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.

3 comments:

News Watcher said...

The price cuts may be putting a strain on the industry, but for heaven's sake, couldn't us cell phone users do with a break? I think we've been paying far too much for cell phone service - more than a lot of other countries. If MetroPCS can drop the cost of unlimited prepaid to $40, they can afford to do that I would think. Personally, I don't need unlimited, so I opted for Net10, which believe it or not, has fantastic reception and has the added bonus of international calling (100 destinations now I think). There hasn't been much talk about providers like Net10, but I would guess they must be a force to contend with seeing that so many people are cutting back on expenses.

JEd said...

There is a lot of hoohah about competition in the unlimited prepaid sector at the moment. I read a recent study which made the claim that most Americans use less than 200 minutes a month. What does that mean for all these unlimited plans?
Are we paying for more than we need? I know that I rarely spend more than $30 every two months on my NET10 phone. Fifteen bucks a month is a lot less than 40! That cash goes right back into my household. That is why I love NET10. None of these fancy big plans with bells and whistles and all that. Just real easy to use, always 10c a minute, good value.

Ann said...

Well, I'm always on my cell so unlimited plan is definitely ideal. The MetroPCS price cut is good news but I actually just made the switch to StraightTalk. For $45, I get unlimited minutes and texting and it operates on Verizon network which has a much better coverage than Metro.