MetroPCS, the provider of flat-rate, all-you-can-eat (talk, text, or picture message) mobile plans, is absolutely killing it in this market.
MetroPCS is a company I absolutely love, and have followed for a few years because of a relationship a portfolio company. They came from humble beginnings in Dallas, went public, expanded westward to LA, and is now rolling out aggressively in New York, Boston, and Philadelphia. The company has over 6M subscribers in 14 of the top 25 US markets, and with packages ranging from $30 to $50 per month, it’s not hard to see why.
As AT&T and Verizon have concentrated on driving ARPU (average revenue per user) with faster networks and feature-rich, data-enabled devices, MetroPCS is keeping things cheap and dead simple for consumers who just want to talk and text. Perhaps more importantly, however, is the fact that MetroPCS subscribers pay month to month with no contract.
I think this aspect of their plans will continue to be crucial to their success in a down economy. Psychologically speaking, consumers today are wracked with uncertainty, increasingly averse to long-term financial commitments, and delaying all major purchase decisions. This is especially true in the middle to lower ends of the market, where unemployment is highest and labor needs are more cyclical. MetroPCS offers a sensible alternative to prepaid phones and an attractive replacement for Verizon and AT&T when contracts are up. And now that the company is beginning to offer dirt cheap ($50) Blackberry plans, they are poised to capture share in the form of middle market consumers upgrading to data enabled devices.
Of course, the downside to this strategy is high churn (5% of subscribers are canceling each month), though I’d argue that these are customers that are likely to come back when they can, without posing a credit risk to MetroPCS.
I believe that the peace of mind MetroPCS is offering will continue to drive growth in both new and existing markets, and that the other major providers are going to be forced to respond. AT&T, for its part, is offering comparatively expensive, $3/day service without annual contracts. I wouldn’t be surprised to see contract-based service companies (telecom, cable, etc.) offer opt-out options for subscribers that lose their jobs, similar to what some car companies are doing. And I think it makes sense for companies in all industries to evaluate how they can appeal to their target customers’ fragile psyches in this environment.