The US prepaid market has had a rough go of it lately. In 2018, AT&T, Verizon, Sprint, T-Mobile US and US Cellular posted a total of 816,000 prepaid net additions, but in 2019 swung to a net loss of 134,000.

Prepaid figures have been in the red for the past two consecutive quarters, with the top five US operators (before Sprint and T-Mobile merged) shedding 213,000 in Q4 2019 and 279,000 in Q1 2020.

During AT&T’s Q4 2019 earnings call in January, COO John Stankey attributed the change in part to a narrowing of the gap between prepaid and post-paid offers, adding as the economy improved customers increasingly began to opt for post-paid services within their reach.

“Does that reverse itself if we see some economic headwinds and maybe people become a little bit more careful about what they do? That’s possible.”

Five months, a pandemic and more than 40 million US unemployment claims later, a shift back to prepaid doesn’t seem that far-fetched.

Phil Kendall, executive director for Strategy Analytics’ service provider group, told Mobile World Live (MWL) surveys it conducted into the impact of Covid-19 (coronavirus) found more post-paid subscribers “are at least seeking-out options to save costs on their mobile service plans” and thus might be attracted to offers from lower-cost brands including Cricket Wireless and Metro by T-Mobile.

Strategy Analytics director Susan Welsh de Grimaldo added data gathered by the company showed an increase in the churn potential: in May, 25 per cent of consumers said they were likely to churn to a less expensive plan over the next three months, compared with 20 per cent in April.

Short term
Jeff Moore, principal analyst at Wave7 Research, told MWL in the short term at least, sales will “without question” swing toward prepaid.

Looking at the current quarter, he said the trend will partly be a function of how many prepaid versus post-paid shops are open, noting fewer prepaid stores closed during the pandemic, and those which did reopened much more quickly than their post-paid counterparts.

As of early May, Moore said approximately 96 per cent of prepaid stores (including corporate-owned and independents) were open, compared with approximately 83 per cent of post-paid stores. The gap was even larger at the end of April, when 59 per cent of post-paid stores were open.

He noted “prepaid sales were actually up in April” year-on-year, while post-paid figures for the same month are “going to be devastatingly low” though an improvement is likely for May numbers. He added financial aid distributed to US residents had a lot to do with the bump, highlighting a “quite powerful” impact on the prepaid market.

While the long-term mix between prepaid and post-paid will depend on how quickly the economy recovers from the pandemic, Moore noted damaged credit scores from unemployment could become another factor pushing people toward prepaid in the short term.

Long term
Kendall said it’s hard to find a historical precedent to help predict how the pandemic recovery will play out, noting “you have to go back to 2008-2009 for the recession for that, and the market was very different 12 years ago”.

He explained at the time the post-paid segment was dominated by two-year contract tariffs, a set-up which in Europe prompted people to “cut costs by churning off onto SIM-only” plans when their agreements ended. But, he said the US already has that dynamic with a separation between handset and service plan costs.

While it makes sense lower-cost prepaid brands will grow, Kendall added “this is largely going to be a strategic decision” made by operators: “would they rather offer a discount/incentive to keep a subscriber on post-paid or actively migrate them to their prepaid brand rather than risk losing them to a competitor”?

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.