`Golden opportunity' with prepaid phones

AT&T expects growth to be strong

March 29, 2007|By David Ho .. | David Ho ..,Cox News Service

ORLANDO, Fla. -- The coming debut of the pricey Apple iPhone loomed over the wireless industry's annual show, but executives from its carrier, AT&T Inc., were smiling about a different kind of handset - one that will cost a mere $20.

The Motorola C139 is part of the Go Phone line of prepaid cellular handsets, a market that is a "golden opportunity," said Glenn Lurie, president of national distribution for AT&T's Atlanta-based mobile division, which is switching its name from Cingular.

"We believe a big and very strong part of our growth going forward is going to be around our prepaid products," Lurie said in an interview. He said the Motorola phone, sold at major retailers such as Wal-Mart and RadioShack, is "a huge device for us. It's making a lot of money."

Prepaid phones, which typically have no contracts, allow users to make calls until an account is exhausted. Some carriers offer hybrid plans with pay-as-you-go monthly fees but no long-term commitment.

Once seen as the only mobile phone option for people without acceptable credit, prepaid phones now attract a wider audience. The phones are especially popular with teens, parents getting phones with limited minutes for kids, and elderly users who do not want contracts.

The number of prepaid phone subscribers more than doubled from 12 million in 2002 to nearly 30 million last year, according to the Telecommunications Industry Association. That number is expected to surpass 35 million this year, creating a $16 billion market.

AT&T had about 746,000 new Go Phone accounts in the last three months of 2006, the company said. As a wholesaler providing its network to other prepaid phone companies such as TracFone Wireless Inc., AT&T also handled another 750,000 subscribers, most of them prepaid.

AT&T "really moved it beyond low-end phones nobody wanted and credit-challenged customers," said Jupiter Research analyst Julie Ask. She said many of the special features found in more common "postpay" subscription plans and phones are now available for prepaid users.

"Before it was very limited," she said. "They fixed all that."

TracFone, owned by America Movil, Latin America's largest wireless carrier, is the top U.S. prepaid phone provider with about 34 percent of the market, according to J.D. Power and Associates. However, TracPhone uses the networks of large U.S. carriers to deliver service.

Virgin Mobile, which also piggybacks on other networks, has about 18 percent of the market. Boost Mobile LLC, owned by Sprint Nextel Corp., targets young phone users and has 11 percent.

AT&T comes in fourth with 10 percent market share, tied with T-Mobile and just ahead of Verizon Wireless, which has 8 percent.

Verizon Wireless, with its INpulse and EasyPay prepaid products, sees its part of the market as "growing with limited marketing effort," thanks to the phones appearing in places such as Wal-Mart and Target stores, spokeswoman Brenda Boyd Raney said.

She said prepaid phones are a viable alternative to other services, but "we are a postpay company."

Lurie of AT&T said traditional phone subscriptions and contracts remain the core part of his company's wireless business, and that market will keep growing as more feature-packed, smarter phones appear. But, he said, customers also want prepaid options.

"Prepaid is playing huge in getting us from 80 percent to 100 percent penetration in this country," Lurie said. "Wireless is something everybody wants, that everybody is involved with from the person who is willing to go out and buy the latest, greatest device that does the latest, greatest things to the person who needs it for safety to put in their glove box."

Lurie also handled the deal behind the iPhone, which is due out in June. While most questions he gets lately are about that product expected to cost $500 or more, he said prepaid customers "deserve to have cool phones, too."

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