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Telecommunication sales in the US are experiencing major changes in terms of consumer preferences, as mobile phone users shift towards prepaid services, weakening the importance of subscription-based businesses. Due to increasing post-crisis budgetary restraints, prepaid mobile services have become a desirable alternative for a lot of US consumers who are tired of taking out long-term contracts. Around three quarters of initial telecommunication service sales in the US came from contracted phones, while prepaid mobile services accounted for 19% of total sales as of 2013. Bundling prepaid telecommunication services and mobile phones together is already a popular sales strategy in the US; however, its growth potential is still high compared to penetration in Canada, where 30% of total sales come from prepaid services, and Australia (28%).
Over the last five years, a significant shift was noticeable in favour of prepaid services in the US. During 2008-2013, the share of total telecommunication sales held by phones offering prepaid services recorded a volume increase of 11 percentage points, compared to modest growth of 2-5 percentage points in other countries like Australia and the UK or even a decreasing share, as it was registered in most of Western Europe. Such a shift was a direct result of the economic recession, which encouraged US consumers to save money and meant long-term liabilities did not seem attractive anymore. The increase was also due to the improved positive attitude towards prepaid mobile services, which was invoked by appealing modern mobile phones, and talk, text and data usage proposals. Finally, prepaid mobile services experienced increased interest from younger members of the population (12-20-year-old), who are usually more price-sensitive users of such services; they thus tend to seek cheaper telecommunication solutions.
Source: Euromonitor International
The largest companies operating in the US telecommunications industry, such as AT&T, T-Mobile, Verizon and Sprint, are well aware of consumers’ emerging tendencies. T-Mobile, for instance, fiercely jumped on the prepaid bandwagon in 2013 and finalized the acquisition of MetroPCS, a US prepaid services provider. It also dumped its 2-year contracts, increasing its focus on the provision of contractless services. This allowed the company to nearly triple its revenue from prepaid-related services in 2013, resulting in it generating the largest revenue growth rate among the top industry players in the US. The emergence of smaller prepaid telecommunication service companies, such as TracFone, Virgin Mobile and other, has also been noticeable, increasing merger and acquisition possibilities in the industry.
More consumers are expected to drift towards prepaid mobile services in the US in the near future. As a result, prepaid mobile services’ volume CAGR is forecasted to outpace the overall telecommunications industry by three percentage points over 2013-2019. Due to a struggling US economy, resulting in constrained growth in purchasing power, non-obligatory consumption will become even more prevalent. Moreover, motivation to spend less and not be tied to contracts should create fiercer competition in the US telecommunications industry, as companies will be forced to compete in new categories, with prepaid mobile services being one of the most notable areas of interest at the moment.