T-Mobile announced on Wednesday that it had passed Sprint (News - Alert) as the top provider of prepaid mobile phone service in the U.S. It is part of a larger trend of consumers shifting away from contract plans to plans that allow them to purchase fixed amounts of data and voice service, a trend that may have an adverse effect on Apple.
According to a T-Mobile press release, it has 15.64 million prepaid customers, slightly ahead of Sprint, which has 15.19 million. AT&T (News - Alert) has the third spot with 11.34 million prepaid customers; Verizon is a distant fourth place with 6.04 million.
The prepaid wireless market has changed significantly the past few years. It is no longer limited to low-end feature phones as many plans support smartphones. Although many prepaid consumers have income or credit challenges, a growing number are attracted to the cost savings over conventional plans and the flexibility of not being locked into a contract. Prepaid plans are more flexible as users can choose from voice-only plans with a limited number of minutes to unlimited plans that support text and data.
So should Apple feel threatened by the growing number of prepaid users? After all, its phones can be used with prepaid plans. Walmart sells iPhones that use its Straight Talk prepaid wireless service.
According to Troy Wolverton of the San Jose Mercury News, it’s because Apple (News - Alert) does not offer inexpensive versions of the iPhone: “With prepaid service plans, consumers typically have to pay up front the full cost of their phones -- or connect a device they already own to the service. Because of that, inexpensive phones tend to sell best for prepaid providers.”
Contract plans typically offer smartphones at a reduced or subsidized price. The provider knows that it will more than make up for that lost upfront money in the two years of monthly bills it will collect.
In all likelihood, neither T-Mobile’s (News - Alert) recent success in the prepaid market nor the whole prepaid market should have much effect on Apple in the U.S. Apple targets a higher-end less price sensitive market than the prepaid wireless user. The relatively small part of the market who wants to use an iPhone (News - Alert) without a contract plan does have options in plans like Straight Talk.
Apple is most likely to struggle in international markets like China and India, where inexpensive prepaid (and unsubsidized) phones are more popular. With many reports suggesting that the iPhone boom is over for Apple, the company may be forced to change its ways. This would mean being open to creating a low-end phone that would appeal more to prepaid users in Asia.