Prepaid Phones Surge in Bad Economy

Boost Broadens Target; T-Mobile, Leap, Others Dabble in Free Minutes

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SAN FRANCISCO ( -- The prepay-wireless business, long dogged by an image problem related to its credit-challenged and frugal subscriber base, is looking a lot better.

Once the province of those with small budgets or shaky credit history, prepay offerings are getting a second look from consumers as their pricing becomes increasingly competitive amid a greater choice of plans and handsets.
Neil Lindsay, Boost's VP-marketing
Neil Lindsay, Boost's VP-marketing

The country's No. 4 wireless carrier, T-Mobile, last week said it added fewer postpaid-contract customers in the third quarter compared with the second, but its prepay business gained 377,000 customers, up 143,000 from the second quarter.

Estimates for the U.S. prepay base range from about 10% to 20%. Prepay customers generate lower revenue for carriers than contract customers, with revenue per user averaging around the low $20s to about $40, compared with the low $50s for postpaid. But prepay is expected to grow 14% next year compared with postpay's 4%, according to third-party research provided by Boost Mobile, the prepay unit under Sprint.

Greater care by carriers to manage their credit risk in the current environment also should help prepay, which requires no contracts or credit checks, analysts said.

Fear of commitment
Boost recently launched a campaign to hammer home that its plans can help people stretch their dollars. Marking a shift from its positioning as a lifestyle brand targeting 14- to 25-year-olds, Boost is now aiming its message at a broader demographic that includes 18- to 35-year-olds, said Neil Lindsay, Boost's VP-marketing. Boost's agency is 180 LA.

"In this environment, 'no commitment' has stronger potential to resonate," Mr. Lindsay said.

Meanwhile, consumers are trying to squeeze more out of their plans. Virgin Mobile said there was more activity in its Sugar Mama program, which lets subscribers earn free minutes in exchange for their time viewing ads. No-contract plans offering some type of free minutes from the likes of T-Mobile, Boost, MetroPCS and Leap Wireless are gaining ground.

Verizon recently added an offering that takes a page from prepay: a no-contract, month-to-month plan that lets subscribers come and go as they please.

"Two years ago, there was no hybrid," said Ranjan Mishra, a senior partner at ESS Analysis, which consults for telecommunications companies. "Now the wireless prepay is going through an evolution."
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