wireless customers.
"That's not something that we're going after strongly. And I
don't see it having any impact or at least a negligible impact to
date," said Verizon Chief Operating Officer Denny Strigl, referring
to the discount market, after first-quarter results were posted
last month.
The big wireless carriers certainly offer advantages. Unlike
MetroPCS and Leap, their networks cover the entire country and they
are generally faster, if not more reliable. It's doubtful that
business customers in particular would defect to low-cost
carriers.
Where AT&T and Verizon are more likely to get hurt is in
their old wireline businesses, which have been shedding customers
at an accelerating rate. In the fourth quarter, for example, each
reported double-digit declines, on a percentage basis, in primary
local phone connections.
More and more consumers are canceling landline service, partly
to save money and partly because they don't use them as much
anymore. It's a double whammy when they use a discount carrier as
their primary phone service.
Whether such trends persist remains to be seen. The economy will
eventually recover and most Americans are locked into contracts
that are expensive to break. For now, though, the discount carriers
are generating more business than ever before.
"Phone service will be a factor in people's economic planning,
especially if they lose their jobs," Zweig said.