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Are Verizon’s Prepaid Net Additions a Sign of Progress?

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Verizon’s prepaid subscriber net additions in 4Q16

Verizon Communications (VZ) is looking to take a more aggressive stance in the prepaid market. While Verizon reported ~9,000 prepaid subscriber net losses in 4Q16, this was a significant improvement over its ~157,000 prepaid subscriber net losses in 4Q15. This improvement was mainly due to the impact of new pricing plans for prepaid subscribers.

Costs associated with prepaid customers are much lower than costs for postpaid subscribers, which makes the former more profitable. Acquisition costs, maintenance costs, and upfront costs are all lower for prepaid subscribers.

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Peer comparisons

Although Verizon has not historically focused on the prepaid segment, recent results illustrate that T-Mobile and AT&T are taking majority shares in the prepaid market. In calendar 4Q16, Sprint (S) lost ~501,000 net prepaid subscribers, while AT&T (T) gained ~406,000 net prepaid subscribers.

According to T-Mobile’s (TMUS) preliminary report on January 5, 2017, the company reported net prepaid additions of ~541,000 subscribers during the last quarter of 2016. This means that T-Mobile gained the maximum subscribers both in the postpaid and prepaid categories.

At the end of 4Q16, Verizon’s postpaid base was the largest among the top four US wireless players. However, Verizon had the smallest prepaid base among these players. T-Mobile’s prepaid subscriber base was largest at ~19.8 million. Sprint and AT&T followed with ~11.8 million and ~13.5 million prepaid subscribers, respectively. Verizon had ~5.4 million prepaid subscribers.

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