As competition stiffens in the pay-as-you-go wireless market, America Movil's TracFone unit seems a likely survivor of an expected shakeout. TracFone's success continues to come in the low end of the wireless market as two other prepaid carriers, MetroPCS Communications (PCS) and Leap Wireless (LEAP), target higher-spending smartphone users. Leap recently began selling Apple's (AAPL) iPhone. And MetroPCS plans an aggressive push into faster broadband 4G LTE data services this year.
TracFone's customers, many of whom buy prepaid cards and phones at Wal-Mart Stores(WMT) and websites like PREPAIDONLINE.COM, gas stations and other retailers, aren't big spenders on Internet access, email and data products. They primarily use cellphones to make calls.TracFone has carved out a niche catering to "voice-only" customers, says Macquarie Capital analyst Kevin Smithen. TracFone's customers on average spend only $16 a month on wireless services. MetroPCS and Leap subscribers spend 2.5 times more, roughly $40 per month. But with 21.34 million U.S. subscribers, TracFone has quietly amassed the most prepaid customers of any carrier in the U.S. Besides prepaid servicers MetroPCS and Leap, it leads the nation's big four mobile phone companies — Verizon Wireless, AT&T (T),Sprint Nextel (S) and T-Mobile USA.
"I think TracFone will continue to target voice-only customers at the bottom end of the market," Smithen said. He says the company can get to 25 million customers without having to cut prices."But I'm not sure who might take notice except Leap and PCS," he said, since most other carriers focus on bigger spenders. MetroPCS reported a net loss of 186,000 customers in Q2. On Monday, Leap reported 289,000 net customer losses and said it would enhance its higher-end services.
TracFone, however, added 106,000 U.S. subscribers in the three months ended June 30. That's in addition to the 1 million-plus subscribers it got from its May acquisition of Simple Mobile. TracFone sells wireless plans through the Straight Talk and Net10 brands. Walter Piecyk, analyst at BTIG Research, says the Simple Mobile deal gives TracFone a new marketing weapon, "SIM-only" service. Simple Mobile doesn't sell phones. It sells prepaid SIM cards that are plugged into phones. Customers take out the SIM cards of AT&T or another service providers and insert Simple Mobile's. SIM-only service has caught on in Europe, but not in the U.S. Still, Piecyk in a report calls TracFone's Simple Mobile deal "likely the first step in a broadening strategy.
Tracfone Wireless is acquiring Simple Mobile in a deal that could help it kick off a SIM-only service to the U.S. market.
Simple Mobile has more than 1 million customers and runs on a SIM-only model - it doesn't sell phones, but instead sells prepaid SIM cards that can be used to activate about 200 different GSM phones including the iPhone. It claims to be T-Mobile USA's largest MVNO. Tracfone, T-Mobile, Simple Mobile and many other carrier refills can be purchased online at www.prepaidonline.com.
America Movil, Tracfone's Mexico-based parent company, issued few details about the transaction in its announcement Thursday. It did not disclose how much it is paying for Simple Mobile, but said it expected the deal to close this quarter.
The acquisition is "likely the first step in a broadening strategy," BTIG Research Analyst Walter Piecyk said in a research note. "The move comes at an opportune time as unlimited pre-paid operators Leap Wireless and MetroPCS are struggling with the rapidly rising costs of smartphone subsidies and post-paid operators are cracking down on their previously liberal upgrade policies."
Piecyk pointed out that other CDMA prepaid providers like Cricket, MetroPCS, Boost Mobile and Virgin Mobile USA are precluded from competing with their own SIM-only service since CDMA phones doesn't use SIM cards.
H20 Wireless, an AT&T MVNO, also offers SIM-only service but its plans are less competitive than Simple Mobile's.
Tracone, a U.S. subsidiary of Mexico's America Movil, claims to be the largest prepaid provider in the country with 19.8 million subscribers. It sells prepaid wireless debit cards and low-cost handsets at gas stations, big box stores, pharmacies and other retailers.
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