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Verizon Communications is Upping Its Prepaid Game

By Chris Neiger - Feb 8, 2016 at 2:45PM

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To keep up with increasing prepaid competition, the nation's largest carrier is giving away more data for the same price.


Source: Verizon.

Most of the fighting between the nation's four carriers is for the loyalty of postpaid subscribers. Those customers tend to bring in more revenue for the carriers because they sign up for more expensive plans, and are less likely to jump ship to another carrier. But the wireless prepaid market has become more competitive lately, which has pushed Verizon Communications (VZ 0.83%) and T-Mobile (TMUS 1.98%) to improve their prepaid services over the past few weeks. 

T-Mobile recently increased the data allotments for its prepaid plans, with some plans receiving more than double the amount of previous data. The carrier kept prices exactly the same as before, though. 

A few days later, Verizon changed its prepaid plans, too. The carrier increased the amount of data in its lowest prepaid tier, from 1GB to 2GB, while keeping the price the same. And customers can get an additional free 1GB each month if they sign up for automatic payments. 

Here's how Verizon and T-Mobile's new plans compare with AT&T (T 1.27%) and Sprint's (S):

 

Voice

Text 

4G LTE Data

Cost

Verizon

Unlimited

Unlimited

2GB / 5GB
(additional 1GB with auto pay)

$45 / $60

T-Mobile

Unlimited

Unlimited

3GB  / 5GB / 10 GB

$40 / $50 / $60

AT&T

Unlimited

Unlimited

2 GB / 5GB 

$45 / $60
($5 less with auto pay)

Sprint

Unlimited

Unlimited

1GB / 3GB / 6GB

$35 / $45 / $55

Source: Verizon, T-Mobile, AT&T, and Sprint.

Customers can also add additional data and other features for an extra fee. 

The recent changes in T-Mobile and Verizon's plans point to a larger prepaid trend among customers. Strategy Analytics estimates that wireless prepaid services revenue will grow by 5.7% over the next four years, compared to data revenue growth of 3.3%.

That may not sound like a lot of growth, but it's already helping to prop up some carriers. AT&T has relied on its prepaid subscriber growth during the past two quarters -- which has been its highest in eight years -- to offset its slow postpaid customer growth. AT&T added 469,000 prepaid customers in Q4 2015 compared to just 174,000 postpaid customers.

AT&T likely isn't all that happy with having much more prepaid customer growth than postpaid; but without the carrier's wireless segment, it would have suffered two very terrible quarters.

Customer retention is key
As the prepaid market has heated up, Verizon and T-Mobile are trying to ensure that their current customers won't leave for a better price. The churn rate -- the rate at which subscribers leave a carrier -- is typically a few percentage points higher than it is for postpaid customers. 

This is even more important for Verizon right now, as T-Mobile's subscribers have skyrocketed. The carrier has added more than 1 million customers -- both prepaid and postpaid -- each quarter for the past 11 quarters. And the carrier has added 8 million net customers for two years straight. 

At 63 million customers, T-Mobile still falls far short of Verizon's 137 million subscribers. But Verizon knows that, to keep T-Mobile's growth at bay, it needs to hang onto prepaid customers.

The challenge for all of the carriers is to ensure that they don't focus too much on catering to prepaid customers, and forget about building out their more lucrative postpaid subscribers. That seems to be a problem for AT&T right now, while the other carriers appear to be balancing growth in both customer segments relatively well.

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$18.27 (1.27%) $0.23
Sprint Corporation Stock Quote
Sprint Corporation
S
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$146.46 (1.98%) $2.85
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$45.15 (0.83%) $0.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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