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Why Verizon Believes Postpaid Subscribers Are Moving to Prepaid

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Verizon’s prepaid net additions in 3Q16

In the previous part of this series, we discussed Verizon’s (VZ) postpaid phone subscriber net additions in 3Q16. Costs associated with prepaid customers are much lower than the costs for postpaid subscribers, which makes them more profitable. Acquisition costs, maintenance costs, and upfront costs are all lower for prepaid subscribers.

In 3Q16, Verizon added 83,000 net prepaid subscribers, which is a significant improvement sequentially as well as compared to the prior year. This increase was mainly due to the impact of new pricing plans for prepaid subscribers, which led to the migration of ~40,000 postpaid users, primarily 3G or feature phone users to prepaid plans. According to a PC Magazine report from November 7, 2016, “Verizon on Monday introduced two new 5GB and 10GB prepaid plans for smartphones that go into effect Nov. 13. The 5GB plan, priced at $50, offers unlimited talk and text in the US, carryover data with a one-time payment, mobile hotspot capabilities, and international messaging to more than 200 countries. For $70, the 10GB plan includes all those features plus unlimited calling to Mexico and Canada.”

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Verizon’s peer comparison of prepaid net additions in 3Q16

In 3Q16, Sprint (S) lost 427,000 net prepaid subscribers. However, AT&T (T) and T-Mobile (TMUS) gained 304,000 and 684,000 net prepaid subscribers, respectively, which means that T-Mobile gained the maximum subscribers both in the postpaid and prepaid categories.

At the end of 3Q16, Verizon’s postpaid base was the largest among the top four US wireless players. However, the carrier had the smallest prepaid base among these players. T-Mobile’s prepaid subscriber base was the largest with ~19.3 million. Sprint and AT&T followed with ~13.5 million and ~13 million prepaid subscribers, respectively. Verizon had ~5.5 million prepaid subscribers.

In the next article of this series, we’ll discuss Verizon’s postpaid churn rate.

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