Prepaid is increasingly becoming popular in the United States. With all this economic uncertainty, people are looking to take control of their phone bill, and what better way to do that than to not lock yourself into a two year contract? TracFone is America’s largest prepaid operator, with over 20 million customers using their various sub-brands. You’ve probably heard of Straight Talk, which offers “unlimited” everything for $45 per month. We say “unlimited” because after you consumer 2 GB of data you get a very angry phone call informing you that you’re going to be disconnected. Another prepaid operator is Simple Mobile. They rely on T-Mobile’s network and have roughly 1 million customers. Yesterday América Móvil, the company that owns TracFone, announced that they’re going to purchase Simple Mobile for an undisclosed sum of money. Why? Because T-Mobile is in the process of refarming some of their 1900 MHz spectrum to support HSPA+, which means T-Mobile customers will soon be able to get 3G connectivity on their iPhones.
What does this news mean for you? Probably nothing, it’s just the industry consolidating. The larger the TracFone brand becomes, the more recognition the prepaid business model will get, and that’s not exactly a bad thing. How does TracFone sell service so cheap compared to the companies who actually build out networks? They have low overhead. Tech support is virtually non-existent, they rely on convenience stores and gas stations to sell their SIM cards, they don’t run huge advertising campaigns, and they don’t subsidize devices.
The more important question is why don’t today’s mega operators function more like the smaller prepaid guys? At the end of the day, an operator is just a pipe, and if they can offer service for 50% off simply by spending less on stores, ads, and subsidies, then maybe they should just admit that they need to change.