$50 is the new $100 – does it matter?

Following Virgin Mobile’s announcement last week that it would drop its $80 unlimited plan down to $50 per month, all the major prepaid carriers now offer plans at this price point. Boost Mobile was the first to make its move at the beginning of the year, and at the time, Neil Lindsay, Boost’s vice president of marketing, maintained that it wasn’t looking to start a price war – but with increasing pressure on the wireless industry, that appears to be exactly what happened.

“When any large carrier puts an easy-to-understand and aggressively priced unlimited plan into the market, they risk putting the entire sector in a permanent ‘critical state,’” wrote Bernstein Research senior analyst Craig Moffett in a research note. “Thereafter, any shock to the fragile equilibrium – be it from a supply chain disruption, weak handset selection, or simply bad advertising – leaves but one lever to pull. Unlimited plans take a big step in the direction of commoditization and risk making price the sole axis of competition.”

While the price is the same, each plan takes its own view of unlimited. Virgin’s only includes voice compared to Boost’s unlimited plan that includes Web access, SMS and telecom tax. Meanwhile, T-Mobile is only trialing its $50 plan with existing, long-term customers; although Moffett pointed it out it can’t keep up this strategy for long. Still, any way you look at it, the prepaid space, including growing carriers MetroPCS and Leap Wireless, has clearly seen the biggest uptick in competition and aggressive promotion in the past year.

In a press release last week, Boost took stabs at Virgin Mobile, which ironically shares Sprint’s network to wholesale minutes. Boost pointed out that Virgin’s plan can actually cost consumers closer to $72 per month when text messaging, Web and telecom taxes are factored in. The competition may be hurting each of these players, forcing Virgin to drop its prices in the first place, but it has been good for their parent company.

Moffett poised the question, when $50 is the new $100 (the unlimited plan price resulting from last year’s price war), doesn’t anyone gain? As the first-mover, Sprint may be the only carrier that stands to benefit right now. The third-largest carrier should have faster prepaid subscriber growth in the first quarter, according to Moffett, but the growth could ultimately hurt Sprint’s already struggling postpaid business. Moffett predicted Sprint will gain 300,000 prepaid subs in the first quarter, adjusted from his earlier forecast of a loss of 275,000 subs. At the same time, using its resources on prepaid will result in a loss of 1.2 million postpaid subs, he said, adjusting his original prediction of a 900,000 sub loss. Sprint, which been working to improve its image with a new marketing campaign, will gain 300,000 direct subs overall this year – an improvement, but not likely enough to spur a turnaround.

“Shrinking more slowly will not reverse the de-leveraging of Sprint’s fixed cost infrastructure,” Moffett said. “Nothing less than actual subscriber gains will satisfy, and we are still cautious…We believe expectations remain too high for wireless overall, and remain cautious with regard to the big telcos as well.”

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