Is Wal-Mart Your New Cellmate?

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The world's largest retailer wants a chunk of the wireless-carrier game. So on Sunday, Wal-Mart (NYSE: WMT) is introducing low-end cell-phone service nationwide.

Powered through America Movil's (AMEX: AMX) TracFone Wireless, the prepaid plans start at $30 a month and max out at an industry-awakening $45 a month for unlimited minutes, text messages, and data.

This is naturally going to be a shot to the gut of giants AT&T (NYSE: T), Sprint Nextel (NYSE: S), and Verizon Wireless, who all wield costly usage plans and anchor customers to two-year commitments. However, at least the big boys have exclusivity deals with the hottest smartphone models. Since Wal-Mart's Smart Talk service is not tied to a long-term contract, it's not going to subsidize the fancy smartphones. It's offering three entry-level handsets, and customers have to pay the full $40 to $100 price.

The players quivering now are the cheaper providers. Wal-Mart's gunning for MetroPCS (NYSE: PCS), Leap Wireless' (Nasdaq: LEAP) Cricket, and Virgin Mobile (NYSE: VM).

Don't start digging any graves, though. Wal-Mart doesn't always get what it wants: Its forays into DVD rentals, social networking, and digital downloads have been embarrassing flops.

Wireless service may be another fiasco, but I wouldn't bet against Wal-Mart. The discounter attracts the perfect audience to pitch low-end yet full-featured prepaid wireless service. Its presence will keep industry prices in check, and that's where shareholders in all of the wireless carriers need to worry.

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Longtime Fool contributor Rick Munarriz wonders whether you can buy Straight Talk through an express lane. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Comments from our Foolish Readers

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  • Report this Comment On October 15, 2009, at 4:06 PM, Aryabod wrote:

    The growth is in Data and that is not where Walmart is going. I do believe Pre-Paid plans will grow and eventually you will be able to purchase your own phone and choose the carrier of choice. What people don't realize is that these niche players have limited coverage, which will not suffice for most of us, however if you are on a budget, why not. There unlimited plans only work where they have coverage. At least Boost Mobile has nationwide coverage and Push to Talk, which is not available on most of these plans.

    On the Post Paid side the carriers that will get hurt the most are the ones that are gouging the consumer the most, ATT and Verizon. When compared to Sprint they are charging double Sprint's monthly contracted service for relatively the same service. That means a gouging premium of $80/month, which over two years amounts to $1,920. Now I ask you is an iPhone worth an extra $1,920? It might have been even a year ago, but with the current selection of phones from HTC's Hero, Samsung's Moment and the new iteration of Palms, Pre and Pixi, the answer is absolutely not.

    As the consumer becomes privy to these differences and a better selection of phones become available both ATT and Verizon will be compelled to lower their prices. Sprint has less room to lower prices only because they have already done so.

  • Report this Comment On October 28, 2009, at 4:34 AM, HarvyWall wrote:

    You are quite wrong Aryabod, Straight Talk runs on Verizon's network nationwide and the the coverage is not limited, in fact Verizon has better coverage than Boost (Sprint) which is a well known fact and Straight Talk's unlimited is cheaper than Boost's. I bought the unlimited Straight Talk package and the data is also unlimited so I think you really don't know what you are talking about. I am very happy with my new Straight Talk phone, it does everything I need it to do.

  • Report this Comment On October 31, 2009, at 1:51 PM, CheapChica wrote:

    The growth of prepaid is a function of two things: the economy, naturally, and the growing unhappiness of the shenanigans of the postpaid providers.

    To many of us, the best thing about Straight Talk is its simplicity. I am so tired of wading through funky phone bills with mysterious charges and fees.

    I really appreciate the savings, of course, but not having those awful and undecipherable bills has been a great stress-reducer.

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