Prepaid Mobile Customers Shifting to Postpaid

The U.S. mobile market, unlike most others globally, is based mostly on postpaid accounts rather than prepaid.

In fact, prepaid growth had been substantial from 2000 to 2010, though adoption has leveled off since then.

Of course, prepaid is more important for T-Mobile US, AT&T and Sprint than it is for Verizon. Verizon Wireless has only around five percent of its total connections base on prepaid deals, while prepaid accounts for more than 30 percent of connections at AT&T, Sprint and T-Mobile US, according to the GSMA.

The four biggest mobile service providers appear set to add a net 4.3 million postpaid phone subscribers in 2014, according to UBS estimates, compared to just 737,000 in 2013.

Conversely, the U.S. mobile industry saw a big drop in prepaid subscriber additions in 2013 to 1.2 million from 4.5 million the previous year, for example.

The industry should add only 959,000 prepaid subscribers in 2014, UBS says. There were some 74 million prepaid subscribers in the U.S. mobile market, compared to 228 million postpaid subscribers.

Fran Shammo, Verizon Communications CFO, confirmed the trend during the Verizon Communications third quarter of 2014 earnings call.

Noting that during the first nine months of 2014 Verizon prepaid net adds were only 5000 compared with 274,000 in 2013, Shammo added that “we believe that price sensitive prepaid customers are moving to the postpaid market.”

Initially left unsaid was a judgment about whether that means Verizon prepaid customers are moving up to become Verizon postpaid customers, or whether potential prepaid customers are choosing to become postpaid customers on other networks.

Shammo answered that question during the question-and-answer portion of the call. “We see a shift from prepaid to postpaid—not necessarily within our base—because of high quality and strict requirements we have from a credit perspective,” Shammo said.

The latter seems likely, given Verizon’s positioning in the U.S. mobile market. “Growth in wireless revenue and profitability continues to be driven by our high quality retail postpaid customer base,” Shammo said.

In other words, Verizon will continue to focus on the “premium provider” segment of the market.