Wednesday, August 29, 2012

A Million Little Pieces: The Decline of Postpaid Cellular Service?

by G. Jack Urso

The following article was written for a competitive intelligence industry newsletter – March 23, 2010. 

Sprint Nextel has a million reasons to change their business model. Actually, about 1.2 million reasons the number of "postpaid" customers the company lost in 2009, with 504,000 bolting in the fourth quarter alone. This exodus cost Sprint approximately $1 billion for the 2009 fiscal year.

But wait, there's more!                            

Bernstein Research analyst Craig Moffett anticipates further postpaid contract losses for Sprint totaling 775,000 customers in the first quarter of 2010, according to a March 10, 2010 article the Kansas City Business Journal. 

By 2009, the total number of unlimited-calling prepaid contracts topped 10 million, and, according to analyst Scott Pope of First Analysis Securities, the market could grow to approximately 45 million to 60 million people, as reported by USA Today April 20, 2009. 

Meanwhile, as the postpaid cellular business continues to bleed customers, prepaid cellular companies are picking up the losses. While Sprint Nextel was losing one million postpaid contracts last year, Sprint's Boost Mobile service added one million new prepaid customers. A trend that was mirrored by T-Mobile USA, who also gained one million new prepaid customers in 2009, with 371,000 joining in the fourth quarter. As you may recall, that was the same fourth quarter Sprint lost 504,000 postpaid contracts. 

Sprint, seeing the writing on the wall, agreed on July 28, 2009, to purchase Virgin Mobile USA for $483 million. Not surprisingly, Virgin Mobile's next move is cut their losses and suspend their postpaid contract service altogether by May 25, 2010.  

Competitive Intelligence 

"There's no question the industry is getting more competitive," Sprint Chief Executive Dan Hesse said in the Wall Street Journal on February 10, 2010.   

In order to stay ahead of the curve, wireless telecommunications companies need to go beyond market research to provide analysis and a strategic plan to beat their competition and grow their own market. Many are turning to competitive intelligence providers for this insight. 

Though little-known outside the industries it serves, competitive intelligence (CI), provides companies with the research and analysis to know not just where a company is headed, but also what opportunities or obstacles will present themselves. 

"We take information gathered and help companies build a plan to improve their competitive position in the marketplace," reports Erik Glitman of Fletcher/CSI, a leader in the competitive intelligence industry. 

Paul Downing, head of Fletcher/CSI’s Wireless IT group noted, “Many of our wireless clients are starting to see prepaid plans emerging as the new consumer model.” 

Wireless telecommunications companies are approaching a crossroads. Consumers are increasingly abandoning the more lucrative postpaid contracts for the prepaid model. In an uncertain economy, the prepaid contract provides certainty. Analyzing not only what the customer is buying, but why and for how long is one example of the multi-layered, strategic approach the competitive intelligence advantage can give telecommunications companies at this crucial time. 

Postpaid contracts enjoyed growth for many years, but, as we know, all bubbles burst. When that bubble does burst will your company be left in a million pieces? 

Or will you be picking the pieces up? 

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