Friday, July 31, 2009

MetroPCS latest perpetrator and victim of commoditization

On Thursday, MetroPCS cut its price for unlimited everything to $45, vs. $100-130/month for the major carriers. Its price for voice text and web is only $40.

Also on Thursday, shares of MetroPCS fell 11% while rival Leap Wireless (aka Cricket) fell 8%, in the face of increased competition from Sprint’s Boost Mobile and TracFone.

The big news this week is that Sprint is buying out the partners in its largest MVNO, Virgin Mobile. Is this good for MetroPCS and Leap?

Quoting one set of analysts, the WSJ M&A blog said yes:
UBS said:
“Transaction helps rationalize US unlimited prepaid market. This transaction helps rationalize the unlimited prepaid market in the US, which had grown to 5 players with Tracfone’s Straight Talk plan. We believe this is good news for MetroPCS and Leap Wireless, the two pure pre-paid carriers in the space.”
Quoting analysts from Current Analysis, FierceWireless said the transaction would put pressure on MetroPCS & Leap:
Interestingly, the analysts also point out that Sprint's acquisition of Virgin should hasten a merger between Leap and MetroPCS.
Whatever pride or bad blood has blocked the merger, such a merger is long overdue. The two have a roaming alliance and perhaps have buried the hatchet enough to form the nation’s 5th largest carrier (now that Alltel is gone).

The price wars in prepaid are only going to get more brutal, as MetroPCS and Leap both fuel the wars and respond to efforts by TracFone, Boost (Sprint), Virgin (Sprint) and GoPhone (ATT). Combining the two wouldn’t guarantee success, but it would expand and smooth their footprint while nearly doubling their respective scale for buying and other efficiencies.