T MOBILE US INC (TMUS), Verizon Communications Inc. (VZ): Will Investing in Prepaid Phones Pay Off?

Sprint Nextel Corporation (NYSE:S)

T MOBILE US INC (NYSE:TMUS) is even more heavily invested in prepaid than Sprint Nextel Corporation (NYSE:S) is. As mentioned above, it has recently switched over to an entirely prepaid system. With the merger of metroPCS and T MOBILE US INC (NYSE:TMUS), the company formed the third-largest prepaid provider by number of subscribers with 14.6 million, and also the largest prepaid provider by revenue with $1.6 billion (T-Mobile). Furthermore, the company recently managed to gain enough spectrum to compete with the other major players in a more even fashion. If it manages the expansion of its network well, T MOBILE US INC (NYSE:TMUS) is well poised for substantial growth.

Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) are much further behind in the game. Verizon Communications Inc. (NYSE:VZ) just recently launched its prepaid service, and it is far more expensive than many of the other carriers. For example, Verizon Communications Inc. (NYSE:VZ)’s cheapest smartphone plan is $60 per month, while Virgin Mobile’s is $30. Furthermore, the company only has 5.3 million subscribers, about 1/3 of user base of Sprint Nextel Corporation (NYSE:S). AT&T Inc. (NYSE:T) is in a similar position. Its cheapest smartphone plan is $65, and it currently has about 7.5 million subscribers (T-Mobile). Thus, neither AT&T Inc. (NYSE:T) nor Verizon Communications Inc. (NYSE:VZ) has first-mover advantage in any sense of the word, and neither are competing strongly here. As a result, most new prepaid users will choose other companies.

Conclusion

Both Sprint Nextel Corporation (NYSE:S) and T MOBILE US INC (NYSE:TMUS) have a great deal of catching up to do if they want to complete on an equal level with Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T). However, they are in a stronger position with regard to the fast-growing prepaid segment, and so will likely be able to improve their standings vis-a-vis those companies in the upcoming years.

Paul Sangrey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Paul is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Will Investing in Prepaid Phones Pay Off? originally appeared on Fool.com is written by Paul Sangrey.

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